Brazils economic improvement was remarkable over the past decade, following many years of slow growth. On average, the Brazilian gross output of goods and services increased at an annual average of 3.6% from 2000 to 2010, despite the global financial crisis. From the long-term perspective, this rate means a great achievement from years past. During the 1980s, Brazils gross domestic production (GDP) expanded at 1.6%/yr, while, in the 1990s, it accelerated to a mere 2.5%/yr, as shown in Fig. 1. According to analysts estimates, the Brazilian GDP may have expanded by 2.7% in 2011, and it could accelerate over the next five years. This growth is linked to the anticipated new infrastructure investments needed to host two major sports events: the World Cup of Soccer in 2012 and the Olympic Games in 2016.
Fig. 1. Brazils historical GDP trends: 19812011.
Political and social briefing
Mr. Luiz Inácio Lula da Silva was the countrys president from 2003 to 2010. His main achievement was keeping economic fundamentals unchanged (such as the floating currency and inflation-target monetary policy), while reducing inequality through comprehensive social programs. Over the past five years, roughly 45 million citizens were able to climb from poverty into the middle class, which created new demand for automotive, construction, electronics, cosmetics, chemicals and other products.
Mrs. Dilma Rousseff, after serving as Minister of Energy and Chief of Staff of Lulas government, was appointed the candidate of the central-left-wing Workers Party, and she beat the Brazilian Social Democracy Partys candidate, Jóse Serra, in a runoff election in late 2010. On Jan. 1, 2011, Mrs. Rousseff officially assumed the presidency of Brazil, with the task of accelerating the nations progress through better management of the governments investments, while expanding social programs and reducing inequality. Her first year was marked by a reduced tolerance to corruption among ministers and their assistants. She also promoted the acceleration of several infrastructure projects in partnership with the private sector in many areas.
Unlike developed countries, tight fiscal policies and healthy government revenues led to improved ratings by global agencies such as S&P, Fitch and Moodys to Brazilian sovereign debt and local companies. Combined with healthy trade surpluses and historical highs on foreign direct investments into Brazil, such ratings led to significant amounts of hard currency entering the country, which has been strengthening the Brazilian real. The downside from this situation is that the strong currency is taking its toll on the industrial sector, especially those more exposed to foreign competition, such as chemical and petrochemical producers.
Brazils petrochemical industry is widely based on naphthas, which are supplied by the state-controlled oil company, Petrobras, or via imports, as shown in Fig. 2. The country is a net importer of naphthas and condensates. In 2006, the first ethane-based cracker came onstream in Rio de Janeiro. The company, Rio Polimeros, is now part of the petrochemical giant Braskem.
Fig. 2. Naphtha supply and demand: 20022011.
Naphtha prices in the domestic market, supplied by Petrobras, are settled on a monthly basis and are pegged to the average benchmark price for Antwerp, Rotterdam and Amsterdam (ARA) naphtha. In our view, the chances for a formula based on benchmark prices are slim over the medium term, since the country will remain a net importer. Due to strong transportation fuel demand, local naphtha production allocated to petrochemical applications has been falling; the gap between demand and supply is covered by naphtha imports, which accounted for more than half of the countrys needs in 2011.
Renewable feedstock alternatives. Due to Brazilian expertise in the ethanol business, companies, such as Braskem and Dow are advanced in using bioethanol as feedstock for polyethylene (PE) production. Braskem has been operating its 200,000-tpy (200-Mtpy) ethanol-to-ethylene unit since 2010 in Triunfo, in the state of Rio Grande do Sul, where the company has several polymer units. Dow has announced a memorandum of understanding with Mitsui to study construction of an integrated sugarcane-ethanol-ethylene-PE unit in the state of Minas Gerais. This unit would have an estimated 350 Mtpy of PE capacity and should come onstream in 2014.
In the conventional feedstock scenario, Petrobras has made several significant discoveries in offshore Brazil, which is known as the pre-salt oil layer. At remote locations (200 miles from the coastline) and in ultra-deep (20,000-ft) waters, these large reserves now define Brazil as a significant energy producer. The new oil reserves are a future feedstock resource for the petrochemical and chemical industries.
Petrobras is also building four large refineries over the next five years; they will increase the countrys refined product output from 1.8 million bpd to 3.2 million bpd in 2020. Two of the refineriesComperj, in the Rio de Janeiro area, and RNEST, in Suape, Pernambucoare in advanced construction and equipment-purchase stages. Both refineries should come online in the next two years. The other two refineriesPremium I, in the state of Maranhão, and Premium II, in the state of Cearámay see project construction accelerate over the next few years, and they are expected to come onstream later this decade.
State of the industry
Fig. 3 shows the locations of the main petrochemical sites and product capacities within Brazil. Until 2002, there were several small and nonintegrated companies. The large petrochemical company Braskem was created through the merger of seven companies that year. During the next four years, Braskem was the nations only integrated petrochemical company, combining the production of monomers and resins at its Camacari site in the state of Bahia. In 2006, the Rio Polimeros complex became the nations only integrated, gas-based petrochemical unit in Rio de Janeiro.
Fig. 3. Location of domestic crackers, with capacities and
ownership structure, as of 2011.
In March 2007, another significant event changed the picture of the Brazilian petrochemical industry. A consortium of companies formed by Petrobras, Braskem and Ultra, announced the acquisition of Group Ipiranga, which, at that time, was a partner of Braskem in Copesul, the naphtha-based cracker in Triunfo. That move turned Braskem into the only owner of the petrochemical complex of Triunfo, thus consolidating its leadership position in the region. In August 2007, Petrobras announced the acquisition of Suzano PetroquÍmica, which was one of Brazils major PP producers. This move made possible the merger of all petrochemical assets of the Suzano Group (those acquired by Petrobras) and Unipar Group into one large and integrated petrochemical company later known as Quattor.
In 2010, after months of negotiations, Braskem and Petrobras reached an agreement to acquire Quattors shares from Unipar Group. This movement led to the ultimate consolidation in Brazil, which now has one producer of polyolefins. It also increased Petrobras stake in the Brazilian leading petrochemical group to 47%, while Odebrecht holds 51% of the voting shares.
Overall, domestic demand for resinsLDPE, LLDPE, HDPE, PP, PS and PVCshowed healthy growth, as illustrated in Fig. 4. However, during 2009, with the global financial crisis, industrial activity slowed and demand for resins decreased. During 2011, another soft patch for resin demand was partially explained by destocking, especially in the second half of the year.
Fig. 3. Commodity resin demand: 20052011.
However, over the last six years, domestic demand for thermoplastic resins grew nearly 6%/yr. In particular, LLDPE demand, which grew 13%/yr, was fostered by the substitution of LDPE in film applications. Another fast-growing resin was PVC, which was boosted by strong expansion in construction markets.
Outlook. Many previously announced petrochemical projects came online on schedule, such as Braskems ethanol-to-ethylene unit in Triunfo, the refinery-gas-based ethylene unit and LLDPE/HDPE plant in Sáo Paulo, and some new propylene units at Petrobras refineries. Others are still in development, including the new butadiene unit at Braskems Triunfo site, the new purified terephthalic acid (PTA)/PE terephthalate (PET) unit of PetroquÍmica Suape in the state of Pernambuco, and the PVC unit of Braskem in the state of Alagoas.
Two other important projects have been reformulated: 1) the Comperj project in Rio de Janeiro, for which a new configuration will be announced by Petrobras and Braskem, and 2) the Mitsui/Dow integrated sugarcane-to-polyethylene complex in the state of Minas Gerais. Table 1 summarizes the progress of announced petrochemical projects. HP