BRAZIL PETROCHEMICALS AND CHEMICALS 2017

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We cordially welcome you to the Brazil Petrochemicals and Chemicals Industry Exploration 2017, the second book in a series of Industry Explorations produced by GBR together with APLA for release at the 37° Latin American Petrochemical Annual Meeting. Brazil’s chemical sector is the eighth largest in the world and its petrochemical companies occupy leading positions in their product areas across Latin America. Moreover, Brazil is strong in research and development and this is refected in the innovative nature of its specialty chemical producers that have been involved in bringing many new products to the market. The aim of this cooperative work is to provide an investment guide, highlighting the opportunities for investment in Brazil’s petrochemical and chemical industries, particularly in light of Brazil’s recovery from recession, the prospects presented by Brazil’s pre-salt reserves and its core strengths such as its agricultural sector and biodiversity. A series of interviews with the key players from across the petrochemical and chemical industries in Brazil, along with some of the companies providing key support services, such as distribution, third party and integrated logistics are contained in this edition. As well as insights from major players such as Braskem, Unigel, Oxiteno, Elekeiroz, Rhodia Solvay and many more, the report delves into some of the key issues facing the industry such as the feedstock challenge, the impact of the pre-salt reserves and shale gas production and infrastructure. We also look at how the distribution market is changing, with increased consolidation, international competition and focus on specialty chemicals. As Brazil’s economy rises again and prospects for the region as a whole look brighter, business leaders are optimistic about the future of the petrochemical and chemical industries in Brazil, the region’s leading economy. With elections next year, they are also hoping for more political stability. We hope that you enjoy the report and that it will assist in better understanding a sector of pivotal importance to the Brazilian economy.

Alice Pascoletti Manuel Díaz General Manager Executive Director Global Business Reports APLA Exclusive Data and Interviews Maps Leaders from both the Quantitative data help private and public sector readers better understand delve into the nuances and the position of Brazil, nascent developments that especially relative to its are shaping the industry. global competitors. 11, 14, 22, 28 8, 10, 30, and many more 41, 71

Editorial Content Global Business Reports’ journalists provide on-the- ground analysis of the trends that are shaping Brazil’s petrochemical and chemical industry. 8, 18, 27, 34, 44, 48, 52, 64

An Introduction the Chemicals in Brazil 38. Interview with Huntsman Performance 60. Interview with Grupo Cesari; Interview with 8. Light at the end of a long tunnel: Is the Products Ultracargo economy fnally improving? 39. Interview with Cabot South America and 70. Interview with Den Hartogh; Interview with 11. Interview with Ministry of Industry, Foreign Mexico; Interview with Solenis Mammoet Latin America Trade and Services, Government of Brazil 40. Interview with Air Liquide Brasil 71. Map of Brazil’s ports 12. Introducing Brazil’s chemical sector 43. Interview with Eastman Chemical Company 72. Interview with Tricon Energy; Interview with 14. Interview with Associação Brasileira da 44. A global trendsetter: Chemicals and Brazil’s Intertox Indústria Química (Abiquim) personal care and cosmetics industry 73. Interview with Stolthaven Santos 15. Interview with Brazilian Development Bank 45. Interview with Croda Do Brasil (BNDES) 46. Interview with DSM 48. A sector hungry for chemicals: Brazil’s huge Final Thoughts agricultural sector Petrochemicals and Intermediaries 76. Interview with IHS Markit; Interview with Bain & Company 18. The building blocks of the industry: An Distribution 77. Interview with Demarest Advogados introduction to petrochemicals in Brazil 78. Final Thoughts 22. Interview with Braskem 52. Chemical distribution: An industry in fux 80. Company Index 23. Interview with Braskem, Chemicals & Vinyls 54. Interview with the Brazilian Association of 82. Credits 24. Interview with BASF; Interview with Oxiteno Chemical and Petrochemical Distributors 25. Interview with LyondellBasell Brasil (Associquim) 26. Interview with Unigel 55. Interview with quantiQ 27. Green feedstock and bio chemicals: How big 56. Interview with Química Anastácio is the potential? 58. Interview with Univar Brazil 28. Interview with Elekeiroz 59. Interview with MCassab; Interview with BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Industry Explorations 29. Interview Wacker Brenntag Global Business Reports 30. Interview with Yokogawa South America 60. Interview with Quimisa 31. Map of Brazil’s major petrochemical 61. Interview with Coremal-Pochteca; Forscher; complexes Dinaco; Colormix Especialidades This research has been conducted by Laura Brangwin, Matthias Lomas and Lina Jafari Specialty Chemicals Logistics and Services Edited by Mungo Smith Graphic design by Gonzalo Da Cunha 34. Specialty chemicals in Brazil: The future of 64. Brazil’s infrastructure: A major roadblock Brazil’s chemicals industry? 66. Interview with IC Transportes A Global Business Reports Publication For updated industry news from our 36. Interview with Arkema Quimica (Brasil) 68. Interview with Grupo Toniato; BDP on-the-ground teams around the world, 37. Interview with Rhodia-Solvay Group Latin International please visit our website at gbreports.com, subscribe to our newsletter by signing up America to our VIP list through our website, or follow us on Twitter: @GBReports

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports VENEZUELA Brazil

GUYANA International Boundary FRENCH Province Boundary SURINAME GUIANA COLOMBIA National Capital Boa Vista Province Capital

RORAIMA AMAPA Macapa

Belem

ECUADOR Sao Luis Manaus Parnaiba

Fortaleza

CEARA MARANHAO RIO GRANDE AMAZONAS PARA Teresina DO NORTE Natal

PARAIBA Joao PIAUI Pessoa PERNAMBUCO ACRE Porto Recife Rio Branco Velho ALAGOAS Palmas Maceio PERU SERGIPE RONDONIA TOCANTINS BAHIA Aracaju

MATO GROSSO Salvador GOIAS

BOLIVIA Cuiaba Brasilia DISTRITO Goiania FEDERAL MINAS GERAIS

Belo Campo Horizonte ESPIRITO Grande SANTO

Vitoria MATO SAO GROSSO PAULO DO SUL RIO DE Sao JANEIRO Paulo PARAGUAY Rio de Janeiro CHILE PARANA Curitiba ATLANTIC OCEAN PACIFIC OCEAN SANTA CATARINA Florianopolis

RIO GRANDE N DO SUL Porto Alegre ARGENTINA

URUGUAY

0 100 200 300 Kilometers

0 100 200 300 Miles GBR • Industry Explorations • BRAZIL PETROCHEMICALS AND CHEMICALS 2017 AN INTRODUCTION TO CHEMICALS IN BRAZIL

“Until recently, Brazil’s central bank’s lent at 14%, whereas now it lends at 9% and we expect it to be at 7% by the end of the year. This will improve investment in Brazil’s economy and GDP will emerge from negative territory this year. In a market of over 200 million consumers, if GDP reaches 1% growth next year from a minus 3.6% decline in 2016, it will represent a huge increase in demand. There will be more demand for cars, refrigerators and paint for new apartments and offces – all areas in which our products are used.”

- Reinaldo Kröger, President, Unigel EDITORIAL Global Business Reports

Light at the end of a long tunnel: Is the economy finally improving?

It was all going so well for Brazil in the years leading up to 2014. GDP ($ trillion) The economy was strong, with GDP growth reaching heady Source: The World Bank

heights at 7.5% in 2010 and averaging 3% until 2014. Dilma 2.8 Rousseff, now impeached, had been elected in October 2010 to become Brazil’s frst ever female president. As many developed 2.6 countries were still reeling from the global fnancial crisis and the 2.4

eurozone appeared on the brink of collapse, Brazil, a member of 2.2 the BRICS nations of emerging economies, appeared ascendant. However, in 2014, Brazil’s economy hit the rocks. What ensued 2.0

8 was Brazil’s worst recession on record. GDP dropped from 3% to 1. 8 0.5% in 2014 and then plummeted to -3.8% in 2015 and -3.6% in 1. 6 2016. By then, Brazil’s GDP was 9% below its pre-crisis peak. Unemployment stood at 14 million in June 2017, the worst in 1. 4 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 20 years. Furthermore, the crisis has been longer than previous ones. “What is different about the recent economic crisis is that, unlike other recessions, the recovery has not been short and Brazil will not come out of it better off even though we are now seeing World’s 9th biggest economy some light at the end of the tunnel,” commented Mauricio Adade, (GDP approx. $1.8 trillion, 2016) president, Latin America, at life sciences company and specialty chemical producer DSM. There is some debate around why Brazil’s recession has been so GDP Growth Rate 2016 severe, but the fall in commodity prices has had a substantial im- pact as prices of iron ore, soy beans and sugar, key exports for -3.6% Brazil, all fell around 2014 as demand dropped off from China. The end of the commodity boom which buoyed Brazil in the frst decade of the century exposed structural weaknesses in the Brazil expected to have economy such as its onerous tax system, poor infrastructure, high growth in 2017 and in 2018 tariffs and lack of competition. 0.73% 2.5%

BRAZIL INFLATION RATE TREND (%) Political instability stalks Brazil Source: tradingeconomics.com

8

Just as the economy was in freefall, police agent Newton Ishii 7 was waiting in Rio de Janeiro’s Galeão airport for former Petro- 5.35% bras executive Nestor Cerveró’s fight to arrive from London so 6 that he could arrest him. What unfolded, based on investigations 5

by Brazilian police since 2008, was the uncovering of Brazil’s 4 largest ever corruption scandal, codenamed Lava Jato, which still 3 2.54% deepens by the day. To make matters worse, Brazil has experi- 2 enced intense political instability of late after the impeachment of Jan 2017 Apr 2017 Jul 2017 Sep 2017

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports Global Business Reports

“ Brazil is known as the country of the future but now the future is finally coming.

- Roberto Kirschner, Director, South America, Huntsman Performance Products ”

Rousseff in 2016 who was accused of manipulating the govern- ment’s budget. Some pin the reasons for economic turmoil and resulting woes in the chemical sector on politics. “Brazil has been suffering from political instability which has slowed investment into new projects for all the industry,” commented Eric Schmitt, CEO, Arkema Quimica, the specialty chemical producer. Al- though, he continued: “Today the economy is improving indepen- dently from this situation.” Indeed, the economy does appear to be turning a corner despite 9 the political situation, albeit slowly. Infation has fallen to around 2% from a high of almost 11% in early 2016, GDP growth was at 0.2% in Q2 2017 and, in September 2017, the central bank cut its benchmark lending rate to 8.25%, which until January was at 14%. It also announced recently that it expects growth of 2.5% in 2018. There are signs Brazil’s stubborn unemployment rate is gradually declining as well. Therefore, green shoots are emerg- ing. As Reinaldo Kröger, president of petrochemical giant Unigel, noted: “This will improve investment in Brazil’s economy and GDP will emerge from negative territory this year. In a market of over 200 million consumers, if GDP reaches 1% growth next year from a -3.6% decline in 2016, it will represent a huge increase in demand.”

Looking to 2018

At the time of writing, President Michel Temer was defending himself against charges of obstruction of justice and racketeering, which have added to earlier corruption charges. With Brazil due to hold general elections next year, no one is sure who will be running for president. Business leaders will be hoping political instability will not steer Brazil’s nascent recovery off-course and there are signs that the economy is now de-coupling from po- litical developments, given that things are improving as scandals are continuing. In the long-run, most business leaders are positive about Brazil’s prospects. “Brazil will come back; the one million dollar question is when and how? What is happening now is a very strong exercise in democracy that will have a strong positive impact on the country and the economy,” commented Adade. ▬

Global Business Reports FACTSHEET Global Business Reports

DEMAND BASE Attractiveness of the local market Leverage the market to strengthen the commodity chain and make it globally competitive

AGROCHEMICAL CHEMICALS E&P COSMETICS

COMPARATIVE ADVANTAGE BASED ON RAW MATERIAL

Competitive and available raw material

10 Value added in Brazil

CELLULOSE FOOD AROMAS AND DERIVATIVES ADDITIVES FRAGRANCES

Potential competitive raw material Competitive raw material Increase availability and strengthen Emerging technology the commodity chain Establish a chemical base from renewable sources

PETROCHEMICALS OLEOCHEMICALS BIOMASS CHEMICALS

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports Global Business Reports INTERVIEW

with increasing exports and imports due regulatory and legal framework of the sec- to consistent external demand and grow- tor, such as the agendas on chemical safety ing domestic demand. The government has and biodiversity access. Furthermore, we been working to balance public accounts, provide mechanisms to reduce import conditioned, in this case, to the approval of taxes on machinery and equipment, to en- the economic reforms. These elements are courage industrial parks renewal. And we very important to maintain the process of foster agendas aimed towards lowing costs falling infation and interests rates, allow- of raw materials to make local based indus- ing for the sustainable growth of the Bra- tries more competitive. zilian economy in the coming years. In addition, MDIC plays an important role in the process of simplifying bureaucracy What improvements in the business which will make it easier to open busi- environment can investors expect after nesses, procedures in foreign trade and Brazil’s recent political instability? analysis and concession of industrial prop- The improvement of the business environ- erty rights. This way, Brazil creates a more Hon. ment is currently a state policy in Brazil. attractive scenario for foreign investors and I would like to highlight a major initiative for the local-based companies in the global Marcos of MDIC and of the Federal Revenue Ser- market. That agenda will impact both the vice of Brazil, the Foreign Trade Single chemical industry and other sectors of the Window Program, at the heart of Brazilian economy, but the attractiveness is greater Antônio trade facilitation policies. It is a continuous for the chemical industry, as there is a large initiative aimed at updating and rationaliz- opportunity represented by the gap be- Pereira ing all import, export and transit routines. tween consumption and domestic produc- Once fully implemented, the computerized tion. portal will support more effcient, harmo- 11 Minister of Industry Foreign nized and integrated procedures between Abiquim recommends the government public and private stakeholders in foreign set up ministerial group in government Trade and Services trade. making decisions on how to better help FEDERATIVE REPUBLIC The objective of the program is to reduce the industry. Do you support this ap- OF BRAZIL Brazil's export time to only eight days - to proach? a period in accordance with the best inter- MDIC supports government institutions to national practices. For imports, the objec- work together in order to lead policymak- tive is to reduce the average period to 10 ers and address industrial problems, their With key economic indicators improv- days, when fully implemented. This will challenges and opportunities. However, as ing after two years of crisis, how do you reduce costs and considerably increase the part of a bigger governmental system, we see prospects for the economy in the next competitiveness of companies operating in see there is no room for proposing the set- year? foreign trade in Brazil. up of formal ministerial groups aimed to With a moderate and gradual recovery, the specifc industrial sectors at this particular economy is preparing to grow after two How much of a strategic priority is the moment. The ones that are currently run- years of recession. Economic activity is chemical sector for MDIC and how does ning were motived by specifc agendas, expected to resume a positive performance it support it? such as programs that were expiring or this year, with expected growth in 2018. MDIC recognizes the importance of the policies with external matters that must be According to projections by the Central chemical industry in Brazil and continu- addressed. And those particular cases had Bank of Brazil, GDP growth is expected to ally works to stimulate its development in previous support of several governmental be 0.7% in 2017 and 2.2% next year. Infa- order to enable new investments, job cre- institutions that are trying to address their tion is in the process of deceleration, within ation and growth in the Brazilian economy. own issues regarding to the particular sec- the limits defned by the Brazilian Central MDIC also works to increase its competi- tors inside their framework. Despite that, Bank. Indicators point to prices under con- tiveness both in domestic and international it is important to remark that the absence trol, and they should remain so in 2018. markets. We cooperate with other govern- of a formal group does not prevent govern- Interest rates are also falling, benefting mental institutions and agencies in order to mental institutions from working together the consumption of families and the invest- foster investments, such as by providing as a network to address problems and chal- ments of companies, and should remain competitive credit lines. We support lo- lenges from different industrial sectors, low in 2018, reducing the idle capacity of gistics and infrastructure agendas in order including the ones from the chemical in- industry and helping the country to grow. to minimize costs for industries and their dustry. We are regularly working on those Foreign trade will continue to expand customers. We also work to improve the strategic agendas. ▬

Global Business Reports BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Industry Explorations EDITORIAL Global Business Reports

AT HOME Introducing IN BRAZIL SINCE 1977 Brazil’s chemical sector

Whilst Brazil is the ninth biggest economy any visitor to Brazil that paid attention will in the world, its chemical industry is the remember, drivers can easily fuel their cars eighth biggest and has grown substantially with ethanol at the gas station. “Brazil has since the turn of the millennium as Bra- such huge potential in biomass and so many zil’s economy has increased in global stat- cars in Brazil already use bio-ethanol,” com- ure. “Brazil is a natural destination for the mented Maurico Adade, president, Latin world’s chemical industry because it is rich America, DSM, the life sciences company in oil, gas, minerals and rare earths and has and specialty chemical producer. much biodiversity,” remarked Marcos de Since 2010, Brazil’s petrochemical stalwart, Marchi, chairman of the board of directors, Braskem, has been operating a green ethyl- Abiquim, the national trade association for ene plant in Triunfo Petrochemical Complex 12 the chemical industry. and it is a leader in this feld. Brazil’s chemical industry has annual net Additionally, Brazil has substantial market sales from domestic production of US$113.5 power in vital chemical application markets. billion and is the third largest industrial sec- It has an almost 10% share of the global tor in the economy, representing 10% of cosmetics market, over 20% share of the overall industrial GDP. It also supports 2 agrochemicals market and exploration of million jobs in terms of the whole chemi- oil and gas growth has been expanding fast 40 ANOS – WACKER NO BRASIL cal value chain and 400,000 direct jobs. at a rate of almost 25% in the years 2007- The recession has unsurprisingly dented 2012. “When you look ahead, there is a the industry’s performance but it has been great feld of opportunities for the industry, recovering since 2016, even as the economy in particular in sectors like pulp and paper, was still in free-fall. Sales from local pro- agrochemicals and cosmetics. This is why duction fell from US$156.7 billion in 2014 we have chosen to invest in new capacity Founded in Germany in 1903, WACKER opened Wacker to US$112.4 billion in 2015 but recovered and application labs,” remarked Adriano Química do Brasil Ltda with a slightly US$113.5 billion in 2016, helped Magalhães, managing director of chemical production site for silicones by the fall in the Real which has made lo- producer Wacker. in Jandira in 1977. Today, we cal production more competitive. Conse- Growth estimates for the agricultural sector are proud to have become an innovative and reliable partner quently imports have seen a steady decline this year range from 9 to 11%, way ahead of to key industries in Brazil such from US$46.1 billion in 2014 to US$34.2 the growth rate for the economy. as the cosmetics and health billion in 2016, although a drop in domestic Indeed, pulp and paper is another area in care, automotive or construc- demand due to the recession has also played which Brazil’s industry is one of the world’s tion industries. An example of our silicones are our SILRES® a powerful role. largest, aided by the comparatively inexpen- BS products which were sive wood costs and the availability of land chosen to restore the statue and water in a sunny climate. Additionally, of Cristo Redendor in 2011. Strength through nature the food additives for animals market has To fi nd out more, please visit www.wacker.com been noted for its competitiveness, with the The chemical sector in Brazil is unique country representing 10% of the global mar- Wacker Química do Brasil Ltda. due to strengths in areas such as renew- ket, refecting its role as one of the world’s São Paulo, Brazil able chemicals, agrochemicals and cosmet- top meat exporters. Tel. +55 11 4789-8300 ics. Brazil is the second largest producer Brazil’s reputation for innovation and its [email protected] www.wacker.com/socialmedia of ethanol fuels after the United States. As link to the specialty chemical industry has

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports

54x254mm_nonbleed_Ad_Brasil_201017_RZ.indd 1 20.10.17 10:16 Global Business Reports EDITORIAL

also won plaudits. “Compared to other and major companies such as MCassab, as emerging countries, Brazil has a very ad- well as quantiQ, Brazil’s largest chemical vanced industry. For example, it is one of distributor. Associquim is the national trade “ the few countries in the world that can pro- body for Brazil’s chemical distributors and duce large aircrafts and remains very recep- protects its 90 members’ interests. Brazil is not for amateurs – you need tive to new technologies, even compared to Finally, logistic providers also include a flexibility and to act fast. If a company some developed countries,” remarked Eric mixture of large multinational players and enters Brazil they do not enter for Schmitt, CEO, Arkema Quimica, the Brazil- local actors. BDP International, Den Har- ian subsidiary of the global manufacturer in togh, Leschaco and Stolthaven Nielsen are 100m, they are here for a marathon specialty chemicals and advanced materials all present in Brazil and their services range and must be very persistent. Most headquartered in France. from third-party logistics providers to trade companies that came to Brazil at the Beftting its size, Brazil’s chemical com- line consolidation and storage solutions. time when The Economist showed panies occupy leading positions in South Meanwhile, local players such as Ultracar- Christ the Redeemer as a rocket America, with only Mexico and Argentina go, a liquid storage company that is part of disappeared during the recession. coming close to their scale. On a net sales the Brazilian conglomerate Ultra which also basis, industrial chemicals dominate local owns chemical intermediaries player Oxi- production, making up for almost 55% of teno, are very much present. - Maurico Adade, the pie. Fertilizers, which are vital for Bra- President, Latin America, zil’s booming agricultural sector, make up DSM 12.6% of net sales, whilst more specialty Challenges, Brazil has a few chemicals divided across a diverse set of in- dustry applications make up the rest. “The sky is not completely blue: the sector Of course, the upstream side of the chemi- had a trade defcit of US$1.5 billion in 1991 cals market in Brazil would be unfathom- but this has reached US$22 billion in 2016. able without the presence of Petrobras, 64% Indeed, the defcit was US$32 billion before ” owned by the state. Petrobras in turn owns the recession. We will import US$43 billion represent a large chunk of Brazil’s chemical 47% of Braskem, whilst Oderbrecht, the a year, 35.6% of local demand, but still have imports, Bain identifed cosmetics and per- huge Brazilian conglomerate active in the 21% of idle capacity,” explained Marchi. sonal care, agrochemicals, food additives for 13 felds of engineering, construction, infra- The chemical industry’s trade defcit and animals and chemicals for exploration and structure, industry, real estate and energy, idle capacity are caused by competitiveness production as segments that Brazil imported owns 50.1%. Braskem is the largest thermo- issues. The relatively expensive costs of oil large quantities but where it had the most plastic resin producer in the Americas. Fur- and gas feedstocks are a major impediment potential to improve its local production due ther down the supply chain, Brazilian com- to the industry’s success, but this is not the to its competitiveness in these areas. panies also lead; Unigel is Latin America’s whole story. Bain recommended allocating part of Bra- leading acrylics and styrenics producer, for “The essential pre-conditions for a success- zil’s pre-salt oil and gas reserves to these example. ful industry are competitive raw material competitive areas of the chemical industry; Going even further downstream are a pleth- and energy. Alongside these are good in- improving the regulatory environment; in- ora of specialty chemical producers catering frastructure and logistics, R&D investment vestment in chemicals produced from bio- to a wide variety of industries such as food, and labor training. We are not competitive mass; funding for infrastructure that ben- pharmaceuticals, agriculture and cosmet- enough because we are not performing well efts the chemical industry; greater focus on ics. Notably, most specialty producers are on all these fve elements,” continued Mar- R&D looking at technological challenges subsidiaries of international giants, such as chi. facing these segments; and simplifying the Eastman, Arkema, Croda, Huntsman, DSM, Infrastructure in particular is a big head- tax system. and Rhodia Solvay. Brazil’s chemical pro- ache for Brazil’s chemical industry. A lack Whilst some progress has been made on im- ducers are supported by Abiquim which of berthing capacity at Brazil’s ports means proving access to biodiversity through a law has 191 members representing about 90% that companies are losing money due to passed in 2015 to encourage its exploitation, of Brazil’s chemicals market. Marchi says delays. Unigel has lost US$4 million over advancement in other areas has stalled. “The of Abiquim’s mission: “Abiquim works to seven months due to this issue. However, major challenge now is to bring these pro- actively promote more competitiveness and Brazil’s infrastructure issues go beyond this posals back into the agenda of the govern- sustainable development in the production singular issue. ment as they were in 2014 as the focus of of chemicals by the industry in Brazil.” Recognizing Brazil’s large trade defcit in the industry, BNDES and the government Aiding the growth of the industry is a large chemicals and the impact this was having has been diluted since the economic and number of distributors and logistics provid- on the competitiveness of local industry, political crisis,” commented Rodrigo Mas, ers. Major foreign distributors such as Uni- the Brazilian Development Bank, BNDES, partner, Bain & Company and lead author var, Brenntag and IMCD have a presence commissioned a report by consultants Bain of the report. in Brazil, whilst the wider market of liter- & Company in 2014 to identify the sources If Brazil’s chemical industry is to be one of ally hundreds of distributors also includes behind it and to fnd answers for what could the world’s leading lights, this focus must many local players, including family-owned be done to solve it. Beyond fertilizers, which return as the economy improves. ▬

Global Business Reports BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Industry Explorations INTERVIEW Global Business Reports

What is the state of Brazil’s chemical indus- the recession. We import US$43 billion a year, try today? 35.6% of local demand, but still have 21% Brazil is a natural destination for the world’s of idle capacity. This contradiction is due to chemical industry because it is rich in oil, gas, some competitiveness problems, especially minerals and rare earths and has much bio- for fertilizers, which are not all caused by the diversity. Since the discovery of new oil and relatively expensive cost of gas in Brazil. We gas reserves in the offshore pre-salt felds, our import products which are 2.5 times higher resource abundance is even more of a reality. in value than the products we are exporting, This is why we believe we have all the condi- which shows that we are falling short of con- tions necessary to have a bigger chemical in- verting raw materials into high-value special- dustry. Today, Brazil’s chemical industry has ized products. Furthermore, the drop in the an annual turnover of US$113 billion per year, defcit from US$32 billion to US$22 billion is represents the third largest industrial sector in not because of increased competitiveness but Brazil’s GDP at 10% of overall industrial GDP because of a drop in demand during the recent and accounts for 2 million jobs in terms of the economic crisis in Brazil. whole chemical value chain and 400,000 di- rect jobs. Worldwide, it is the eighth largest What is needed for the industry to better chemical industry in the world. More specif- succeed? Marcos cally, globally it represents about 20.5% of the Brazil’s National Bank for Economic and So- agrochemicals market where we are the sec- cial Development (BNDES) and Bain & Com- De Marchi ond biggest player behind the United States, pany recently conducted a report identifying 9.7% of the cosmetics market, 8.1% of chemi- opportunities for the chemical sector, which cals for leather and 24.6% of the growth rate Abiquim advised on. In this we say that the es- of chemicals used in oil production. sential pre-conditions for a successful indus- try are competitive raw material and energy. What role does Abiquim play in the chemi- Alongside these are good infrastructure and 14 cals industry? logistics, R&D investment and labour train- Abiquim works to actively promote more ing. We are not competitive enough because Chairman of the Board of Directors competitiveness and sustainable development we are not performing well on all these fve ABIQUIM in the production of chemicals by the industry elements. We are progressing in discussions in Brazil. We were founded in 1964 and are a with the government on improving this situ- non-proft organization with 191 members in- ation but not at the pace we would need to re- cluding small, medium and larger companies. cover the performance more quickly. Abiquim’s members represent about 90% of the Brazilian industrial chemicals production. What specifc proposals have you made to We also represent the South American region the government? at the International Council of Chemical As- In terms of logistics, we highlighted the criti- sociations (ICCA). Anyone can become a cal lack of railway capacity in Brazil and member of Abiquim as long as they fulfl two recommended greater usage of water trans- conditions: they produce locally in Brazil and port, including cabotage. The government’s they commit to our Responsible Care program privatization drive will have a positive effect which aims to advance sustainable develop- on infrastructure as the private sector is much ment in line with the ICCA’s Responsible Care more dynamic and can complete projects more program. A big part of Abiquim’s role is con- quickly. For innovation, we are not at the top ducting studies and making recommendations of the leader board but we are progressing a to various government ministries on pressing lot. For example, the National Service of In- issues in the industry such as logistics and dustrial Training (SENAI) has opened ffty what to do with the pre-salt discoveries. In new laboratories and 26 new applied research particular, we work closely with the Ministry centres with the help of Massachusetts Insti- of Development, Industry and Foreign Trade; tute of Technology (MIT) and the Fraunhofer- Ministry of Mines and Energy and others. Gesellschaft and is investing US$1.3 billion in innovation and technical training. What challenges does the industry face? Lastly, we want the government to create an The sky is not completely blue: the sector executive group for the development of the had a trade defcit of US$1.5 billion in 1991 chemical industry. This would involve a min- but this has reached US$22 billion in 2016. isterial group in government making decisions Indeed, the defcit was US$32 billion before on how to better help the industry. ▬

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports Global Business Reports INTERVIEW

Felipe dos What is the role of BNDES in Brazil’s animal feed additives and is supporting a Santos chemical sector? potential silicon derivatives plant as a re- FSP: BNDES was involved from the time sult of the report’s recommendations. This of the frst petrochemical crackers built year we also updated our operational poli- Pereira & in Brazil in the 1970s and it fnanced the cy to provide better fnancing conditions to country’s three main chemical poles of projects in sectors identifed as competitive Capuava, Camaçari and Triunfo. Since by the report. Martim 2000, BNDES has evolved to fnance not just physical investments but also to pro- How do you support renewable projects mote innovation in companies, which re- in particular? Francisco de quires less investment but delivers more FSP: Most of the PADIQ projects are in value for Brazil. So now we support the the renewables sector and we are now put- traditional petrochemical chain, such as the ting together contracts to support nineteen Oliveira e crackers and the polymerization units in projects involving bio-sources. Projects greenfeld and brownfeld projects, as well involve forestry feedstock, native plants as innovation in both petrochemical and from the Amazon that will produce spe- Silva chemical companies. cialty cosmetics, sugar feedstock and rice residue. FSP: Manager What were the most important fndings MFOS: Engineer, of the 2014 ‘Study of the Potential for To what extent will bio feedstocks come Chemical Industry Department Diversifcation of the Brazilian Chemi- to replace petrochemical feedstocks and BRAZILIAN DEVELOPMENT cal Industry’ carried out by Bain & what impact will shale gas have on Bra- BANK (BNDES) Company and funded by BNDES? zil’s chemical sector? FSP: The study consisted of more than FSP: It is still a new movement but we see one year’s worth of research carried out a lot of interest by companies to invest in 15 by Bain and interviews with more than bio feedstocks, even though we launched 150 business leaders. It aimed at identify- PADIQ during an economic crisis. It is ing opportunities for investments as well hard to say how big and fast the transition as providing more public information on will be but there is a big potential. Most the chemical sector, such as what products projects start from agricultural residues, in were behind Brazil’s large trade defcit in which Brazil is a big player. For many of chemical production, around US$35 billion the projects we are funding, chemicals re- at the time, given that for one third of the quire oxygen, where bio sources are at an defcit no one knew where it came from. As advantage as within them hydrogen comes a result, it identifed the 20 most competi- with oxygen, which is not the case in pet- tive industry sectors which presented the rochemicals. However, local specialists’ FSP best opportunities for investments in Bra- forecasts predict that from 2016 to 2026 zil. Based on the report, chemicals from Brazil will increase its oil production from renewables and specialty chemicals are the 2.6 million barrels a day to 5.2 million. If key areas for BNDES. we convert this to gasoline and naphtha, it will provide more feedstock to the industry. How has BNDES supported the indus- MFOS: In ffteen years, biochemicals tries that the report recognized as most might represent about 10% of the global competitive? market, with a large proportion coming FSP: In 2016 we launched the Chemical from Brazil. Shale gas will take too long Industry Development and Innovation Plan to be converted into specialty chemicals; (PADIQ) in partnership with the Brazilian the impact will mostly be for commodity Innovation Agency (FINEP) which made chemicals and plastics production, which funding available from BNDES and FINEP represents only about 10% of Brazil’s for some of the competitive sectors. Out of chemicals market. Also, we do not know MFOS 62 applications, 27 business plans were se- how cheap shale gas from Argentina will lected for support by the program, with a be and it is possible that the United States total investment of R$2.4 billion over fve will export more gas to Europe than South years. MFOS: As examples, PADIQ pro- America due to lower import duties in Eu- moted innovation in methionine used in rope. ▬

Global Business Reports BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Industry Explorations Image: Planta de Paulínia - Rhodia (Grupo Solvay) GBR • Industry Explorations • BRAZIL PETROCHEMICALS AND CHEMICALS 2017 PETROCHEMICALS AND INTERMEDIARIES

“Braskem is a global petrochemical company with a Brazilian heart.”

- Edison Terra Filho, Executive Vice President, Braskem EDITORIAL Global Business Reports

The building blocks of the industry: An introduction to petrochemicals in Brazil

The 1950s ushered in the age of mass produced plastics, especial- PROJECTION OF OIL PRODUCTION (million bl/d) ly for the consumer goods industries, after the huge expansion of Source: EPE

plastics usage in WWII across many different applications from 7 military vehicles to radar installations. It is to this time period

that the history of petrochemicals can be traced in Brazil, as the 6 country started to industrialize and to demand more of this won- 5.2

18 der material. 5 At frst Brazil relied on imports but soon there were calls for a

national industry. Until the 1990s Brazil’s industry was protected 4 by very high tariffs and found success in the so-called ‘tripartite

funding model’ involving state-owned Petrobras and Petroquisa, 3 its petrochemical subsidiary; a foreign technological licensor; and a Brazilian investor which acted as a third party. This led to the 2 construction of three naphtha-based petrochemical complexes, which along with a new complex built in 2005, still form the 1 backbone of Brazil’s petrochemical industry today. The frst to be constructed was the Capuava Complex in São Pau- 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 lo which produces thermoplastic resins, rubbers, paints and other products and has an ethylene capacity of around 700 kilotons per year. Next, the Camaçari Complex in Bahia was opened in 1978 PROJECTION OF GAS PRODUCTION, NET (million m3/d) and presently houses producers of petrochemical products used to Source: EPE make thermoplastic resins, fertilizers and copper metallurgy, as 100 well as other applications and has an annual ethylene production 91 capacity of 1,280 kilotons. Then in 1982, the Triunfo complex 90 cracker – Copsul (today Braskem) started operating. It now has an annual ethylene capacity of 1,452 kilotons. Finally, in 2005 80 Brazil’s frst integrated gas-chemical complex was built in Duque de Caxias, Rio de Janeiro, and it has an annual ethylene capacity 70 of 520 kilotons.

60

Regional Leaders 50

The national stalwarts of Brazil’s petrochemical industry concen- 40 trate on these complexes and lead the region in their product ar- eas. Braskem is the largest petrochemical company in the Ameri- 30 cas. It was created in 2002 by the integration of six companies 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports Global Business Reports EDITORIAL

Camaçari, which was very meaningful for the chemical indus- BRASKEM try. The complex employs 230 people directly and 650 additional jobs are offered through external suppliers. It is an important op- eration for the state of Bahia. We started our operations in Bra- zil 106 years ago, and, since then, Camaçari has been BASF's Largest pretrochemical company most important investment in South America,” commented Ralph in the Americas Schweens, president for BASF South America.

Going global

Largest producer of thermoplastic resins Increasingly, Brazil’s petrochemical giants have been diversify- ing their portfolio to include international assets. “Braskem is a in the Americas global petrochemical company with a Brazilian heart,” remarked Terra Filho. Indeed, Braskem’s reach extends far beyond Brazil’s shores. In 2010 and 2011, Braskem acquired Sunoco and Dow’s PP busi- World’s largest producer of biopolymers nesses with units in the United States and Germany. It also made a US$5.2 billion investment in a new petrochemical plant in Mexico, which came on stream last year and will produce 1.05 million mt/y of ethylene and polyethylene in a JV with local play- from Oderbrecht Group and the Mariani Group and today focuses er IDESA. Furthermore, it has just announced an investment of on polyethylene (PE), polypropene (PP) and polyvinylchloride US$675 million for a new PP plant in Houston, Texas, starting (PVC), as well as basic chemicals such as ethylene, propylene, in 2020 and has made an investment in an ultra-high molecular butadiene, benzene, toluene, chlorine, soda and solvents and weight PE plant in the United States. The culmination of all this is more. Braskem is now moving on from being implicated in a cor- that Braskem is now the largest producer of thermoplastic resins ruption scandal connected with the Lava Jato investigation. “We in the Americas, the world’s largest producer of biopolymers, and want this situation to be an opportunity to become an industry ref- the largest PP producer in the United States. 19 erence on compliance issues. There have been substantial changes Oxiteno has also diversifed geographically, acquiring in 2012 a in our compliance team, which now reports to the board of direc- surfactant plant in Uruguay and a site in Pasadena (Texas) where tors for enhanced independence,” commented Edison Terra Filho, they are building a US$113 million ethoxylation facility that will executive vice president, Braskem. be up and running in Q1 2018. “We want to continue growing Diverse intermediaries producer Oxiteno started as the frst pro- abroad, hence our investment in Mexico two years ago and our ducer of ethylene oxide in Brazil and over time has diversifed current investment in the United States. We want to be a top into oxide derivatives, such as ethanolamines, glycol ethers, sur- player in the surfactants business in the Americas,” stated João factants and polyols. It has also diversifed into oleochemicals Parolin, CEO, Oxiteno. production and, in 2008, opened the frst fatty alcohols plant in Brazil and Latin America. Oxiteno are leaders in non-ionic sur- factants in the region. Unigel is Latin America’s leading producer Feedstock challenges and the shale gas revolution of acrylics and styrenics, as well as of acrylonitrile (AN), methyl methacrylate (MMA) and sodium cyanide. It is currently invest- At the same time as Brazil’s major petrochemical companies have ing US$90 million to increase its styrene capacity by 35,000 tons diversifed geographically, the country’s feedstock problem has per year (mt/y) in time for the frst quarter of 2018 and 65,000 stubbornly remained. Despite an abundance of natural resources mt/y by 2020, meaning it will have 400,000 mt/y capacity for sty- (according to the National Agency of Petroleum, Natural Gas and rene monomer along with 320,000 mt/y for polystyrene by 2020. Biofuels (ANP) Brazil has proven reserves of 12.67 billion bar- Lastly, Rhodia Solvay, whose history in Brazil stretches back to rels of oil and 372 billion cubic meters of gas) the price of petro- 1919, and Unipar Carbocloro are also important players in the chemical feedstocks like natural gas are much higher than in the Brazilian petrochemical industry, with Rhodia Solvay producing United States. oxygenated solvents and phenol acetone derivatives and Unipar “It is the same problem as in 2012: the high cost of natural gas, Carbocloro becoming the number one chlorocodide and PVC compared to the United States. Unigel and Abiquim have tried to producer in the region after purchasing Solvay’s assets in these persuade the government to lower the cost for natural gas. Only areas in 2016. 2.5% of natural gas is used as a raw material, therefore the govern- Alongside these national players, BASF, the world’s largest ment needs to offer more incentives for its usage by the chemicals chemical company, has a large presence in Brazil. Its recent ¤500 industry. They are open to our demands but currently there are million investment into the Camaçari complex, where it produces budgetary restrictions. Nevertheless, with a reduced price, pro- acrylic acid, butyl acrylate and superabsorbent polymers, is high- duction will increase, which means increased tax revenues for the ly signifcant. “In the past 20 years, Brazilian chemical industry government,” Reinaldo Kröger, president of Unigel, lamented. has not seen an investment as large as the one BASF made in Marcos di Marchi, chairman of Abiquim, stuck a similar tone:

Global Business Reports BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Industry Explorations EDITORIAL Global Business Reports

Image: Elekeiroz “

We have a lot of capacity available, modern assets and a very strong R&D team. We want to continue growing abroad, hence our investment in Mexico two years ago and our current investment in the United States. We want to be a top player in the surfactants business in the Americas.

- João Parolin, CEO, Oxiteno

”

“Brazil may become the ffth largest oil producer in the world and 20 we will be self-suffcient in gas in 2022 according the Ministry of Mines and Energy. Therefore, the challenge is competitive price, but not availability. In terms of the price, despite the fact that 70% of the country’s energy comes from hydro-electricity, the cost for the industries is too high. High taxes are among the causes of this overpricing.” Whilst the Brazilian government is reluctant to reduce prices, some 8,000 kilometers north the United States is experiencing an energy revolution. It is hard to overstate the impact of shale gas production there. “The impact of shale gas is immense and the United States will be the number one exporter of LPG soon, when fve years ago it was not even on the radar. By next year, we ex- pect signifcant surplus polyethylene and other olefns derivatives to come on stream in the United States based on very competi- tive ethane, propane and butane,” predicted Rina Quijada, senior director, Latin America, IHS Markit. “At the same time, Brazil is becoming more fexible in its feedstock sources,” continued Qui- jada, with Braskem having just completed a new ethane terminal in Rio de Janeiro state and another due to be completed at the Port of Aratu this year, resulting in 15% additional ethane in Brazil’s feedstock mix. Furthermore, there is some debate about the impact of pre-salt production on Brazil’s feedstock challenge. Marchi commented: “Going forward, due to the pre-salt discoveries we should have access to cheaper naphtha and natural gas, essential ingredients for the chemicals industry. We have already become the eighth largest chemical industry in the world without a cheap supply of these. Therefore, the outlook for the future is positive.” Although Quijada is less sanguine: “Pre-salt will provide additional feed- stock for expansion of cracking facilities. Nevertheless, it is un- likely there will be a greenfeld facility of over one million tons of

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports Global Business Reports EDITORIAL

ethylene and derivatives in Brazil by 2020. investors. The new legislation is expected vice president, Chemicals & Vinyls, There may be an increase in production ca- to pass and will allow this to happen and Braskem, is telling: “It is not clear if the pacity in Argentina but I do not see a simi- in the long term, prices for gas in Brazil price for feedstock will be lower but the lar plant to the Ethylene XXI in Mexico should come down,” predicted João Luis business environment will be much bet- being built in Brazil.” Ribeiro De Almeida, partner, mergers and ter than today because there will be many acquisitions and oil and gas, at law frm more players in the market. We also expect Demarest Advogados. there to be more raw material available An uncertain future: Ultimately, the future remains uncertain. but ultimately investment depends on the risks and opportunities The perspective of Marcelo Cerqueira, competitiveness of feedstock.” ▬

There is no denying that some of Brazil’s petrochemical companies have risen up to be regional leaders in their felds. How- ever, large shifts in oil and gas production mean the industry is undergoing profound changes and faces important risks as well as opportunities. The unresolved feed- stock challenge and the sheer scale of the shale gas revolution means that Brazil may struggle to compete in petrochemi- cals compared to countries like the United States in the future. Petrobras, which dominates Brazil’s oil and gas industry, has made it clear that they are pivoting away from petrochemicals by seeking to sell its 47% stake in Braskem. In large part, this is refective of a trend 21 among state-owned oil companies in Latin America driven by the drop in the oil price. “With the drop of oil prices, state-owned companies are under pressure to show bet- ter results to sustain their investment plans, which means that investments into refner- ies and chemical integration with them has stalled,” explained Marcos Gallo, regional feedstock manager, Cabot South America & Mexico, a specialty chemicals producer. In this context, the future competitiveness of the petrochemical industry in Brazil is uncertain. However, another scenario is that produc- tion from Brazil’s pre-salt reserves, cou- pled with ethane imports from the United States, will bring the overall cost of feed- stock down. Currently, the government is introducing legislation to open up the gas infrastructure market, including natural gas processing plants, re-gas stations for LNG and pipelines. There are hopes this will inject competition into a market Petro- bras currently controls almost completely. “More gas is expected from pre-salt and Petrobras has opted for a pipeline to bring gas from these reserves to the Comperj petrochemical complex. A new processing plant has just been announced by Petro- bras there with participation of Chinese

Global Business Reports BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Industry Explorations INTERVIEW Global Business Reports

What has been the evolution of Braskem What is the strategy of the company to over the last years? keep its leadership position? Braskem is a global petrochemical compa- Besides looking for enhancing productivity ny with a Brazilian heart. It started in 2002 and competitiveness, Braskem aims to di- from the merger of six different companies versify business on two fronts: feedstock and and it has consolidated the Brazilian indus- geography. try in 2010. In parallel to that movement, the company acquired Sunoco's and Dow's poly- What trends do you see in the petrochemi- propylene (PP) businesses, with units in the cals market? U.S. and Germany. After that, Braskem also On the one hand, companies want flms and made a brand new investment of US$5,2 bil- rigid packaging that use less material without lion in Mexico, which came on stream last losing their properties. On the other hand, year, a joint venture (75%-25%) with Idesa, sustainability and recycling are very rel- a local chemical player. In the U.S., it leads evant concerns. As an industry, we need to the PP market and just announced an invest- think about the whole product cycle. Plastics ment of US$675 million for a new PP plant in are one of the smartest materials available, Houston, Texas, starting in 2020. In addition, which allows for weight reduction and there- another investment was a new ultra-high mo- fore lower emissions. Plastics also contribute Edison lecular weight polyethylene plant in the U.S. greatly to food safety and hygiene. However, We are also an innovative company: we start- taking care of the full product cycle is the f- Terra Filho ed the frst Green Polyethlyne plant in Brazil, nal frontier for plastics. If we reach that goal, producing ethylene from sugar cane ethanol, the material could be unbeatable. becoming a global biopolymers player. At Braskem, in Brazil, we have launched a platform called “Wecycle”, with the idea of How do petrochemicals and renewable- supporting these circular initiatives to hap- sourced chemicals compare? pen. In our offce building, we collect around 22 Green Polyethylene (PE) is defnitely more two metric tons of polypropylene every competitive than any other renewable-sourced month, that we recycle to produce a post-con- Executive Vice President resin, not only in terms of the resin price. The sumption resin (PCR). We also have an agree- BRASKEM Green PE is a drop in solution: the same as- ment with supermarket chain Pão de Açúcar, sets that process Fossil PE can process Green who use PCR for their private label products. PE. Braskem recommends Green PE to those customers that recognize that it adds value to What are going to be the main topics at the their product within their particular market. APLA gathering in Rio? In fossil PE production 2 metric tons (mt) of The major topic in the industry today is the CO2 are generated per mt of PE produced. consequences of shale gas investments. These With green PE, on the other hand, 2.8 mt CO2 have relevant implications for the resins mar- are captured for each mt of PE, because the ket, mainly in ethylene, and also for other CO2 goes into the sugarcane. The difference chemicals and derivatives from the naphtha is therefore 4.8 mt of emissions. If the carbon value chain, such as propylene, butadiene and trading market becomes more liquid, this will benzene, of which there may be a shortage if become very relevant for customers using re- there is a movement from naphtha to ethane newable sourced resins. on the fexible crackers side. Other important topics are Argentina's shale How is Braskem moving forward after the gas potential and the rapid changes brought Lava Jato-related wrongdoings? by digital transformation: Industry 4.0, Big We want this situation to be an opportunity to Data, the Internet of Things, artifcial intelli- become an industry reference on compliance gence, etc, which are going to have a signif- issues. There have been substantial changes cant impact on our industry. Finally, we see in our compliance team, which now reports to the increasing uptake of electric cars as an op- the board of directors for enhanced indepen- portunity for plastics, as the heat restrictions dence. After the initial reports about wrong- of having plastic near the combustion engine doings, we started an internal investigation will not be there anymore. On the other hand, and collaborated with the authorities, and this the demand for new cars may decrease with way we reached a settlement with the authori- the rise of the collaborative economy, so there ties of Brazil, the U.S. and Switzerland in late are many different dynamics that should be 2016. discussed. ▬

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports Global Business Reports INTERVIEW

Could you give an overview of your Brazil How do you see production from the pre- operations? salt reserves and the US shale gas revolu- For the chemical business of Braskem, all of tion impacting the feedstock situation in our production is in Brazil. Since the begin- Brazil? ning, we have worked with master crackers, We see two opportunities. Firstly, shale gas mostly using naphtha. We now have four production is growing fast and we see a poten- crackers in the country and produce around tial to bring ethane and propane to supply our 8.5 mt/y of ethylene, propylene, butadiene, plants. Secondly, pre-salt will make more gas butene and others. Half of what we produce available. Our strategy is to make our plants we deliver to Braskem’s downstream plants in in Brazil more fexible so they can use ethane Brazil to produce polyethylene (PE), polypro- and propane. At present, only our cracker in pene (PP) and polyvinyl chloride (PVC), 30% Rio can use these compounds whilst the other we deliver to other customers in Brazil and three cannot. So this year we will start bring- 20% we export. We also produce specialties ing ethane to our cracker in north-east where and solvents which we supply domestically we will be able to use up to 15% ethane. We and export. In terms of the vinyls business are working on a logistics project to be able to unit, we have four plants in the north-east supply our crackers with either raw material which supply PVC and caustic soda domesti- from shale or the pre-salt reserves. Marcelo cally. In 2012 we started a new PVC plant in Alagoas. How do you expect the potential legisla- Cerqueira Although we export some of our products, we tion to liberalize the oil and gas market have been trying to sell to new customers in in Brazil affecting the competitiveness of Brazil or encourage existing companies, in- feedstock for the petrochemicals industry? cluding global ones, to expand here. Brazil The market will be impacted but not just be- is huge and the demand for the chemicals is cause of the legislation as Petrobras is already high so we have an opportunity to produce selling some assets and foreign companies are products that today we import. coming to Brazil. The market is changing in 23 Brazil and that will give us new opportunities. Vice President, Chemicals & Vinyls Do you expect foreign investment to pick It is not clear if the price for feedstock will BRASKEM up in the coming years as the economy im- be lower but the business environment will be proves? much better because there will be many more We expect this to happen and already global players in the market. We also expect there to clients are visiting us to discuss potential new be more raw material available but ultimately investments. But as the current economic investment depends on the competitiveness of situation is diffcult they are only starting dis- feedstock. cussions, not investing. How has Hurricane Harvey affected feed- “ Can you provide examples of how Braskem stock supplies? The market is changing in is adapting to mega trends? We are operating at full capacity at our plants Brazil and that will give us new Electric cars combined with a rising middle in Brazil. However, because of plant shut- opportunities. It is not clear if the class could lead to demand for new products downs in Texas there will be some unmet price for feedstock will be lower from us and from our customers. Therefore, needs in the global market which we will look but the business environment will our strategy is to support our customers in to supply. It is to be expected that petrochemi- be much better because there coming up with solutions to develop these cal prices will be volatile in the upcoming will be many more players in the new products using our chemicals, as well as months. market. looking internally at how we can create new resins. What are the key objectives of the Chemi- In terms of sustainability, we work with cli- cals & Vinyls division in the next year? ents to produce additives which reduce the Our key objectives next year include im- viscosity of liquids which therefore require provements in feedstock fexibility in our less energy to be pumped and so leading to crackers, strengthening competitiveness in ” lower CO2 emissions. Regarding Industry the whole production chain together with cur- 4.0, whilst we are not completely sure of its rent customers and suppliers and attracting effects yet, we believe this will have a huge new customers to invest in Brazil. We believe impact on business models and how we man- Brazil represents a huge opportunity to invest age information and make decisions. because of an increasing demand for petro- chemicals in the domestic market. ▬

Global Business Reports BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Industry Explorations INTERVIEW Global Business Reports

Ralph João Schweens Parolin

President CEO BASF SOUTH AMERICA OXITENO

As the world's population continues to a 2-ethylhexyl acrylate plant, covering a What is Oxiteno's history and scope grow, how can BASF play a role in in- complete range of acrylics, and we also in- within the Ultrapar Group? creasing food production? vested in two new formulation plants for Oxiteno is part of Ultra, a multi-business Agrochemicals are one of the segments agrochemicals in Brazil. company and a leader in the segments in we invest the most in R&D. We see three which it operates and one of the largest cor- global challenges: resources, environ- Will BASF continue to invest in Brazil porate groups in Brazil. As its operation in 24 ment and climate; food and nutrition; and over the long run? the chemical industry, Oxiteno supplements quality of life. Chemistry is an enabler There is room for more investments in Ultra’s expertise and expands its operations to help farmers produce more using the Brazil. The trade balance has not improved to new geographic locations, operating in same amount of land. BASF provides her- over the last years, and Brazil continues to Latin America and in the United States. bicides, fungicides or insecticides; also, rely on imports in the chemical market. We Oxiteno started as the frst and only pro- it fosters technology and digitalization. foresee growth again in Brazil starting in ducer of ethylene oxide in Brazil. Over time In South America, BASF has a program 2018 and 2019. BASF sees opportunities we diversifed into most of the ethylene called AgroDetecta, a solution that pro- to grow across the region – the two coun- oxide derivatives, such as ethanolamines, vides more accurate weather forecasts, as- tries that have suffered the most, Brazil glycol ethers, surfactants and polyols. We sisting farmers in their decision-making in and Argentina, are the ones offering the also diversifed our chemistry to produce the short term. highest potential, because the underlying oleochemicals. In 2008, we inaugurated the opportunities have not disappeared. Brazil frst fatty alcohols plant in Brazil and Latin What is the impact of your investment has more than 200 million consumers, a lot America. We are still the only producer of in the Camaçari site? of natural resources and it is potentially the fatty alcohols from palm kernel oil in Latin In the past 20 years, the Brazilian chemi- largest market for growing crops, offering America and this is an important compo- cal industry has not seen an investment as great opportunities for investments in in- nent for our surfactants. Indeed, all the in- large as the one BASF made in Camaçari, frastructure. ▬ vestments we have made since 2000 have which was very meaningful for the chemi- to do with our surfactants business. Today, cal industry. The complex employs 230 we are leading manufacturing of surfactants people directly and 650 additional jobs are and specialty chemicals in Latin America. offered through external suppliers. It is an “ important operation for the state of Bahia. What are your main target industries? We started our operations in Brazil 106 In the past 20 years, the Brazilian Our main market segment is home and per- years ago, and, since then, Camaçari has chemical industry has not seen sonal care, which is a very resilient area. In been BASF's most important investment in an investment as large as the one a recession, people switch for cheaper prod- South America. It is a new, ¤500 million BASF made in Camaçari… ucts, but they still use them. Our second world-scale chemical site where we pro- market is agrochemicals; Brazil is a huge duce acrylic acid, butyl acrylate and super- market in this segment. absorbent polymers. We have very good technology in surfac- Moreover, we converted the butyl acry- tants and performance systems for agro- late plant we had in Guaratinguetá into chemicals. We supply most of the big ag-

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017” Global Business Reports Global Business Reports INTERVIEW

know our offering can fully meet customer Sinclair needs and leverage the strength of our supply Fittipaldi chain to be a reliable partner. Do you expect local production to signif- cantly increase over the next fve to ten Director, South America Sales years? rochemicals producers in the world. Our LYONDELLBASELL BRASIL Our products are produced globally and ex- third market is paints and coatings in many pect those that are traded globally, like poly- different segments, such as construction, ethylene, will be largely determined by feed- automotive, paints, printing inks, etc. Last stock costs and the cost to serve. We expect but not least, we supply many products to products that are more regionally based to see the oil and gas industry, focused mainly on growth for local needs. production activities and to a lesser extent on drilling. How do LyondellBasell’s innovations help tackle some of the world’s big environmen- Could you give us examples of innovation tal and societal challenges? within Oxiteno's portfolio? LyondellBasell's long-term business success Recently, Oxiteno introduced the SUR- is built on our commitment to advance sus- FOM® DRT 8575, a new adjuvant to op- tainability principles. Our products contribute timize the process of spraying pesticides Could you give an overview of your pres- to the solutions of modern day sustainabil- in farming. When added to the pesticides, ence in South America? ity challenges, such as plastics for the light- SURFOM® DRT 8575, an emulsion-based LyondellBasell has been in this region for weighting of vehicles and materials for the technology, prevents the formation of very over 30 years. We have the scope and scale evolution of renewable energy sources. fne droplets during spraying, which can be to serve global markets and we deliver prod- LyondellBasell has over 5,000 patents. We carried out by the wind resulting in contam- ucts and solutions in four key areas: chemi- have just been awarded the European Inno- ination of undesirable crop areas. cals, polymers, fuels and technology. In South vation Award from Plastics Europe and the 25 America we have a strong sales presence for Society of Plastics Engineers (SPE) in the What is the role of renewably-sourced our chemicals business which is managed category ‘Material Innovation.’ The company chemicals in this respect? through our São Paulo offce. In Brazil we was honored for the development of Koattro 25% of raw materials we use are from re- also have a manufacturing plant in Pindamon- KT MR05, a new plastomer with ‘self-heal- newable sources and 37% of our products hangaba which has 80 kilotons/year of capac- ing’ properties. We are also investing $725 use renewable raw material. There are many ity in polypropylene compounds mainly serv- million into building a new polyethylene (PE) companies that are trying to use more veg- ing the automotive industry. plant due to start in 2019 at La Porte, Texas etable oil formulations. Sustainability is one which will use LyondellBasell’s proprietary of Oxiteno’s innovation process drivers in To what extent do you import products into advanced material performance technology, its main markets. The focus is to develop Brazil and what was the impact of Hurri- a completely new technology. In addition, and deliver products and services that pri- cane Harvey? we are investing $2.4 billion in a new propyl- oritize the effcient and responsible use of Every chemical we sell in South America ene oxide and tertiary butyl alcohol plant in natural resources during our production comes from the U.S. Gulf Coast. Prior to the Texas, which will produce ethers among other processes, the lowest impact on the environ- hurricane we activated a very comprehensive products. Ethers are used in fuel blending to ment and the health and wellbeing of users. storm plan designed to minimize potential im- improve fuel effciency and cleaner burning. pact to our facilities. We were able to restore This plant is the single largest capital project How does Oxiteno see the future? operations shortly after the storm and there in our company’s history. We made many investments in our indus- has not been a big impact to our customers in trial plants during the last decade, which Brazil; we remain very reliable. Do you have any fnal messages for the allows us to serve our customers even in a APLA delegates? context of economic recovery in Brazil. So How competitive is the market for interme- LyondellBasell will continue to focus on our we are ready to serve this market whenever diaries and derivatives in Brazil and what strengths: industry leading safety and environ- it picks up again. We have a lot of capacity are LyondellBasell’s key differentiators? mental performance, excellent reliability, and available, modern assets and a very strong There is quite a strong industrial base in Bra- effcient operations. It is the people of Lyon- R&D team. We want to continue growing zil. The region is very important for Lyon- dellBasell that drive this commitment to our abroad, hence our investment in Mexico dellBasell as there is a very good ft for our core competencies and our customers. Our two years ago and our current investment products logistically given the relatively short long term demonstrated success in these areas in the United States. We want to be a top transit time from Houston to South America. has enabled LyondellBasell to reinvest in our player in the surfactants business in the It also helps that Houston is on a similar time business. These investments will fortify our Americas. ▬ zone. We concentrate our efforts where we ability to serve the Brazilian market. ▬

Global Business Reports BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Industry Explorations INTERVIEW Global Business Reports

What are Unigel’s main focus areas cur- lent at 14%, whereas now it lends at 9% and Reinaldo rently? we expect it to be at 7% by the end of the RK: We are currently investing US$90 mil- year. This will improve investment in Bra- lion to increase our styrene capacity by zil’s economy and GDP will emerge from Kröger & 35,000 mt/y in time for the frst quarter of negative territory this year. In a market of 2018 and 65,000 mt/y by 2020. This means over 200 million consumers, if GDP reaches we will have 400,000 mt/y capacity for sty- 1% growth next year from a minus 3.6% Edson de rene monomer along with 320,000 mt/y for decline in 2016, it will represent a huge polystyrene by 2020. Alongside increasing increase in demand. Furthermore, Brazil’s Paiva production, we also aim to reduce energy current government under President Temer costs and modernise our facilities. Another is generally managing things well. There- key development is Unigel’s purchase this fore, we are optimistic about the future de- year of the latex division of Trinseo, based mand. RK: President near Guarujá. The goal behind this is ver- EdP: Operations Director tical integration, given that styrene and How does Unigel contribute to more envi- UNIGEL acrylonitrile are used as a raw material to ronmental sustainability? make latex. We are able to increase capac- EdP: In the last fve years, Unigel has in- ity as we have reduced our debt in recent vested a lot in sustainability. For example, years, which is particularly important given we have invested in waste water treatment the high cost of borrowing in Brazil. In at two of our plants in Bahia and São Paulo addition, fve years ago, we increased our for which we are partnering with Universal methyl methacrylate (MMA) capacity at Environmental Technologies (UET) which our Bahia plant and this is enabling us to is highly specialized in this area. This has generate new products. been a very successful initiative as now 75% of water is re-used compared to in the Unigel is Latin America’s leading pro- past when 100% was disposed of in the sea. 26 ducer of acrylonitrile (AN), methyl meth- We plan to reuse 100% in the near future. acrylate (MMA) and sodium cyanide. How have you reached this leading posi- What challenges are there in developing the chemicals value chain in Brazil? RK tion? EdP: We have grown by both purchasing RK: It is the same problem as in 2012: the and also by developing technologies in high cost of natural gas, compared to the our Center for Innovation and Technology United States. (CITU) based in Bahia. We also have very The other big challenge is infrastructure and high plant effciency and relatively low op- in particular the lack of capacity at ports. erating costs. Due to the pressures brought As the economy improves, there will not on by the economic crisis in Brazil, we have be enough capacity to meet the increase in invested in technology to lower the cost of demand. energy, such as two new reactors in our sty- EdP: Compared to before the crisis when the rene producing facilities. government had more resources, it is now Also, because our chemicals are used across more focused on opening up the market for a very diverse set of applications - from infrastructure and encouraging private play- mining, fertilizers, packaging and food to ers to invest, such as from Chinese, US and plastics - we are able to weather economic European investors companies. This is a EdP crises. proven model that should lead to increased investment in Brazil’s infrastructure. How do you see demand developing for your products in the next couple of years? What are your main goals for the next RK: In the last two years, our fnancial re- few years? sults have been quite good. Nevertheless, RK: Unigel is focused on increasing its for two years GDP growth has been nega- production capacity. We also see many op- tive in Brazil and 14 million people are out portunities for methacrylate and we already of work, which has inevitably affected de- supply 50% of higher methacrylates for the mand for chemicals. However, now macro nail beauty products market globally. This indicators are changing: infation, interest refects our plan to focus on specialty chem- rates and unemployment are all coming icals and develop new products in this area, down. Until recently, Brazil’s central bank’s leveraging our R&D efforts. ▬

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports Global Business Reports EDITORIAL

bio sources are at an advantage as within Green feedstock and them hydrogen comes with oxygen, which is not the case in petrochemicals.” BNDES is also in talks with DSM in Bra- Bio Chemicals: zil, the global science-based company ac- tive in health, nutrition and materials that has developed enzymes and yeasts that can How big is the potential? treat corn to help with the production of second-generation ethanol. “We have been in talks with BNDES to further develop the technology’s potential and we continue to invest in it. However, unfortunately the fo- cus on developing this innovation has gone away due to the crisis,” commented Mauri- Brazil benefts from being the most bio- sugarcane. For this reason it was chosen by co Adade, president, Latin America, DSM. diverse country in the world as well as PAISS, a joint program between the Brazil- having a high level of production in sugar- ian Development Bank (BNDES) and the cane, corn, soybeans and wood – all poten- Brazilian Innovation Agency (FINEP), for More impact on specialties tial feedstocks. It is also the second largest R$300 million in funding for a cellulosic producer of ethanol fuel behind the United plant in Alagoas. GranBio is also partner- In terms of the impact that green feed- States and the largest producer of ethanol ing with Rhodia in a project to produce bio stocks will have on the chemical industry from sugarcane. ' n-butanol which is used in making paints both in Brazil and globally, it is important In terms of green feedstock for the petro- and solvents. to draw a distinction between the petro- chemical industry, Braskem is leading the chemical and specialty chemical industry. way. In September 2010, it commissioned As Rina Quijada, senior director, Latin a green ethylene plant at the Triunfo Pet- Government Support America, IHS Markit explained: “Al- rochemical Complex. The plant has an an- though green feedstocks are very welcome 27 nual production capacity of 200,000 mt/y BNDES has continued on its path of sup- when they are competitive, the impact of of Braskem’s I’m Green™ polyethylene, porting biochemicals. In 2016 BNDES shale gas is immense…By next year we making the company a global leader in launched the R$2.4 billion Chemical In- expect signifcant surplus polyethylene bioplastics. I’m Green™ is produced from dustry Development and Innovation Plan and other olefns derivatives to come on ethanol sugarcane. Green polyethylene (PADIQ) with FINEP. This was based stream in the United States based on very has some clear advantages as Edison Terra on the fndings of a study carried out by competitive ethane, propane and butane… Filho, executive vice president, Braskem, consultants Bain & Company and com- Therefore, green polyethylene will have to explained: “Braskem recommends Green missioned by BNDES on the potential compete under this new scenario.” PE to those customers that recognize that for diversifcation of the Brazilian chemi- As such, a signifcant impact from green it adds value to their product within their cals sector. “Most of the PADIQ projects feedstocks is only likely to be felt in spe- particular market. In fossil PE production are in the renewables sector and we are cialty chemicals, but here it could slowly 2 mt of CO2 are generated per mt of PE now putting together contracts to support form the basis for a transformation in the produced. With green PE, on the other nineteen projects involving bio-sources. market. “In ffteen years, biochemicals hand, 2.8 mt CO2 are captured for each Projects involve forestry feedstock, native might represent about 10% of the global mt of PE, because the CO2 goes into the plants from the Amazon that will produce market, with a large proportion coming sugarcane.” specialty cosmetics, sugar feedstock and from Brazil. Shale gas will take too long Brazil is also home to several producers of rice residue,” revealed Felipe dos Santos to be converted into speciality chemicals; second-generation ethanol, which is distin- Pereira, director, chemical industry depart- the impact will mostly be for commodity guished by the fact that it is not produced ment, BNDES. chemicals and plastics production,” con- from food crops. Abengoa, Raízen, and Pereira sees a lot of potential for bio feed- cluded Martim Francisco de Oliveira e GranBio are the three companies produc- stocks in the chemical industry. “It is still a Silva, engineer, chemical industry depart- ing second generation ethanol and have a new movement but we see a lot of interest ment, BNDES. total combined production capacity of 205 by companies to invest in bio feedstocks, Whilst the transformative impact on petro- million liters per year. even though we launched PADIQ during chemicals is perhaps a long way off, green Local company GranBio aims to be the an economic crisis. It is hard to say how chemicals are rising in importance. With largest producer of second-generation eth- big and fast the transition will be but there the launch of initiatives like the PADIQ anol in the world and to prove the feasibil- is a big potential. Most projects start from program and as Brazil’s economy im- ity of ethanol for biochemicals. It achieved agricultural residues, in which Brazil is a proves brining back investment, the world a 45% increase in productivity by using big player. For many of the projects we are will be looking to Brazil in the years ahead leftover materials, using no more land or funding, chemicals require oxygen, where to lead the way in biochemicals. ▬

Global Business Reports BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Industry Explorations INTERVIEW Global Business Reports

also produce plasticizers from oxo alcohols cizer, which has been accepted worldwide which are used in footwear, PVC flms, and is used, for example, in shoes exported wire and cables etc. from Brazil, and butyric acid, which is Furthermore, with aldehyde we produce or- used in fragrances and animal feed and of ganic acids such as 2EHA and butyric acid, which we are the only producer in Brazil. the latter of which we launched last year, We have also introduced CO2 recycling in and which was not previously produced our Syngas plant which has reduced our in Brazil. In addition, we produce formal- emissions. dehyde from methanol which is also used in various applications such as adhesives, How advanced is Brazil’s chemicals in- phenolic resin and many more. Last but dustry compared with other countries? not least we produce organic anhydrides, We are not producing sophisticated enough UPR and sulphuric acid. We have two chemicals. Although, in some areas we production plants in Camaçari: one pro- have progressed, such as in oil chemicals ducing gases and the other producing oxo and polymers. Tellingly, of the 22 enter- alcohols. We also have a plant in Várzea prises identifed by the National Confed- Paulista, São Paulo, which produces sul- eration of Industry (CNI) as innovative, Marcos phuric acid, plasticizers, anhydrides, UPR only three were from the chemicals indus- and formaldehyde. Last year we formed a try, one being Elekeiroz. There are many De Marchi JV with Nexoleum, a company producing things the industry can do to become more very effcient and competitive green plas- sophisticated and Abiquim has made spe- ticizers. cifc proposals about how to meet current challenges such as competitive raw materi- What is the relative importance of these als, energy and infrastructure and logistics. different areas to Elekeiroz’s business 28 and what is your position within the Bra- How challenging is it to obtain the right zilian market? labor in Brazil? CEO 41% of our sales are in fexible vinyl inter- The SENAI system in Brazil, owned by ELEKEIROZ mediates, 33% in oxo-derivatives, 10% in CNI, provides training and teaching for UPR and maleic, 12% in sulfuric acid and people who want to work in the industry 5% in formaldehyde. We have the highest and we work on many educational initia- market share in Brazil for fexible vinyl tives with them. This system has improved intermediates, oxo-derivatives and maleic. a lot in recent years and now labour train- We also have the fourth highest share for ing is not the bottleneck that constrains UPR, whilst we are niche players for sulfu- industry growth that it once was. Further- ric acid and formaldehyde. more, research centers were previously too academic but now there are many positive What new developments have occurred initiatives, such as some training centers since 2013? which design curriculums which meet spe- In 2013, we purchased Air Products’ Ca- cifc industry needs and facilitate mentor- maçari plant in order to produce our own ing of students by people in the industry. Could you provide an overview of Ele- gases and to integrate ourselves with the keiroz’s main operations and history? supply chain. We now also sell these gases What are your main goals going for- Elekeiroz has been in business for over 120 directly to peroxide and hydrazine produc- ward? years, making it one of the oldest chemi- ing companies in Camaçari. Then, in 2016, As 2016 was a tough year, we want to re- cal companies in Brazil. We belong to the we completed a joint-venture with Nexo- cover the proftability that we lost, which holding Itaúsa, which controls Itaú Uni- leum that has allowed us to start creating we have already started to do in 2017. An banco, South America’s biggest private a plasticizer from soy-bean oil which we important part of this will be working to bank, and Duratex. Elekeiroz is a regional will soon be exporting to the United States. fulfl our capacity in and the marketing of leader in chemical production. We are the The plasticizer is not only green but of high our new products such as butyric acid and only producer in Latin America of oxy quality, so we have high hopes for its suc- phthalate-free plasticizers and develop- alcohols and have the largest plasticizers cess. We also plan to expand Nexoleum’s ing our international market share for our portfolio in the region. We produce and sell bio-plasticizers production capacity from 8 core products. Among those products we 2EH, NBA and IBA oxy alcohols. The end- kta to 24 kta. now also have the green plasticizers from uses include acrylates, painting and coat- Other important developments include the Nexoleum which completes our plasticiz- ings, agrichemicals and many more. We launch of a phthalate-free DOCH plasti- ers offer. ▬

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports Global Business Reports INTERVIEW

been integrating ourselves further up- dispersions in Brazil which is mostly used stream in order to be able to provide more by the adhesives industry. In addition, we customized solutions and offer more fex- are trying to develop its application in ibility. coatings, which would lower CO2 emis- sions compared with acrylics. However, How important is Brazil and Latin the challenge we face is to guarantee a America to Wacker as a whole? competitive offer for a higher value-added The São Paulo offce is responsible for the product. southern cone, so Brazil, Argentina, Chile, Uruguay and Paraguay and our colleagues What are the key drivers of innovation in Mexico are responsible for the rest of for Wacker? Latin America. In terms of Brazil specif- Although Wacker is a global company, the cally, the production plant is our only plant innovations we bring depend very much in the whole of Latin America and we ex- on local needs. Generally, we have R&D at port to the rest of the region. Due to Bra- a global level but always have application zil’s size, Wacker frst came here and then labs at the local level. We use the Wacker expanded with sales offces in other Latin Academy to work through problems with Adriano American countries. a client. We then work with them in prod- Argentina and Chile present a huge poten- uct testing in one of our application labs. Magalhães tial for growth. Argentina has just recov- Some examples include work we have ered from its own crisis and is opening its done on polymers for the construction in- markets to foreign investors. The Chilean dustry. economy is very competitive and they use sophisticated standards for silicon and How do you overcome some of the chal- polymer based products which we hope lenges of operating in Brazil? can be replicated in other countries. On the economic side, our preemptive 29 measures have been very successful at Managing Director How has Wacker adapted to the eco- helping us maintain our success. On the WACKER nomic situation post 2014? other hand, there are structural changes Two factors meant we were actually quite occurring over time such as demographic well prepared. Firstly, we went through change and rising incomes. When we in- a reorganization before the crisis so we troduce new products to meet these needs entered into it with a better cost situation we need to adapt our offering to local compared to our competitors and did not circumstances and work through Wacker need to take any signifcant cost cutting Academy to do this. As an example, we actions in 2015/2016. Secondly, in May need to provide products which can with- 2015 we decided to increase capacity and stand the hotter temperatures and high are now commissioning a new plant for winds of the north of Brazil. silicone composites and fuids. Therefore, Recently there have been increases in raw we invested counter-cyclically and now material costs in the chemical industry and that the market is picking up again we will energy costs have not been getting cheaper be able to offer higher capacity and more either. However, year over year we have fexibility. been improving our competitiveness and effciency so that these factors will not Can you give a brief history of Wacker Could you provide more details on your have such a big impact. in Brazil up to its place in the market product portfolio? today? In terms of local production, we mostly Do you have any fnal messages? We started in 1977 as a sales offce but in produce silicone emulsions, anti-foamers We truly believe in the potential of the re- just three years we began to develop our and compounds, as well as silicone-based gion. The reason behind this is that we see production site which has been operational fuids which serve several markets such as the openness and willingness to innovate since the 1980s. Ever since then we have pulp and paper, cosmetics, textiles, agri- in our customers. When you look ahead, been expanding our local footprint in the culture and oil and gas. On top of this, we there is a great feld of opportunities for the country and have grown our local pro- merchandise silicone and polymers prod- industry, in particular in sectors like pulp duction nine fold. We are mostly focused ucts for the construction industry produced and paper, agrochemicals and cosmetics. on silicone-based products, produced in by the Wacker group. This is why we have chosen to invest in Jandira, and in the last few years we have We also sell vinyl acetate-ethylene (VAE) new capacity and application labs. ▬

Global Business Reports BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Industry Explorations INTERVIEW Global Business Reports

What key developments have occurred What major projects have you worked on Hikaru since 2012? in the region in recent years? HK: Traditionally Yokogawa’s strength has MF: The most remarkable project we have been in the robustness of its hardware. We worked on recently is for an important Bra- Kikkawa & were the world’s frst company to develop zilian petrochemical company, which we a distributed process control system (DCS) completed last month, where we carried out and we have had virtually 99.9% availability a DCS migration at one of their polyethylene Marco for our most important DCS over 40 years, plants in only four days. In addition, in the offering an accomplishment of long-term last year we worked on an energy optimiza- stable operations. However, today we are in tion project, taking advantage of our acquisi- Figueira a VUCA world (volatile, uncertain, complex, tion of Soteica Visual Mesa. and ambiguous) and customers’ priorities are changing with these new global trends. How will trends technology like AI and HK: President and CEO Looking at this new background, Yokogawa IOT affect your services going forward? MF: Commercial Director – South America wants to improve productivity, increase HK: Technology by itself cannot bring val- YOKOGAWA SOUTH AMERICA yield, lower maintenance costs and improve ue-add but through providing operational safety, whilst shifting to more value-add excellence with simulation technologies, services and co-innovation with our custom- which will evolve into artifcial intelligence, ers, establishing ever greater levels of trust it is possible to identify where effciency with customers. Since 2012 we have created gains can be made. Through remote moni- global strategies to be the trusted partner for toring and a cloud database you can sustain seamless sensor-to-enterprise integration, these improvements and this is what we call pursuing best in class operating performance transformation cloud-based real-time perfor- for our customers in chemical industries. mance improvement. We are working with In 2015 we launched a new business plan Microsoft Corporation, FogHorn Systems, called “Transformation 2017” under which Bayshore Networks and Telit IOT Platforms 30 we are focusing on our customers, in terms to integrate our technology into an IoT ar- of creating new values and maximizing eff- chitecture which will transform our business ciency globally, optimizing all functions and model. operations. Furthermore, we are accelerating It will take some time for these new tech- HK Industrial Internet of Things technologies nologies to take effect and clients are still (IIoT) strategies to improve our solutions somewhat conservative as security is a ma- portfolio. We have acquired new technolo- jor issue for them given that cyber threats gies to do it and we are now entering into like WannaCry are a big risk for industrial the growth phase of our plan. We also ac- process automation. However, technology quired KBC Advanced Technologies, which is changing fast so security of technology is has best in class consulting and simulation becoming increasingly robust and the mar- technologies for refneries and petrochemi- ket will gradually shift to more cloud based cals; Industrial Evolution which provide solutions. The most advanced customer re- DaaS services, that connects sensor data to lationship we have in this area is in explor- the cloud and Soteica visual Mesa, an energy ing the possibility of a cloud based DCS. optimization company. There are other customers interested in the new solutions we are providing through our What differentiates Yokogawa from its subsidiary KBC. Although, our frst priority MF competitors? is to improve safety and effciency and how HK: Compared with our major global com- we get there will depend on customer prefer- petitors, Yokogawa is the only company ence. where the major part of its business is indus- trial automation and this differential creates What areas do you see most opportunity a competitive strategy. In fact, we are the in the region going forward? only company that derives more than 80% of MF: We are looking for opportunities in the its revenues from industrial automation. We ethanol industry and will be investing more also have 4,000 project engineers and 2,000 into the chemicals sector. In addition, we see service engineers globally and are becoming a lot of opportunity in the mining industry, in very strong in operational excellence with particular in Chile. ▬ simulation technology which will highlight Yokogawa in the future.

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports Global Business Reports MAP

MAJOR PETROCHEMICAL COMPLEXES

31

Camaçari Complex Brasilia

Duque de Caixas Complex

Capuava Complex ATLANTIC OCEAN PACIFIC OCEAN

Triunfo Complex

Global Business Reports BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Industry Explorations Image: Croda do Brasil GBR • Industry Explorations • BRAZIL PETROCHEMICALS AND CHEMICALS 2017 SPECIALTY CHEMICALS

“Commodity chemicals have a 4% to 5% margin, which requires high volumes to make production worthwhile, whilst specialty chemicals have higher margins.”

- Reinaldo Kröger, President, Unigel. EDITORIAL Global Business Reports

Specialty chemicals in Brazil: The future of Brazil’s chemicals industry?

An introduction to Brazil’s highly 34 innovative specialty chemicals sector

Whilst Brazil’s petrochemical companies have become regional leaders, further downstream, Brazil’s specialty chemical pro- ducers are quietly notching up their own successes. In 2016, industrial chemicals made up almost US$55 billion of the total US$113.5 billion of Abiquim members’ sales, whilst specialty chemicals made up almost US$59 billion. At the same time, spe- cialty chemicals offer higher rewards for producers than com- modity chemicals. Chemicals of course supply a plethora of segments across an economy. Sectors which stand out for their success include cos- metics, agrochemicals, food additives for animals, aromas, fa- vors and fragrances, chemicals for exploration and production and surfactants. In particular, the cosmetics, agrochemicals and food additives for animals sectors have been posting impressive growth in Brazil, in spite of the economic crisis. Demand for agrochemicals grew by 5% in 2016, compared to a 5% decrease for the chemicals market as a whole, whilst animal feed grew by 10% on average from 2007 to 2012 and has fared relatively well during the recession as well. Meanwhile, Brazil accounts for 10% of the global cosmetics industry which is expected to Image:

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports Global Business Reports EDITORIAL

The name of the game is innovation

“ Whilst effciency is key for commodity producers, for specialty Brazil’s chemical industry’s core strengths have always been producers the priority is value-adding services and a continuous speciality chemicals and research and development. stream of innovation. Even during the crisis years and perhaps because of it, specialty companies have achieved a lot when it comes to innovation. - Rina Quijada, This fts a wider trend in specialty chemicals. As Richard Pino, Senior Director, Latin America, vice president sales and marketing, Croda, remarked: “To inno- vate, you need to understand what your customers want and to IHS Markit help us do this throughout Latin America we have our own offces in Colombia, Argentina, Chile, Peru and Mexico.” What customers want differs from country to country, sector to sector, making it crucial specialty producers understand their par- ticular markets. Given that specialty chemicals are mostly used in consumer industries such as food, pharmaceuticals and cosmet- ics, this requires producers understand Brazilian tastes. post an average annual CAGR of 11% over the period 2015” to One example of companies recognizing this is Solvay’s decision 2019, according to Infniti Research. to pick Brazil to house its global research center for hair care In fact, these sectors have been identifed by Bain & Company in products. It announced in 2015 that it was investing ¤20 million 2014 as the most competitive sectors for Brazil’s chemical indus- into expanding its plant in Itatiba and developing new molecules try that could help reduce its trade defcit in a report funded by used in shampoos, conditioners and other hair care products at its BNDES on the opportunities for diversifcation of the Brazilian research center in Paulínia. Whilst this will help to cater to local chemical industry. Brazil imported in 2012 a whopping US$5,400 needs, Brazil is also an ideal market to conduct such research due million in agrochemicals compared with US$500 million exported to it having the largest variety of hair types in the world. and imported US$830 million chemicals for cosmetics compared Eastman’s product portfolio also exemplifes the benefts of being with US$580 million exported. Therefore, Brazil’s chemical in- close to customers. It has just won an award for packaging from O 35 dustry is home to a fourishing specialty chemicals market, with Boticário, a giant of Brazil’s formidable cosmetics industry. “We companies offering a diverse set of products and serving numer- 41▶ ous sectors across the Brazilian economy and beyond. However, trade defcits mean there is scope for improvement.

Local production: room for growth

In terms of local production, Arkema, which produces organic peroxide, coating (acrylic) resins and construction adhesives, has four plants in São Paulo state and one close to Rio de Janeiro. Croda, the diversifed specialty chemical producer, has been com- mitted to Brazilian manufacturing since the 1990s and produces about 15% of its products locally. Cabot has three manufacturing units in Mauá, São Paulo that produce carbon blacks for elasto- mer reinforcement and specialty carbon blacks, sold primarily in Brazil; whilst Eastman also has a facility there that has a capacity for diversifed lines of polymeric and monomeric plasticizers of 20 to 25 KMT per year. Meanwhile, DSM, the life sciences com- pany and specialty chemical producer, has operations consisting mostly of blending facilities where it prepares pre-mixes for the animal and human nutrition industries which include beverages, dietary supplements and personal care. Finally, Rhodia Solvay, a mainstay of Brazil’s chemical indus- try which is pivoting to become a multi-specialty producer, has eight production sites in São Paulo state and one in Paraná state. Nevertheless, there is certainly room for more local production in Brazil’s specialty chemicals sector, as Rubens Medrano, president of Associquim, remarked: “There is a lack of local production in specialties and most of these are imported.”

Global Business Reports BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Industry Explorations INTERVIEW Global Business Reports

distribution centers and sales offces. We times we have met diffculties to open new have also invested in international class ventures because of national laws often innovation labs which refect our focus on changing, and for the same reason it can specialty chemicals, technical expertise also be diffcult for international compa- and high quality products. We have been nies to get local licenses. successful at increasing the quality of our products through our innovation approach What are your key goals going forward? despite the occurrence of a crisis which We are often close to saturation point in tends to slow the development of innova- Brazil so we are looking to increase capac- tion. Furthermore, we offer more sophis- ity. Indeed, production has continued to ticated solutions, which we believe is the increase during the crisis. The company direction the Brazilian market is heading. wants to grow organically through invest- ment in existing sites, such as through Arkema aims to obtain 80% of its rev- improving productivity and equipment, enues from specialty chemicals by 2023. and also potentially through acquisitions How does this align with your Brazil op- in Brazil or the wider region. Arkema has Eric erations? given priority in recent decades to invest- We are already over this level in Brazil, ing in Asia and in particular China. There- Schmitt where we focus on products for niche and fore, South America is still underrepre- technical applications. We market prod- sented, which we would like to change. ucts such as specialty polyamides, special- After the anti-corruption investigations ty fuorinated polymers under our Kynar® and the election next year, prospects for brand, gas odorizers and new generation Brazil will be brighter. fuorinated refrigerating gas to different 2023 represents a new strategic horizon for 36 clients across Brazil. the company. Arkema is stepping up the development of its specialty activities, in CEO How do you see prospects for Brazil and particular adhesives, advanced materials ARKEMA QUIMICA (BRASIL) the region in the longer term? and thiochemicals. Innovation addressing Historically, the reputation of Brazil with- the major societal challenges, bolt-on ac- in the Arkema group has not been always quisitions and strengthening our positions positive due to the instability here and in higher growth countries will underpin some diffcult partners we have had in the this ambition. past. However, over the long run the pros- pects are still positive. Compared to other Do you have any fnal messages? emerging countries, Brazil has a very ad- Our objectives are also sustainable. In a vanced industry. fast-changing world characterized by glob- Overall, Brazil has a strong potential to be al warming, a rising world population, the one of the strongest industrial powers with increasing diffculty in accessing energy one of the most modern and productive and safe drinking water, and the growing agricultural sectors in the world and that scarcity of certain resources, manufactur- Arkema was established in 2006 as a invests in renewable energies. It also has ing companies like Arkema must constant- spin-off from Total. How do you posi- a highly digitally interconnected popula- ly innovate and adapt their product range tion yourself in the Brazilian market tion which presents opportunities for our to offer solutions addressing these chal- today? industry to be part of in terms of new and lenges. To help meet these major changes, Arkema has a long history in Brazil since connected technologies. the group has structured its innovation the WWII. Today, in Brazil we produce strategy around six innovation platforms. organic peroxides, coating resins and ad- What are the main challenges Arkema These are delivering usable, innovative ditives, leveraging an acquisition we made faces to developing chemicals in Brazil? and environmentally friendly solutions in fve years ago that generated Coatex Latin Lack of raw materials is a big challenge such areas as bio based products, new en- America. In addition, we produce con- and we even came to the conclusion that ergies, water management, electronics so- struction adhesives following an acquisi- it was not worthwhile producing one type lutions, lightweight materials and design, tion by Bostik, part of Arkema since 2015, of specialty chemicals product because of and home effciency and insulation. We are of a local company called Usina Fortaleza. this situation. Bureaucracy in Brazil ham- also committed to contributing to the goals We have four plants in São Paulo state and pers investment and projects are often only of COP21 and have a strong track record one close to Rio de Janeiro, plus a dozen initiated with political connections. Some- of lowering our emissions. ▬

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports Global Business Reports INTERVIEW

which became part of Aventis in 1998. Can you give some example of how Over time, Rhodia re-focused on chemi- Solvay’s products are used to enhance cals. Today, Solvay Group, which Rhodia sustainability? belongs to, has twelve business units that Solvay puts all its efforts into long-term produce chemicals such as oxygenated trends like sustainability. We produce sil- solvents and phenol acetone derivatives, ica which is used to reinforce rubber and innovative textiles such as ones that are car tires, reducing gas consumption by biodegradable, lactic acid retardants used 6% and so also reducing CO2 emissions. by sportspeople and alco-chemicals, of We have also developed a unique range which we are the leading producer in of bio-based solvents, under the brand Latin America. Augeo, which are used in most cleaning Our major chemical site is located in products in Brazil. Paulínia, São Paulo, and is 15 million square meters in size. We have been there What are the main challenges facing for 75 years. Here we manage an indus- your business? José trial complex which houses branches of Brazil faces a lot of economic volatility Boehringer, Air Liquide, BASF and Bay- and feedstock prices are too high, impact- Borges er CropScience, as well as 20 production ing the production of commodities and sites of Solvay. We also have a large sugar intermediaries, which the industry must cane plant located there and one of our compensate for by improving competi- Matias largest research centers. tiveness in other areas. There is enough demand in Brazil so this is not the prob- Could you provide more insight into lem. We have focused efforts on logistics, your strategy of becoming a multi-spe- marketing and purchasing in order to gain 37 cialty company? market share. Also, economic downturns President The company is reducing its exposure to have a big impact on smaller companies RHODIA - SOLVAY GROUP commodities and moving more into spe- and destroy part of the chemical value LATIN AMERICA cialties which is why Solvay acquired chain each time. Because of this, imported Rhodia and Cytec Industries. We will chemical products in 2016 represented al- continue to focus on regional strengths most 36% of chemicals used in Brazil, an like soda ash (sodium carbonate), the all-time record. Nevertheless, conditions Solvay process established 153 years ago are good in Brazil to develop innovative and hydrogen peroxide production where products, such as from natural sources revenues are growing. We did not see the and for chemicals used in agriculture. same level of growth for our PVC or cel- lulose acetate businesses that we have Do you have any fnal messages about divested recently and are selling our poly- your Latin American business? amides division to BASF. Given the sales of our assets in acetate Due to our focus on long-term trends, we cellulose, polyamides, PVC and others, have the right portfolio to grow. For ex- we are now looking to buy. Of course, ample, our acquisition of Cytec is driven this will differ in the region from coun- by our belief that automobiles will in- try to country but in some we have sold Rhodia Solvay’s history in Brazil creasingly use carbon fber material. We more than we have bought and so will stretches back to 1919. Could you pro- also produce fuorinated polymers which continue to invest. As an example of our vide some background to the company were developed for the Solar Impulse air- investments, by the end of this year we and its main business areas today? craft’s batteries to enable it to fy at night will have a new hydrogen peroxide facil- Rhodia has a history of developing textiles and are now used in smartphones and ity in the north of Brazil, which will be the such as viscose, acrylic fbre, polyester have many potential applications such as frst on-site peroxides plant in the world. and nylon. The fashion world is very con- electric cars. At the same time, we stay Other areas in the region where we see nected to Rhodia and this is the strongest very close to our customers to understand much opportunity include for our Augeo aspect of its brand. We used to have a life the evolution of their needs and have ap- brand, our silica portfolio, personal care Sciences division (including agro, phar- plication labs for hair conditioners, an products, chemicals for mining and oil maceutical and vaccines, animal health area Solvay is the leader in, coatings and and gas and more. ▬ and animal nutrition) that we sold and other areas in Paulínia.

