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Brazil's Chemical Trade Deficit: A Challenge for Domestic Industry
3 months ago
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Brazil's Chemical Trade Deficit: A Challenge for Domestic Industry

Summary
Brazil's chemicals trade deficit is set to hit $47B as imports outpace exports, impacting domestic production. Abiquim cites predatory-level imports affecting competitiveness. Government measures include increased import tariffs and tax breaks.

Brazil‘s chemicals trade deficit is projected to reach $47 billion this year, marking a significant imbalance as imports continue to surpass exports, according to the country’s chemicals trade group, Abiquim. The trade deficit, evident in the January-October period, reflects challenges faced by Brazil‘s domestic chemicals production, which has hit a 30-year low. Abundant and inexpensive imports, particularly from Asia, are covering the rising demand, impacting capacity utilization, which averaged 65% during this period.

The Trade Deficit Dynamics

In the first ten months of the year, Brazil witnessed a chemicals trade deficit of $40 billion, with imports totaling $52 billion and exports only reaching $12.1 billion. This deficit is noteworthy in the context of Brazil‘s chemicals industry posting sales of $187 billion in 2022. The sector, which directly and indirectly employs 2 million people, contributes 12% to Brazil’s industrial GDP. However, the trade deficit is a cause for concern, especially as Brazil grapples with the lowest domestic chemical production in three decades.

Impact On Domestic Production

Abiquim attributes the decline in domestic production to the surge in imports, which has reached predatory levels. Notably, key chemical segments, including plasticizers, thermoplastic resins, petrochemical products, and intermediates for detergents, have seen substantial increases in imports, often at prices 22.9% lower year on year. This trend threatens the competitiveness of the national industry and endangers the production of strategic products for various value-adding chains.

Government Measures And Industry Response

The Brazilian Government has taken steps to address these challenges. Import tariffs for certain polymers and rubbers were increased in March, aiming to protect domestic producers. Additionally, the reinstatement of the tax break, the Special Regime for the Chemical Industry (REIQ), is seen as a positive move to enhance competitiveness. However, Abiquim emphasizes that these measures should not favor the chemical sector at the expense of others. The high turnover tax, elevated raw material costs, and logistical challenges in Brazil have created a significant disparity with international competitors, requiring a comprehensive approach.

OFB’s Insight

Brazil‘s chemicals industry faces a complex scenario characterized by a widening trade deficit, reduced domestic production, and the influx of cheaper imports. While government measures aim to safeguard domestic producers, the industry’s challenges extend beyond trade policies. Addressing the overarching issues of taxation, raw material costs, and logistics is crucial for restoring competitiveness and ensuring a sustainable future for Brazil‘s chemicals sector within the global landscape.

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