There are two main reasons for this phenomenon in chemical companies

Brazil’s chemical industry has achieved significant growth in the past 15 years and is currently the world’s sixth largest domestic market, with revenues of US$157 billion in 2014, accounting for 3% of the global US$5.2 trillion market.

However, the growth of the Brazilian chemical market is increasingly coming from imports. Before 2007, the industry’s trade deficit was between US$6 billion and US$9 billion, but by 2014, this figure had risen to US$31.2 billion—a worrying trend. There are two main reasons for this phenomenon in chemical companies:

Domestic consumption is growing faster than production because the increase in per capita chemical consumption (which is the result of income growth) exceeds the corresponding investment in local production capacity.
Imports of high-value chemicals are growing faster than exports. Given that Brazilian companies are more capable of producing lower-value bulk chemical products, the demand for these chemicals exceeds their supply capacity.
If left unchecked, this trend may threaten the sustainability of Brazil’s chemical industry, as well as the industries that rely on chemicals, whose imports are also increasing. The increase in imports of manufactured goods is often associated with a decrease in the domestic production of chemicals used in these products (such as tires, textiles and toys).

Brazil is not the only developing market with a severe trade deficit in the chemical industry. Mexico is also facing the same problem. Net imports have risen from a historical level of US$7 billion to US$9 billion at the beginning of this century to nearly US$20 billion in 2013. In 2014, India’s total net imports of 14 related chemicals were 7.9 million tons, accounting for about 18% of India’s apparent consumption, an increase of 67% from 2010.

In order to slow and reverse this trend, Brazil and its chemical manufacturers should identify opportunities to diversify the chemical industry, with a focus on value-added products, strengthening the integration and branching of existing commodity chains, and developing new technologies.

In our research, we identified several industry sectors. Brazil’s natural advantages create opportunities to play a greater role in the global market-as long as business and policy makers can work together to narrow the current competitive gap that hinders investment. We have also identified other areas where Brazil is already competitive in the supply of raw materials, as well as other areas that may become more competitive through further investment in new technologies. The number of these opportunities may be between 33 billion U.S. dollars and 47 billion U.S. dollars by 2030, which can reduce the trade deficit between 22 billion U.S. dollars and 38 billion U.S. dollars in the same period each year. The potential improvement in the trade balance in the five largest focus areas could create as many as 19,000 jobs by 2030.
According to the main competitive advantages of each market segment, we divide the main focus market segments into four categories: strong local demand, competitive and available raw materials, potentially competitive raw materials, and competitive with emerging technologies Powerful raw materials.
Strong domestic demand

In these three chemical sectors, the local market is attractive and growing rapidly. Industry and policy makers should work together to take advantage of these opportunities to attract new, globally competitive investments and strengthen the local chemical chain.

Agrochemicals. Brazil has the world’s largest agrochemical market, accounting for about 20% of the global total. In 2012, the company’s revenue was US$9.7 billion, an increase of 16.1% between 2006 and 2012, more than twice the global average. However, due to the poor investment environment, more than half (56%) of agricultural chemicals are imported. The registration of new pesticide products may take several years, especially those that will be produced locally. Improvements in this process can open up large investments in local production capacity, reduce trade deficits, and enable local industries to meet local agrochemical needs faster and cheaper, thereby benefiting the agricultural business sector.

Chemicals for oil and gas exploration and production (E&P). We expect that the continued growth of offshore drilling, especially the growth of sub-salt reserves, will increase the demand for chemicals used in this process. As Brazilian regulations encourage the exploration and development industry to reduce its harmful effects on the environment, we also expect that as the industry gradually moves away from oil-based materials, the use of natural and synthetic fluids will increase. Challenges faced by chemical companies when starting to produce these alternative liquids include: limited supply of ethylene, high investment costs for producing petrochemicals locally, and the pricing of vegetable oils as food rather than fuel, which raises the price of natural raw materials.

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