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Could you introduce your operations in struction. In automotive we market raw ma- Brazil and the region more broadly? terials for car paints and fuels and lubricants. Huntsman, which is headquartered in the We also sell chemicals for concrete, asphalt United States, started in Brazil in 1994 af- and dry walls in the construction industry. ter it bought Texaco Chemical which had a subsidiary here. After fve years of having a How do your products help the environ- small division in Brazil, Huntsman bought ment? the polyurethanes and titanium dioxide divi- We have launched several new lines of green sions of ICI. Then, in 2003 Huntsman bought solvents that we are marketing in the agro- Vantico Group, the epoxy resin division of chemicals market which have very high Ciba Specialty Chemicals, and its textile ef- fashpoints, are biodegradable within ffteen fects division a year later. Finally, last year days and can replace xylene which is bad we announced the spin-off of our titanium for the environment. Unfortunately, greener dioxide operations. Now we have four main products tend to be more expensive so either divisions in Brazil encompassing Advanced the government needs to introduce legisla- Materials, our biggest unit, Polyurethanes, tion which bans environmentally damaging Textile Effects and Performance Products. chemicals or farmers need to be able to re- We have two main offces in the region, Sao coup more value by charging a higher price Paulo and Mexico City, with the former cov- as their products move from red to yellow Roberto ering everything up to Aruba and the latter or green labels. covering Mexico, Central America and the Kirschner Caribbean. Brazil is very important to the Are there any plans to open a production wider company in terms of agrochemicals, facility for performance products in Bra- where it has some of its biggest customers in zil? this sector. Huntsman now intends to merge We would love to have a plant in the country with Clariant, which is expected to be com- but the current situation deters investment pleted by the end of the year. as the raw material needed for production 38 is much more expensive in Brazil compared Do you see more consolidation in the with the United States. Director, South America chemicals market? HUNTSMAN PERFORMANCE It will happen more all over the world as How challenging is the business environ- PRODUCTS companies need more effciency and to re- ment in Brazil? duce cost. Companies like Dow and DuPont It is diffcult for the industry to compete on a and now Huntsman and Clariant are exam- global scale due to high import duties in Bra- ples of this trend. Also, not only producers zil. Our customers would like to have access but also our customers are merging, such as to next-generation products but they have to oilfeld, agrochemicals and distributor com- pay a lot of money. Also, there are too many “ panies. regulations and registrations for new agro- Huntsman now intends to merge chemicals, so by the time they are approved How deep is your product expertise in Bra- they are old technology. with Clariant, which is expected zil and how are your products used here? A positive is that distributors have good to be completed by the end of the Most of our sales are technical sales and we coverage, even with smaller companies, and year. are very well equipped in this regard; indeed, they offer good packages of products. Some this is how we compete rather than on in price of the larger players also have good technical as with commodity chemicals. We also have knowledge. a laboratory in Brazil with dedicated teams from all our main divisions. Currently there What are your key goals in Brazil and the ” are only two full-time employees in the lab region going forward? but there are close to 100 working in our labs Huntsman has a good market share but we in the United Sates that visit Brazil. We also want to continue growing where it makes have a huge technical support team in the US, sense, for example introducing new products Europe, China and Australia that travel here which ft better with the region. We also want to offer their expertise. Sometimes it can be to have a better presence in some countries diffcult to fnd the right talent but luckily we such as Argentina and Colombia. Overall, we have a talent bank which means we can bring expect Brazil to keep growing and see beneft people from different Huntsman divisions. in continuing to invest in the country. Brazil The main applications of our chemicals are is known as the country of the future but now in agriculture, oilfelds, automotive and con- the future is fnally coming. ▬

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports Global Business Reports INTERVIEW

What steps has Cabot taken to advance environmental sustain- Marcos ability? Cabot has very ambitious environmental goals to reduce energy in- tensity, GHG intensity, nitrogen oxides intensity, sulfur dioxide inten- Gallo sity and waste disposal. Regarding green feedstock, today that is an economic challenge, but the way technology is progressing this could change in the future. In terms of our product line, our purifcation solutions business mar- Regional Feedstock Manager kets over 150 types of activated carbon which can remove contami- CABOT nants and pollutants from water, air, natural gas, food and from many SOUTH AMERICA more substances. & MEXICO What are some of the main challenges you face in Latin America to developing your products? Could you introduce the company and provide some insight into In Latin America the presence of the state and state-owned oil com- how you became Latin America’s leading carbon black supplier? panies, responsible for more than 70% of the chemicals value chain, Cabot Corporation is a leading global specialty chemicals and perfor- is very strong. With the drop of oil prices, state-owned companies are mance materials that has been an industry leader for more than 135 under pressure to show better results to sustain their investment plans, years. We entered Latin America in the 1960s,. Overall, we have four which means that investments into refneries and chemical integra- operations in the region in Brazil, Argentina, Colombia, and Mexico. tion with them has stalled. There is need for better communication Initially, we entered the Brazilian market through the model that dom- between the chemical industry and the base industry (i.e. oil compa- inated the petrochemicals industry at time in which technology com- nies) which are owned by the state in this region, meaning we have to panies such as Cabot would partner with local investors on projects. educate and communicate more with the government. There is some In the 1970s, we then purchased our partners’ stakes and assumed full evidence that dialogue between the chemical industries, refneries and ownership of the operation. oil companies is improving. ▬

39

The intention is to serve our customers in three different areas: to José Armando analyze samples rather than sending them to the United States, lead- ing to faster response times; application development through pro- Piñón cess simulation with our customers; and, most importantly, fast-track research looking at how to better customize our products for the Bra- Aguirre zilian market. Brazil has one of the world’s largest pulp industries. What are the reasons for this aside from the abundance of biomass? Vice-President The wood cost makes Brazil very competitive. The country also has SOLENIS a solid technical tradition in this industry and a lot of knowledgeable people working in it.

How diffcult is it to obtain talent in Brazil? What are Solenis’ main business areas in Latin America? Solenis’ headcount in Latin America almost doubled in the last three Solenis is part of private equity company CD&R and is present in years so we have been hiring a lot of people. Whilst overall we have around 120 countries, with 3,700 employees. We are a specialty been able to attract the workforce we want and need, it is still chal- chemicals solution provider and focused on the pulp and paper, min- lenging. ing, bio-refning and water treatment markets. Our process chemicals improve effciency and reduce production costs of our customers, What are the top challenges to your business? while our Brazil’s economy is not for amateurs and the lack of macroeconomic On the water treatment side, our chemicals are used to treat boiler, predictability, such as on the future cost of money, GDP growth rate cooling and effuent water systems. Solenis works with water-inten- and a clear industrial policy, is the biggest challenge. Labor costs sive industries such oil and gas, mining, petrochemicals, primary are also challenging and the tax system is diffcult to manage; we metals, sugar and alcohol, and pulp and paper. have more people working on tax than in any other country. Getting licenses for new projects sometimes can take longer than we would This year Solenis opened a technology center in Paulínia. What like and this has led to delays in our client’s projects and our expan- advantages will this bring to your customers? sion plans. ▬

Global Business Reports BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Industry Explorations INTERVIEW Global Business Reports

Air Liquide has been present in Brazil in our customer portfolio. We will also since 1945 and has a strong focus on continue to look for acquisitions to grow healthcare. What new developments in this sector. There are a lot of opportu- have occurred since 2013? nities and what we are focused on now is We have completed two new air separa- identifying where there is most value in the tion units (ASUs), one at a pulp and paper supply chain. mill in December 2016 and another in the Paulínia basin where we doubled our ex- What do you expect the impact of con- isting capacity. Air Liquide has continued solidation in the industrial gases market to expand its footprint in the country and to be on the industry? today it has 73 units and we can cover 80% The mergers will not affect the strategy Alexandre of Brazil’s territory. the group has announced for the period to 2021. After our acquisition of Airgas in Bassaneze The last few years have been diffcult for 2016, we aim to have a return on invest- the industrial gases industry. How has ment of over 20%, up from 6% currently. this affected Air Liquide? Everything we do is related to three main In our industrial merchant business unit pillars: innovating, connectivity and im- the construction, oil and gas and automo- proving. The acquisition of Airgas does not tive sectors were hit hard by the economic have an immediate impact on our Brazil 40 crisis. On the other hand, other sectors like operations but we are looking at what we food and beverage and pulp and paper have can learn from them to improve our busi- Managing Director continued to perform well. Also, generally ness processes and grow our business. AIR LIQUIDE BRASIL we have some very solid accounts in our However, the most signifcant benefts will industrial merchant line, despite the drop in be realized over the longer-run. demand for new projects. In addition, our healthcare business unit, covering medical What challenges do you face in terms of gas and home healthcare, has continued to infrastructure? do well. Also, now customers in our indus- In our industry, products must be very local trial merchant unit are indicating that new so that is why we have more than 70 units projects will be launched again soon, sig- so we can serve all of our customers. If you naling a new cycle of expansion. need to transport your gases over long dis- Part of our strategy has been to continue tances, you cannot be competitive, due to to grow our packaged gas sales, what we the infrastructure challenges and high costs call ‘pronto gas’, where we sell to the di- to move them around. There are still some rect market. We have adapted due to the areas of the north and north-east which we crisis and it has actually made us and the want to expand into; we have just started in Brazilian market more competitive. In fact, Pará and we still need to cover Acre. Nev- Brazil is now exporting more gases than ertheless, we are in the areas where there it was during the growth years. A similar is most industrial and healthcare demand. change has also occurred in the automotive industry, which has increased its productiv- Do you have any fnal messages? ity and exports. The economy is improving and confdence is coming back. Air Liquide is well posi- Is healthcare still your major focus in tioned to capture growth in the future and Brazil? the group believes in the potential of Brazil Gases for healthcare are growing faster so we will continue to develop our business than the wider industrial gases industry. We here, following our strategic plan. Whilst expanded our footprint so we could pene- we are market leaders in Argentina, Brazil trate more of the market and now we will has the most potential for growth in the re- launch more offers and increase our sales gion. ▬

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports Global Business Reports EDITORIAL

COMPETITIVENESS OF SEGMENTS OF BRAZIL’S CHEMICAL INDUSTRY

Source: Bain & Company; Gas Energy

GLOBAL BRAZILIAN SEGMENT BRAZIL MARKET BRAZIL GROWTH GROWTH IMPORTS EXPORTS UNIT PRICE (US$B 2012) SHARE (%) % (07-12) % (07-12) (US$M) (US$M) (US$/kg)

Cosmetics 41.80 9.7 4.1 12.4 830 580 5.4 Agrochemicals 9.70 20.5 7. 6 16.1 5,400 500 11.3 Food additives for animals1 1. 10 10.0 3.7 10.1 458 310 2.5 Butadiene and isoprene derivatives2 1.95 5.7 1. 1 3.2 860 74 0 2.5 Aromas, favors and fragances 1.20 5.1 3.3 6.5 295 317 5.2 + Chemicals for E&P 0.71 3.6 11.2 24.6 85 9 1. 7 Surfuctants 1.54 5.7 3.0 6.9 315 185 3.0 Aromatic derivatives3 2.52 1. 6 3.8 5.2 1,154 0 1. 2 PU 1.50 3.5 1. 6 5.8 944 83 2.7 Cellulose derivatives 0.33 1. 3 6.3 1. 1 190 37 3.5 Lubricants 4.50 3.5 1. 0 2.6 1,127 209 2.4 Food additives for humans1 0.65 3.0 3.8 4.1 367 625 2.8 COMPETITIVENESS Oleochemicals 0.66 2.8 8.1 23.2 230 179 1. 7 CF 0.10 9.4 7. 9 107. 4 97 0 24.4 - Chemicals for mineral processing 0.19 4.1 2.3 7. 6 93 8 2.2 Chemicals for leather 0.38 8.1 2.8 3.7 111 83 1. 7 Silicon derivatives 0.42 3.0 3.7 5.2 190 536 2.5 Chemicals for concrete 0.17 1. 7 3.7 5.0 30 4 1. 1 Specialty polyamides 1.28 1. 7 1. 9 -5.2 509 14 3.4 High-tenacity polyester 0.13 2.1 4.5 -3.0 70 10 2.0

1) The food additives segment was divided to facilitate analysis 2) excludes BTX 41 3) the segment, chemicals from renewable sources, which cuts across the other segments, was also analyzed to identify opoortunities

◀ 35 help them introduce more sophisticated for the local market,” commented Pino. production as both Huntsman and Arkema packaging by bringing together design- Specialty producer and water treatment have put off plans for production in Brazil ers from around the world to help create company Solenis has an equally strong because of it. “We would love to have a new forms of packaging,” remarked Pedro commitment to R&D in Brazil and this plant in the country but the current situa- Fortes, corporate development manager year opened a technology center in Paulí- tion deters investment as the raw material for Latin America, Eastman. nia. Solenis is looking at how its products needed for production is much more ex- Related to staying close to their local cus- can best serve Brazil’s pulp industry, one pensive in Brazil compared with the Unit- tomers, specialty chemicals companies are of the largest in the world, which uses a ed States,” commented Roberto Kirschner, putting some fnancial muscle behind their very specifc type of wood from eucalyp- director, South America, Huntsman Per- innovation drives. Along with the Solvay tus trees, as well as the sugar and alcohol formance Products, the wider company example already mentioned, a common industry. of which has a presence in Brazil across theme among producers is the establish- As well as research centers, specialty its main divisions of advanced materials, ment of research centers in the last few chemical companies typically have appli- polyurethanes, textile affects and perfor- years. For example, Croda has established cation laboratories to experiment on the mance products. an innovation center in Campinas, where best product formulations for their clients. Similarly, Eric Schmitt, CEO of Arkema DSM this year established an innovation For example, Arkema has invested in three lamented: “Lack of raw materials is a big center focused on the beauty and personal international class labs in Brazil. challenge and we even came to the conclu- care market. “It means we can provide sion that it was not worthwhile producing a faster response and offer more qual- one type of specialty chemicals product ity products to our customers. The Latin It goes deep: because of this situation.” American market requires more prototypes structural competitiveness issues The feedstock issue is on most leaders’ and formulation suggestions so this center lips and it is a key priority of Abiquim will enable us to spend a higher proportion Brazil arguably has real strength in high which is lobbying the government on the of time collaborating with our customers value-added chemicals but holding it back issue. However, Abiquim is also work- in their product development projects. In are some deep structural issues. The chal- ing to tackle other competitiveness issues addition, we will be able to further develop lenges are numerous but most pressing is which blight the chemicals industry, such our ingredients, building new molecules the lack of competitive feedstock, which as infrastructure and logistics, R&D in- and blends that are specifcally designed can be directly related to the defcit in local vestment and labor training. “We import

Global Business Reports BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Industry Explorations EDITORIAL Global Business Reports

products which are 2.5 times higher in Latin America and despite its volatility, value that the products we are exporting, we have continued to invest. We believe it which shows that we are falling short of is in a transition period and we anticipate “ converting raw materials into high-value that the economic situation will continue specialized products,” remarked Marcos to improve.” The company is reducing its exposure de Marchi, chairman of the board of direc- Also, although the recession was long it is to commodities and moving more tors, Abiquim. still only temporary, whilst inhibitive bu- into specialties which is why Solvay Whilst Brazil has made some progress in reaucracy appears enduring. According to acquired Rhodia and Cytec Industries. labor training and R&D investment, for Schmitt: “Bureaucracy in Brazil hampers example with the National Service of In- investment and projects are often only ini- dustrial Training (SENAI) opening 50 new tiated with political connections…it can - José Borges Mathias, laboratory and 26 new applied research also be diffcult for international compa- CEO, centers and investing US$1.3 billion in in- nies to get the right local licenses.” Rhodia-Solvay Group, novation and technical training, infrastruc- Indeed, there is a direct relationship be- Solvay Latin America ture quality remains poor. tween bureaucracy and growth. Accord- Impediments to competitiveness that were ing to Piñón Aguirre: “Getting licenses for cited by specialty producers were typically new projects sometimes can take longer the economic situation, bureaucracy and than we would like and this has led to de- the tax system. With a -3.6% fall in GDP lays in our client’s projects and our expan- ” in 2016, it is little wonder that the indus- sion plans.” have always been specialty chemicals and try was be badly hit. Most affected sectors Furthermore, sometimes import duties can research and development.” have been those closely linked to head- also hold the sector back. According to Moreover, Brazil’s cosmetics, agrochemi- line economic confdence and consumer Kirschner: “It is diffcult for the industry cals and animal feed markets are booming, spending, such as construction, paints to compete on a global scale due to high which is creating much opportunity for and coatings and automotive. Volatility is import duties in Brazil.” those specialty producers able to supply a concern to some. “Brazil’s economy is these markets. Recognizing the opportu- not for amateurs and the lack of macroeco- nity, Brazil’s petrochemical companies are 42 nomic predictability, such as on the future An emergent industry also diversifying ever more into specialty cost of money, GDP growth rate and a chemical production. Unigel is looking to clear industrial policy, is the biggest chal- Despite these challenges, Brazil’s specialty increase its specialty portfolio, such as pro- lenge,” commented José Armando Piñón chemicals sector has some core strengths. duction of methacrylate for applications Aguirre, vice president, Solenis. Brazil has a reputation for industrial so- such as nail beauty products. The logic is Nevertheless, there is broad consensus that phistication. This resonates with those that simple. “Commodity chemicals have a 4 to the recession was deep but that the worst study the industry on a macro level, such 5% margin, which requires high volumes is now behind Brazil. As Marcos Gallo, as Rina Quijada, senior director, Latin to make production worthwhile, whilst feedstock manager, Cabot South America America, at consultants IHS Markit: “Bra- specialty chemicals have higher margins,” & Mexico stated: “We are optimistic about zil’s chemical industry’s core strengths outlined Kröger, president, Unigel. ▬

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports Global Business Reports INTERVIEW

Can you provide an update on key devel- cessful at helping Brazilian companies, such opments since 2013? as Natura, with our innovation program After the acquisition of Solutia in 2012 we where we collaborate with companies in completed four more acquisitions globally: order to provide solutions to their business. Taminco, Knowlton Technologies, Com- We help them introduce more sophisticated monwealth Laminating & Coating and BP’s packaging by bringing together design- turbine oil business. These acquisitions were ers from around the world, universities and intended to complement the product line we our customers to help create new forms of gained with the Solutia acquisition. Overall, packaging. One recent breakthrough we had we have made ten global acquisitions in the after many years of research is the creation last eight years. With some of the brands and of a very fexible type of plastic, TRĒVA™, products we have decided to maintain their which can be used in packaging across many names in order to avoid having to re-apply different applications. It is a cellulose-based for licenses from the regulators. engineering bioplastic that offers both high performance and reduced environment im- What benefts have these acquisitions pact. bought for Eastman? Ten years ago we conducted a preliminary Where else are your products used? Pedro study that at the time identifed that animal Our materials are used in many different ap- nutrition would be an opportunity for East- plications such as tires, coatings, plasticizers Fortes man in Brazil. With the Taminco acquisition, and building and construction. Performance now we have the option to leverage Brazil’s flms are a very successful product line for status as a powerhouse in animal nutrition. us and have a lot of different applications. In addition, the acquisitions have given us For example, we created a colored laminat- access to high quality talent. Therefore, now ed polyvinyl butyral (PVB) flm for Miami we have the employees, product line and airport witch won a World of Color Award. client connections to drive growth in the Indeed, our products are used in Paris’ Lou- 43 most proftable areas of the economy. We vre Museum and New York’s Empire State Corporate Development Manager continue monitoring opportunities for new Building. A recent application of our tech- for Latin America acquisitions and today the macroeconomics nology we a particularly proud of is the use EASTMAN CHEMICAL are more favorable for companies as the ex- of our copolyester, Tritan™ in Philips’ new COMPANY change rate is better than in 2012. Although, blender, the Walita ProBlend 6. Due to our the majority of local family-owned compa- technology the blender’s jar is twenty times nies have been acquired already. more resistant than the previous ones pro- duced and it does not break or crack. How has the recession affected demand We also have an extensive portfolio in feed for the industries Eastman sells to and the preservation, hygiene solutions, nutrition “ importance of Brazil in the wider com- optimization and acidifcation solutions. For a B2B company like Eastman, pany? Although we are still a small player in ag- the key to better design is still The automotive sector is still suffering from rochemicals, we also sell crop protection winning with the customer, i.e. macroeconomic challenges but some com- chemicals, such as specialty amines that we working closely with them to panies are performing better than others. On gained through the Taminco acquisition. identify unmet needs and building the other hand, two of the global leaders in a relationship based on trust the animal nutrition industry are based in How are trends such as ‘big data’ affect- Brazil and the industry here has continued to ing the product development process? perform well. We should also mention that If you can understand how consumers are the building and construction, packaging and using products through the collection of big consumer industries are very linked to the data, then you can design better products, ” overall performance of the economy so they so defnitely this is having an impact. How- have suffered a bit in recent years. Never- ever, for a B2B company like Eastman, the theless, because Brazil is such an important key to better design is still winning with the market, there is always opportunity. customer, i.e. working closely with them to identify unmet needs and building a relation- How do you provide solutions for the ship based on trust. For a specialty chemicals packaging of cosmetics? company, it is essential to do this in order to As well as selling to big international brands differentiate your offering from other play- like Dior and Lancôme, we have been suc- ers. ▬

Global Business Reports BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Industry Explorations EDITORIAL Global Business Reports

A global trendsetter: Chemicals and Brazil’s personal care and cosmetics industry

The numbers do not lie when it comes to for US cosmetics, personal care and fra- tors Brenntag who are heavily invested in the success of cosmetics in Brazil: it ac- grance products. “Buying cosmetics is a the personal care market. “Personal care counts for almost 10% of the global cos- form of indulgence that Brazilians can af- is another highly important market for metics market and is the second biggest ford in times of economic recession,” re- Brenntag in Brazil. In this market we are market globally for fragrances, sunscreen marked Viviane Gandelman, supply chain seeing the development of new products, protection, men’s products, depilatories, director at Dinaco, a Brazilian distributor especially for men and older consumers,” and deodorants. It is also the third biggest of chemical products which derives 55% remarked Érica Takeda, managing direc- in haircare and children’s products. Brazil of its sales from the cosmetics industry. tor, Brenntag. is home to major international cosmetics At the same time, Brazil also exports to the and personal care brands such as O Bot- U.S. where Brazilian products represent icário and Natura which have found suc- 15% of the U.S.’ cosmetics market. Do no harm 44 cess in the Americas, Europe and Asia. “The two cosmetics segments that are The sector has also been resilient to the growing fastest are products for older Research carried out by Brazilian NGO economic crisis, with growth of 4.8% in consumers as the population ages and cos- Instituto Akatu found that Brazilian con- 2016. metics for men, a market which is experi- sumers’ purchasing habits are highly in- Brazilian consumers power this phenom- encing incredible growth. The demand for fuenced by ethical considerations. The top enon. The country represents 7.1% of the fragrances is also strong in Brazil, perhaps fve concerns are: “cruelty free”, socially worldwide consumption in the toiletry and due to it being a tropical environment and responsible”, “environmentally friendly”, fragrance industry, which amounted to the need to be fresh,” continued Gandel- “low energy consumption”, and “certifed 1.8% of the entire Brazilian GDP in 2016. man. for fair labor practices”. “Although renew- It is also the second largest export market This is a sentiment shared by distribu- ably-sourced chemicals are often more 47▶         


 
 


 

 
 


  










 

 



 




 

 
 

  
  
 

  



  





  





 

 

 

 




 
 
 
  
 


 


  

       

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports Global Business Reports INTERVIEW

Richard Pino

Vice President Sales and Marketing, Latin America CRODA DO BRASIL

What are Croda’s main focus areas in Brazil? What are some of the benefts of the new innovation center Croda is a specialty chemical company focused on innovation, sus- Croda has established in Campinas? tainability and biotechnology that aims to be the main name in the The center will add more capacity for research into our personal market behind high value-added ingredients. We are always look- care and life sciences businesses, as well as our performance tech- ing to identify unmet consumer and client needs in high growth nology segments, which includes smart materials, energy technol- markets evading commoditized markets as much as possible. In ogies, homecare and water treatment. It means we can provide a Latin America, although the majority of our portfolio comes from faster response and offer more quality products to our customers. outside the region, we have three manufacturing sites in Brazil with the biggest one in Campinas, a new one in Holambra after the ac- What benefts will the new distribution center in Campinas quisition of Incotec, a seed enhancement company, and the latest in bring to your clients and how do you work with distributors? Porto Alegre after the acquisition of Inventiva, a company special- It is a state-of-the-art automatized facility which is fully aligned izing in nanotech encapsulation of cosmetic actives. with the toughest regulations for health and personal care, provid- ing a very high quality service for our customers. 45 Croda has been investing in Brazilian manufacturing since the 1990s. What is the extent of your local production? Our current Brazilian sales ratio of locally produced to imported What are Croda’s key goals in Latin America in the next few is about 25% to 75%. Brazilian markets demand some local pro- years? duction and customization and we have been investing into new We have a strong product development pipeline at our Campinas chemistries for the Campinas site. Here we mainly make lanolin site and want to grow through local production and better serving and esters, which comprise a wide range of products applied into our local customers. ▬ cosmetic, agrochemicals, pharmaceutic and industrial applications, but we also have blending capabilities and a new reactor for poly- merics.

Global Business Reports BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Industry Explorations INTERVIEW Global Business Reports

led to a very bad situation for our industry, although in recessions the food industry is usually the last sector to be affected as people Maurico need to eat. We have not seen a substantial decrease in food intake but there was a dramatic change of habits, such as less meat con- Adade sumption, and demand from automotive and electronics completely collapsed. Brazil is not for amateurs – you need fexibility and to act fast. If a company enters Brazil they do not enter for 100m, they are here for President, a marathon and must be very persistent. In 2013, we made a huge Latin America acquisition of Tortuga that provides specialized minerals for dairy DSM and meat cattle which refected our confdence in the country’s fu- ture potential, especially in meat exports where Brazil is the global leader. The acquisition has doubled our turnover in the region de- spite a recent meat scandal in Brazil involving JBS which damaged exports. Luckily the Minister of Agriculture reacted quickly to this and we have now navigated the crisis.

DSM recently opened an innovation laboratory in Campinas. Can you give any examples of innovations you are working on in Brazil? DSM provides global solutions tailored to local needs and has achieved its 2015 goal of having 20% of sales coming from innova- tion. Our innovation is tightly linked to sustainability which is not DSM is active in health, nutrition and materials. What are your just a key value but a source of growth. main areas of focus in Latin America? During economic downturns, people change their eating habits by We have a presence in all the key markets of Latin America with fnding cheaper substitutes, for example switching from butter to about 2,000 employees and sales of around US$1 billion. Our op- margarine. We are working with the biggest producer of margarine 46 erations consist mostly of blending facilities where we prepare pre- to make it healthier by fortifying it with micro-nutrients and com- mixes for the animal and human nutrition industries which include bating hidden hunger. People that live in slums in Brazil eat cheaper beverages, dietary supplements and personal care. Brazil is where sausages to obtain protein and we have a project with BRF to fortify the majority of our operations are and is the most important market these to improve their nutrition and thereby help tackle problems in the region. Our focus in Latin America is much more on our nu- such as anaemia, growth stunting and other health problems. tritional cluster rather than our materials cluster. In our nutritional cluster we house our nutritional products and food specialties busi- How is DSM involved in developing second-generation bio- ness units. Around 70% of our business in the region is related to ethanol in Brazil? animal nutrition so this is a huge business for us in Latin America. It involves using the remnants of corn which then undergo two types of treatment by special enzymes and yeasts, technology which we What affect has the economic crisis had on your business and have developed. We have been in talks with BNDES to further de- are there any key milestones since 2013? velop the technology’s potential and we continue to invest in it. What is different about the recent economic crisis is that, unlike However, unfortunately the focus on developing this innovation has other recessions, the recovery has not been short and Brazil will gone away due to the crisis. not come out of it better off, even though we are now seeing some light at the end of the tunnel. The whole economy collapsed and this How competitive is Brazil in innovation? It depends on what type of innovation. Totally disruptive innova- tion, such as discovering a new molecule, is unlikely to occur in Brazil but innovations which are related to developing a new tech- nology are happening here.

How do you see Brazil’s long-term prospects? Brazil will come back; the question is when and how? What is hap- pening now is a very strong exercise in democracy that will have a strong positive impact on the country and the economy. The pros- pects for the nutritional industry are therefore bright. The country is bigger than the corruption scandals but it will probably take a bit longer to recover than other crises as the country has hit rock bot- tom. Companies that stick it out for the long-term in Brazil need to be resilient and very customer focused. If you are not close to your clients, you are always behind. ▬

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports Global Business Reports EDITORIAL

“ Buying cosmetics is a form of indulgence that Brazilians can aford in times of economic recession. The two cosmetics segments that are growing fastest are products for older

44▶ consumers as the population ages and expensive, once leading companies like In line with cosmetics giants basing their cosmetics for men, a market which is Natura and O Boticário approve them and innovation centers in Brazil, multi-special- experiencing incredible growth. can build a successful value proposition ty chemical producer Solvay in 2015 chose to consumers, they become more popular. Brazil to locate a research center for hair Consumers are becoming much more con- care products. The company is developing - Viviane Gandelman, cerned about the environmental impact of new molecules used in shampoos and con- Supply Chain Director, cosmetics,” explained Gandelman. ditioners at the research center in Paulínia, Dinaco Dinaco markets many renewably sourced São Paulo. The project also includes the products, such as emollients for ingre- commitment by Solvay to invest ¤20 mil- dients producer Aprinnova made from lion to expand production capacity of spe- sugarcane instead of naphtha and active cialty chemicals for hair and skin care at ingredients from beet that use a natural its Itatiba, São Paulo plant. Unigel is also mechanism to hydrate skin and keep water taking advantage of Brazil’s unique demo- in cells. Producer of chemical intermediar- graphic profle. It recently launched Oxi- In particular the Bain study saw opportuni”- ies Oxiteno is also alive to this trend. “25% sense S 0440, a new conditioning agent ties for investment in aerosol deodorants of raw materials we use are from renew- whose main beneft is hair frizz reduction. and various categories of cosmetics, espe- able sources and 37% of our products use “The product was inspired by the diversity cially products for makeup, hair and skin 47 renewable raw material. There are many of Brazilian hair types and hair care habits, care if challenges such as greater access to companies that are trying to use more veg- especially for women with regard to hair Brazil’s bio sources, the limited availabil- etable oil formulations,” explained João care,” explained Parolin. ity of propellant gas, some petrochemical Parolin, CEO, Oxiteno. Another growing application area for Bra- derivatives such as plastic packaging and zil’s specialty producers in the cosmetics surfactants and the high tax burden on the and personal care market is packaging. sector are addressed. Indeed, for some A home for innovation “One recent breakthrough we had after products taxes can increase the price by many years of research is the creation of around 60%. Brazil is uniquely home to all eight ma- a very fexible type of plastic, TRĒVA™, There is at least one improvement to this jor human hair types and of a variety of which can be used in packaging across scenario when a new biodiversity law skin tones, making it a natural home for many different applications. It is a cellu- came into force in 2015. The law, which innovation in hair and skin care. “Beauty lose-based engineering bioplastic that of- “aims at facilitating scientifc research and is very important in Brazil for both men fers both high performance and reduced the economic exploitation of biological and women, and research has found that environment impact,” described Pedro samples of Brazilian genetic heritage, has many Brazilian women take showers twice Fortes, corporate development manager reduced uncertainty for investors and is a day, which shows the potential use of for Latin America, Eastman. particularly good news for the cosmetics raw material for this industry,” remarked industry,” according to Felipe dos Santos Alexandre Kaplan, owner, Dinaco. Pereira, director, chemical industry depart- Given these factors, international cosmet- High hopes resting on its shoulders ment, BNDES. ics and personal care giants like L'Oréal Given the demographic uniqueness of Bra- and Avon have established innovation cen- The success of the cosmetic and personal zil’s population, consumer trends such as ters in Brazil. Avon established a Global care industry in Brazil and the opportu- ethical concerns and the high demand for Development and Innovation Center in nities for the chemical industry that sup- cosmetics and personal care among Brazil- Brazil July 2017 which will house 40 plies it has certainly not gone unnoticed. ian consumers, specialty chemical compa- scientists who will partner with local uni- The study commissioned by BNDES and nies will do well to continue to focus on versities and research centers. The center carried out by Bain & Company on op- developing new innovations for this fast will focus on developing fragrances and portunities for diversifcation in Brazil’s growing market. Going forward, the in- products for hair and daily care to Avon’s chemical industry identifed cosmetics as dustry will also be looking to the govern- 50 markets around the world, therefore di- the most competitive area that was ripe for ment to provide better incentives to help rectly contributing to exports. investment to help reduce the trade defcit. this industry fourish even more. ▬

Global Business Reports BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Industry Explorations EDITORIAL Global Business Reports

A sector hungry for chemicals: Brazil’s huge agricultural industry

For many years now, Brazil’s agricultural sector has been the bright spot of its economy. Over the last 25 years, agribusiness in Brazil has grown consistently. Whilst other sectors have seen their trade balance tip deeper into defcit, Brazil’s trade surplus in agribusiness reached US$75 billion in 2015, and agricultural products made up 46.2% of total exports and 21.5% of GDP at the height of Brazil’s recession according to the Ministry of Ag- 48 riculture, Livestock and Food Supply. Growth estimates for the sector in 2017 range from 9 to 11%. Furthermore, the sector’s competitiveness has risen dramatically over the last ten or so years. Compared with the 2005 to 2006 harvest, productivity up to the year 2017 has increased by 55%, whilst acreage has risen by 26%. Brazil has also doubled its grain output to 238 million tons (mt) over this period. Brazil’s is the largest producer of coffee and sugarcane, the sec- ond largest producer of soybean and the third largest producer of corn in the world. Meat exports are also huge for the economy. Brazil is the largest producer of chicken, second largest producer of beef and the fourth largest producer of pork. 2017 looks to be a bumper year for Brazil’s agricultural sector. “Brazil is a huge market in this segment – indeed this year there was a record grain crop of 240 million mt, 50% of which is soybean,” commented João Parolin, CEO, Oxiteno. In fact, the United States Department of Agriculture estimates Brazil will export a record 61 million mt of soybeans in 2017. In addition, Brazil’s corn production for 2016 to 2017 is set to reach a record 95 million mt, up 30% from the previous year, due to favorable weather conditions. It is little wonder then that agrochemicals are a huge business for the wider chemicals industry in Brazil. In fact, Brazil represents over 20% of the global agrochemicals market, second only to the United States. The sector can be split into two main areas: pes- ticides and fertilizers. The tropical climate in the country means that it is a perfect environment for insects, weeds and fungi to fourish, so there is much demand for pesticides such as insecti- cides, fungicides, herbicides and biopesticides. So much so that Brazil overtook the United States as the world’s largest buyer of pesticides recently.

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports Global Business Reports EDITORIAL

Almost as voraciously, Brazil’s agricultur- a remarkable company as its technology Animal feed al sector is hungry for fertilizers, such as increases seed germination from around nitrogenous, phosphorous and potassium 75% to 98%,” remarked Richard Pino, Given Brazil’s large market in meat prod- products, with demand expected to grow vice president sales and marketing, Latin ucts, chemicals for animal feed are also a twice as fast as the rate of overall global America, Croda. booming market. Food additives for ani- growth until 2025. This presents a huge Perhaps the area of most opportunity, how- mals were identifed in a major report by opportunity for Brazil’s chemical sec- ever, is in the distribution and transporta- consultants Bain & Company, funded by tor. Overall, sales of agrochemicals grew tion of chemicals for Brazil’s agricultural BNDES, as the third most competitive by 5% in 2016 as sales of chemicals as a sector. This is particularly the case with chemicals market in their area of study whole declined. fertilizers given the high degree of imports which aimed to analyze key segments ac- of these. Of the trade defcit in chemicals counting for Brazil’s trade defcit in chem- of US$22 billion in 2016, fertilizers are icals. In an effort to capture this growth, the number one product imported, reach- food and feed is a key part of Brenntag’s Surfng the wave ing US$5.2 billion and 22.2 million mt, ac- 2020 growth vision. There is also some cording to Abiquim. Some of Brazil’s top overlap with the agrochemicals market and Companies up and down the supply chemical distributors have taken note. “We MCassab sees this as an opportunity for chain are looking to proft from Brazil’s are increasing our presence in agro-chem- cross-selling: “(T)here are some synergies agricultural boom, although there are al- icals. We already produce liquid fertilizers with our other business units. For example, ready some very well established players. with our own technology which we want we sell the same minerals for leaf fertiliz- Leading companies include BASF, Bayer to sell more of and we also want to distrib- ers as we sell for animal feed,” said Cutait. CropScience, TechnipFMC, Syngenta, ute more chemicals used in agrochemicals Animal nutrition is an even more strategic DowDuPont, Adubos Sudoeste, Agrium, formulations,” said Érica Takeda, manag- area for DSM, the global science-based EuroChem, Koch Industries, Novozymes, ing director, Brenntag, indicating the com- company active in health, nutrition and PotashCorp and Valent BioSciences. “Ag- pany’s role in production as well as distri- materials. “Around 70% of our business 49 rochemicals are one of the segments we bution of fertilizers. in the region is related to animal nutrition invest the most in R&D. There will be 10 Meanwhile, MCassab has placed agro- so this is a huge business for us in Latin billion people in the world by 2050, and chemicals as a core part of its strategy. America,” stated Maurico Adade, presi- the land we have for food production will “It is an increasing area of importance for dent, Latin America, DSM. not be enough, thus we need to increase the company and a few months ago we In 2013 DSM acquired Brazilian com- crop yields meaning that the chemical launched a new segment on fertilizers. pany Tortuga, which provides specialized industry has room to play a key role,” re- Agrochemicals are a large and growing minerals for dairy and meat cattle. “This marked Ralf Schweens, president, South market in Brazil… We are very optimistic refected our confdence in the country’s America, BASF. that in the short-term agrochemicals will future potential, especially in meat exports Beyond these players, other producers that become a very important business for our where Brazil is the global leader,” contin- serve the agricultural market include Oxi- company,” explained Victor Cutait, direc- ued Adade. teno and Huntsman. “Brazil is very impor- tor, MCassab. The acquisition has doubled DSM’s tant to the wider company in terms of agro- This of course means more business for turnover in Latin America, even though chemicals, where it has some of its biggest logistics companies and agrochemicals Brazil’s meat industry has recently suf- customers in this sector,” commented Ro- form a large part of third-party logis- fered from a meat scandal, now resolved, berto Kirschner, director, South America, tics provider BDP International’s Latin involving Brazilian company JBS, the Huntsman Performance Products. America business, as well as transporta- world’s largest meat processing company. More producers are also looking to ride this tion and logistics company Grupo Toniato. It must be noted the success of Brazil’s wave, such as Eastman. “Although we are Intriguingly, Grupo Toniato’s business has agricultural industry is, to a large extent, still a small player in agrochemicals, we actually profted from oversupply of agro- dependent on global prices of agricultur- also sell crop protection chemicals, such chemicals. “The last few years have been al products. Nevertheless, with Brazil’s as specialty amines that we gained through marked by a larger stock than planned by growing population of over 200 million the Taminco acquisition,” explained Pedro the industry, compromising the entire ag- and global growth, there will always be Fortes, corporate development manager rochemical supply chain. Distributors cur- demand. Given Brazil’s leading position for Latin America, Eastman. rently have a backlog of agrochemicals in the production and export of so many Taminco’s crop protection line produces which have a limited shelf life and need agricultural products, which have weath- alkylamine derivatives designed to protect to be returned to the producer for re-pro- ered the recession whilst other sectors crops from fungal diseases and to increase cessing which ironically has meant more have foundered, it appears the prospects yields. Similarly, Croda acquired Incotec, demand for our services,” explained André for both agrochemicals and animal nutri- a seed germination company. “Incotec is Façanha, CEO, Grupo Toniato. tion are bright. ▬

Global Business Reports BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Industry Explorations Image: Univar GBR • Industry Explorations • BRAZIL PETROCHEMICALS AND CHEMICALS 2017 DISTRIBUTION

“For specialty chemicals, simply competing on price is not the right strategy. We have a very well-equipped application laboratory for coatings which we have been told by industry analysts is the best one they have seen among distributors and even better than many producers’.”

- Érica Takeda, Managing Director, Brenntag. EDITORIAL Global Business Reports

Chemical customers, because they can discuss their precise requirements, understanding how we can work with them to help meet unmet consumer needs.” Croda’s decision to estab- distribution: lish its own world-class distribution center in Campinas mirrors this sentiment. According to Victor Cutait, director, An industry in flux MCassab, a Brazilian distributor with an international reach, there are a number of reasons producers should use a distributors The chemical distribution market in Brazil er ones in niche areas, in line with IMCD’s such as his: “Firstly, to sell to small and is a dynamic but crowded market. The 10 acquisition of Makeni Chemicals. “As the medium companies that producers do not largest distributors currently have just 40% market gets better, more companies will have the resources to handle. For example, of the US$5.6 billion market, whilst the re- acquire smaller and more niche players, for MCassab has 6,000 active clients from the maining 60% is occupied by literally hun- example those focused on food and cosmet- small to the very big companies. Secondly, dreds of players. There have been numer- ics. There many companies that even focus a distributor handles logistics through distri- ous acquisitions in recent years, typically on sub-segments of these sectors and often bution branches, which is especially impor- in the form of international actors snapping operate in only one part of the country, so tant in a country as large as Brazil. Thirdly, up local companies. Just recently in April there is much more room for acquisitions,” we provide fnancing of the purchasing of 2017, quantiQ, the biggest chemical dis- predicted Romero Dantas, director, Core- products and cover credit risk.” tributor in Brazil, was acquired by GTM, mal – Pochteca. one of the largest chemical distributors in Latin America and therefore creating the Not just selling chemicals largest independent chemical distributor in Why use a distributor? the entire region. In 2013, Dutch chemical “Brazilian distributors are generally good 52 distribution frm IMCD acquired a majority Revenues for the sector have weathered because they understand the need to provide stake in Makeni Chemicals, the Brazilian Brazil’s economic storm over the last few specialty chemicals distributor now named years. Whilst they did drop from roughly IMCD Brasil and in 2014 Univar, a global US$6.8 billion in 2014 to US$5.5 billion chemical distributor with more than 113,000 in 2015, they crept back up to US$5.6 bil- customers, purchased local specialty chemi- lion in 2016, despite the country experienc- “ cal distributor D’Altomare Quimica. Fur- ing a 3.6% drop in growth. The sector has thermore, Mexican distributer Pochteca is a good reputation among many business The distribution business has been in the process of a staged acquisition over leaders in the chemical industry, such as fve years of local player Coremal. specialty chemical producers. “A positive is very resilient despite the economic Virtually all actors appear to support con- that distributors have good coverage, even crisis and as our industry matures solidation and it is the preferred outcome with smaller companies, and they offer good we think it is good that international of Associquim, the national association packages of products. Some of the larger players are investing in Brazil. for chemical distributors across the coun- players also have good technical knowl- try. “This is very important, especially in edge,” remarked Roberto Kirschner, direc- a country as big as Brazil. The distribution tor, South America, Huntsman Performance business has been very resilient despite the Products, a specialty producer. economic crisis and, as our industry ma- Curiously however, despite this reputation - Rubens Medrano, tures, we think it is good that international and the deep bank of companies involved in President, players are investing in Brazil,” remarked distribution, the participation rate of distrib- Associquim Rubens Medrano, president, Associquim. utors in the chemicals and petrochemicals There is certainly scope for more deals and market has hovered around the 12% mark international players will be eyeing further since 2013. acquisitions. “There is plenty of room for This begs the question as to what the role more mergers and acquisitions. With regards of a distributor should be in the chemicals to Brenntag, we are continuously evaluating market. Richard Pino, vice president sales potential acquisitions, continuing a long his- and marketing, Latin America at Croda tory of growth in this way,” revealed Érica Do Brasil, another specialty producer, sees Takeda, managing director, Brenntag. distributors providing value but only to a Market participants expect consolidation to certain extent. “We have our own global take the form of larger players buying small- sales force that is best placed to sell to our ” Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports Global Business Reports EDITORIAL

clients with value-added services. Croda products for highly particular functional product line and Dow Corning as a custom- works with distributors that are very spe- needs across a variety of industries. “For er. Quimisa, a local distributor, supplies a cialized and can add value,” continued Pino. speciality chemicals, simply competing on variety of industries and owns its own logis- Distributors are so much more than sim- price is not the right strategy. We have a tics, is looking to increase its specialty sales ply buying and selling and increasingly, as very well-equipped application laboratory which have been growing at a rate of 5% in Brazil’s chemical industry matures, they are for coatings which we have been told by the last year. offering much value-add services. It is a nat- industry analysts is the best one they have Brazil has real strengths in areas such as ural extension of their services for distribu- seen among distributors and even better cosmetics, agrochemicals and animal feed. tors to be involved in logistics, as well as than many producers’,” commented Takeda. It is therefore no surprise that distributors advising on onerous regulations, or offering Brenntag also has application labs for agro- such as Dinaco, Brenntag and Química fnancing as MCassab does. “We add value chemicals, polymers and is building one for Anastácio and others have a strong focus on by offering cheaper transport, effective home and personal care. quantiQ, on the cosmetics. quality control, handling a large inventory other hand, provides customized solutions Even though the distribution market has and all labelling requirements, meeting all for clients through its formulated products been somewhat resilient, it still faces chal- standards, providing fnancing and by being line, refecting its commitment to solving lenges. The recession had a signifcant im- more fexible compared to what our custom- client’s specifc problems. pact on revenues and was much longer than ers could achieve on their own,” explained Application labs help create new prod- previous ones, whilst the need to diversify Jan Felix Krueder, CEO of Brazilian owned ucts. As Viviane Gandelman, supply chain portfolios to specialties whilst providing distributor Química Anastácio which has director at Rio based distributors Dinaco more value-added services is no simple sustained double-digit growth every year in explained, “We work with customers to task. Furthermore, distributors reported recent years. develop formulations and solve their chal- Brazil’s complicated fscal framework, with Química Anastácio exemplifes how spe- lenges rather than just sell chemicals... For taxes differing from state to state, as a con- cialty distributors are increasingly offering example, as a result of consumer trends, we stant headache. packages of large quantities of chemicals, fnd natural sources for cosmetics clients “The main players in the chemical distribu- which has driven the expansion of its prod- and overall we have we have developed a tion sector in Brazil should be able to coexist uct portfolio from around 500 in 2013 to lot of products in cosmetics.” with increasingly international competition, 53 800 today, with at least six new products more demanding legislation and regula- added every month. tions, and rigid fnancial health,” predicted More indicative of an evolutionary shift in Future business models Armando Bighetti, president, quantiQ. business model is that distributors are be- More consolidation is likely to occur as the coming partners in product innovation. It is As Brazil’s chemicals market matures, operating environment tightens. A key goal highly unusual for specialty chemical dis- specialty chemicals are becoming more for the industry, meanwhile, should be in- tributors not to have application laboratories prominent. Exemplifying its pivot towards creasing the participation rate of distributors and arguably, it essential they do given that speciality chemicals, Univar acquired in the chemical industry and promoting all specialty producers need to develop specifc D’Altomare as it brought silicon into their the value they can bring to producers. ▬

Global Business Reports BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Industry Explorations EDITORIAL Global Business Reports

What is the role of Associquim in the for commodity and specialty chemical chemical distribution market in Brazil? distributors? Associquim is the national association for Most distributors nowadays have a com- chemical distributors across the country. bination of commodities and specialties We were founded in 1960 and we have in their portfolio, with a typical ratio of around 90 members. To become a member 60% commodities to 40% specialties. Dis- companies have to apply to the respon- tribution of commodities demand a high sible distribution program called PRO- working capital, whilst specialties require DIR, and must be a distributor (although less capital but more added value to the we have some producers as members as products provided, such as formulation, well). PRODIR was launched in 2002 and advice on maximizing usage and post-sale follows the US National Association of services. Specialty chemicals are mostly Chemical Distributors’ responsible distri- used in food, pharmaceuticals and cosmet- bution procedures very closely. In fact, we ics industries. are supported by our US counterparts and have much contact with them. What are the main challenges holding back distributors in Brazil? Do you encourage the consolidation Firstly, fscal legislation is very compli- happening among distributors? cated, especially when distributors operate Rubens Yes, this is very important, especially in a in several states as sales taxes differ from country as big as Brazil. The distribution state to state. Secondly, the volatility of the Medrano business has been very resilient despite the economy is challenging for distributors, in economic crisis and as our industry ma- particular when importing as it makes it tures we think it is good that international diffcult to plan the inventory they need. players are investing in Brazil. Right now, There are also many licenses and regula- the market is quite steady in terms of con- tions distributors must adhere to in order solidation but it is still very fragmented to handle chemical products as there are 54 and there is more opportunity for mergers. many governmental entities impacting the chemical sector. We have to deal with fed- President What other trends are you noticing in eral, state and county legislation and enti- ASSOCIQUIM the distribution industry? ties such as Department of Federal Reve- Distributors are increasingly a one-stop- nue of Brazil (Customs), the federal police, shop for many different products and so the Ministry of Defense, and others. reduce the costs for everyone. Also, they PRODIR has been helpful in this regard as now add a lot of value to the chemical in- it keeps the industry updated on new leg- dustry that goes beyond just buying and islation and we interact with the govern- selling to provide additional services. One ment to help shape regulation affecting our “ aspect is technical support for both the pro- industry so that it makes things easier for Right now, the market is quite ducers and consumers. For example, many our members. We also provide advice to steady in terms of consolidation distributors have laboratories now for companies on how to meet all regulatory both application development and testing. requirements. but it is still very fragmented and Moreover, as the chemical industry has there is more opportunity for been reducing their headcount, distribu- Do you have any fnal messages? mergers. tors are becoming more important. They We want to continue to protect the inter- also remove the need for their customers ests of distributors and provide market in- to hold much inventory, especially use- formation. Every global distributor, if they ful where consumption is low for certain want to be truly global, needs to be in Bra- products. zil as it is Latin America’s largest market. ” For commodity chemicals there is a lot of Our market is similar to the US market, local production but not always enough except it is smaller, making it attractive to to meet demand. There is a lack of local international players. Furthermore, to ex- production in specialties and most of these pand in Latin America, it makes sense to are imported so the role of distributors is be based in Brazil, given our similar cul- very important for these, especially as they ture and the fact that countries like Chile, import in full containers which makes the Argentina and Peru are smaller markets cost for customers lower. compared to Brazil. We are confdent that as soon as the political situation is back to How do operating requirements differ normal, the market will grow again. ▬

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports Global Business Reports EDITORIAL

agement of project pipeline and invest- search for operational effciency, cost re- ments. As an example, we can mention duction and maintenance of competitive- the increase of specialties following global ness have become critical factors for sur- trends and regulatory demands in several vival. The economic recovery is already segments, the start-up of a lubricant pro- under way but at a slow pace. The main duction plant and the development of cus- players in the chemical distribution sector tomized solutions for clients through our in Brazil should be able to coexist with in- formulated products line. creasingly international competition, more The acquisition of quantiQ by GTM rep- demanding legislation and regulations, resents a signifcant expansion of our and rigid fnancial health. business, strategic alliances and territo- rial coverage. The integration between How does quantiQ stay close to custom- the companies has increased the fow of ers across such a diversifed portfolio of international business, generating diverse industries? synergies and numerous growth oppor- Even in a diverse environment, quantiQ tunities. With the integration, we have seeks incessantly to interpret the needs and taken a leading position throughout Latin tendencies of the market and clients, with America with a broad portfolio of products a strategic alignment with its principals. and principals, 62 distribution centers and As a result, we have found opportunities Armando a highly qualifed team capable of deliver- to offer our clients adequate solutions for ing solutions to our customers. their business, either through our portfolio Bighetti of products and services or our experience What are the main industries of interest in formulated products in the most diverse for quantiQ and growth drivers at the industries in which we operate. moment? We are present in more than 30 market What role can the chemical industry segments, especially adhesives, agroin- play in sustainability and environmental dustry, favors and fragrances, rubber, civil protection? 55 construction, cosmetics, pharmaceuticals, We believe that chemistry is in everything, President lubricants, human nutrition, oil and gas providing security, quality, practicality and QUANTIQ and paints. For the next few years, we comfort to people's lives. With population are confdent about the resumption of the growth, chemistry plays a major role in Brazilian economy with a recovery of the the progress and development of human- confdence of the industry and the service ity, whether by the use of cleaner and more sector. effcient technologies or products that pro- Hence, structural segments such as au- mote waste reduction and are aligned with tomobile and civil construction tend to sustainable practices. recover naturally, consequently boosting Could you provide a brief introduction other segments such as paints, lubricants Do you have any fnal messages for the to quantiQ and main developments since and rubber. The pharmaceutical, human audience of Global Business Reports and 2013, such as the acquisition by GTM? nutrition and cosmetics segments are also APLA delegates? quantiQ sets the benchmark for chemical considered promising due to their innova- We believe in the potential of the Brazil- distribution in Brazil and belongs to GTM tive nature and constant evolution, with ian market. Even amid the political and Holdings SA. With diversifed operations, participation of specialty chemicals. economic crisis of recent years, we have we are present in several market segments. been able to make important changes and Our portfolio has more than 1,000 prod- As the economy improves after two position ourselves adequately for stron- ucts, split between industrial, special- years of crisis, what are the challenges ger market growth. Based on this vision, ties and customer solutions (tailor-made remaining to develop the chemicals val- quantiQ has been constantly working on products), offering value-added services ue chain? improving its practices, focusing on the to more than fve thousand customers in Brazil is experiencing the worst economic strategic segments, acting with rigor in Brazil. In addition, quantiQ has a service crisis in its history. The last two years were inventory management, searching for new area for third parties (storage, bottling, in- extremely challenging, as several sectors products and developing partnerships with dustrialization and chemical analysis) and of the economy registered a month-on- global principals. With the acquisition by a lubricants production plant. month decline, there was a crisis of con- GTM, we have expanded our operations Over the past few years, we have prepared fdence and consequently reduction of and reached a leading role in Latin Ameri- ourselves to be a solutions provider, look- consumption and investments. This had a ca, thereby strengthening our commitment ing to the future through the adequacy strong impact on the market and several to growth and delivering solutions that add of the product portfolio, effective man- production chains. As a result, the constant value to our customers and principals. ▬

Global Business Reports BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Industry Explorations INTERVIEW Global Business Reports

Jan Felix Krueder

CEO QUÍMICA ANASTÁCIO

Química Anastácio has quintupled its sales over the last ten years. How have you been so successful? Many factors have led us to this point. We have been in existence for over 75 years and over this time we have always had strong values which we believed if we stuck to in the long term would sustain our growth. Also important is that we work across fourteen different segments and three master segments: Beauty and Health; Industrial; Agriculture; and fnally Food which includes human food, sport nutrition and animal nutrition. For each segment we have separate marketing plans and technical support teams; we have to be competitive in each segment, which has to be seen as a single company inside our structure. Furthermore, we launch new products very regularly – we increased our product portfolio from around 500 in 2013 to over 800 today and are targeting six new products every month, which we often surpass. Increasingly our import team is importing and consolidat- ing products coming from over 50 different countries and deliver- ing these to our customers. All of these factors working together mean we have been able to sustain double-digit growth every year.

Can you describe how you manage the process from sourcing new chemicals to delivery to the client? Firstly, 95% of the time we source new products because a cus- tomer demands particular chemicals or suppliers want us to sell a more complete range of their portfolio. Our international pur- chasing team handles a lot of bureaucracy in order to get the right licenses and coordinates between our suppliers, quality control and pricing teams and the customer until the moment the product is ap- proved. Then, our international department analyzes which trans- port method is best to shop particular packages and to which ports to ship each product. We have warehouses in Santa Catarina, São Paulo, Rio de Janeiro, Pernambuco and one in Goiás, in the center of Brazil. In these loca- tions we handle the importing, warehousing, invoicing and ship- ping of products all over Brazil. We also have a strategic unit in São Paulo which allows us to buy liquid products in trucks, ISO and fexi-tanks, warehousing them in a tank park and drumming into IBCs, steel and plastic drums or dispatching in trucks. This makes us competitive as we can buy the most economic package and meet the exact package requirements of our clients. We add value by of-

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fering cheaper transport, effective quality control, handling a large inventory and all labelling requirements, meeting all standards, providing fnancing and by being more fexible compared to what our customers could achieve on their own.

The company has a separate division, Anastácio Overseas, which aims to expand internationally. What is the strategy be- hind this expansion? Anastácio Overseas started last year as a trading company and its main focus is to establish a presence in all Latin American coun- QUALITY, EFFICIENCY, EXPERIENCE, tries. Our goal is to use our main strengths and capabilities that INNOVATION AND RESPONSIBILITY. have allowed us to be successful in Brazil in other countries where we do not have a presence and our own distribution structure. We ALL THE ESSENCIAL ELEMENTS started off handling chemicals for the industrial segment and then three months ago we began focusing on the food segment. Already, FOR A PERFECT CHEMISTRY. we are reaching all major South American countries and recently we established a warehouse in Argentina to distribute chemicals for the beauty and health industry there. In 2019, we plan to start distribution in Colombia so that we will then have three strategic locations from the south to north of the continent: Argentina, