SAO PAULO (ICIS)–Brazil’s trade surplus
reached another record in September at $8.9bn,
up 51.2% year on year, on the back of booming
agricultural exports and reduced fuel imports –
but the chemicals industry’s trade deficit kept
growing.
In January-August, Brazilian imports of
chemicals stood at $41.9bn and exports at
$9.9bn: a trade deficit of $32.0bn, according
to figures by the country’s chemicals trade
group Abiquim.
Brazil’s agricultural prowess – the sector
already accounts for one-quarter of the
country’s output – has fuelled the trade
surplus this year as Brazil becomes a key
global grain exporter.
Some financial analysts have said Brazil’s
trade surplus is here to stay due to
agricultural exports, suggesting that will mean
a more stable Brazilian real for years to come,
with the country potentially becoming Latin
America’s “anchor” in terms of financial
stability.
Robin Brooks, chief economist at the Institute
of International Finance (IFF), the
Washington-based global trade group for the
financial services industry, said that Brazil’s
change of trade fortunes over the past decade
had no comparison among any other emerging
market, forecasting the surplus is to remain
“in the stratosphere” for the foreseeable
future.
‘PREDATORY PRICES’ HIT
CHEMICALS
However, the Brazilian
chemicals industry is not experiencing any of
the country’s external trade bonanza – rather
the opposite.
Abiquim has repeatedly warned that lower-cost
overseas product is damaging domestic
production. In an
interview with ICIS, Abiquim’s CEO said
Chinese product specifically – manufactured
with less stringent environmental protection
regulations – was flooding Brazil and making
domestic chemicals production suffer.
In its trade bulletin covering January-August,
Abiquim said: “The trade deficit of $32.0bn is
the highest in the last two decades… The
predatory prices of imported goods are
unbalancing the internal market, threatening
the production of strategic chemicals for
several value chains.
“[The large trade deficit] reiterates the need
for urgent measures to combat predatory imports
and preserve the domestic market from external
vulnerabilities.”
Abiquim is asking for protectionism, and it is
getting some under the new administration of
Luiz Inacio Lula da Silva. In April, the
government
hiked import tariffs for some polymers and
rubber, and in August it
reinstated a tax break for chemicals known
as REIQ which the previous administration had
withdrawn.
However, both measures have yet to have any
meaningful result in what is becoming a
permanent and large trade deficit for
chemicals.
Moreover, Brazil’s chemicals performance so far
this year has been weak, having to battle high
input costs and low demand, as high interest
rates have kept consumers away from big-ticket
purchases, impacting chemicals and the wider
manufacturing sectors.
Some industry players have said the recovery in
chemicals will only
occur from 2025 onward.
Abiquim has also repeatedly said that Brazil’s
chemicals urgently need lower input costs,
something that could come from higher natural
gas supply. In July, it and state-owned energy
major Petrobras
formed a working group to “face the
critical situation” in chemicals.
So far, nothing has come out of it, as
Petrobras seems to be focused on crude oil
exploration and production rather than natural
gas.
In the latest trade bulletin, Abiquim’s
director of economics and statistics, Fatima
Giovanna Coviello, asked again for a helping
hand from the government.
“The current situation demands pragmatism and
agility, with a focus on preserving and
strengthening strategic national value chains
such as chemistry, following what other
countries are doing,” she said.
“Brazil needs to adopt the best practices and
international experiences and come up with an
emergency foreign trade agenda, pragmatic and
objective and that responds to the immediate
challenges: above all, fight against predatory
imports at distorted prices.”
THE SWITZERLAND OF LATIN
AMERICA
Chemicals external trade woes contrast with
other sectors’ fortunes in what has been a
remarkable change in Brazil’s external trade
balance, as the agricultural sector has boomed.
According to Brazil’s Ministry of Development,
Industry, Trade, and Services, the country
accumulated a trade surplus in
January-September of $71.3bn, the highest
surplus posted since the series data collection
started in 1989.
In September, Brazil imported 17.6% fewer
goods, year on year, while exports rose by
4.4%. The healthy export figure occurred even
with lower sales to Brazil’s main export
destination, Argentina, as the country
struggled under a severe financial crisis.
Last week, the Brazilian government upgraded
its trade surplus forecast for 2023, from the
$84.7bn projected in July to $93.0bn now.
The chief economist at IFF said Brazil’s
stratospheric trade surplus was likely to stay
for years to come, as the agricultural sector
keeps gaining strength.
“There is no other emerging market that has
transformed itself over the past decade in the
way that Brazil has. The sharp rise in US
interest rates is currently weighing on the
real, but that’s temporary. The massive trade
surplus is permanent,” said Robin Brooks on
social media network X, formerly known as
Twitter.
“Brazil is on track to become the Switzerland
of Latin America. A huge trade surplus is
emerging, unlike any other country in the
region. This is going to give Brazil external
stability and a strong currency unlike the rest
of Latin America. Brazil will be the region’s
anchor.”
Focus article by Jonathan
Lopez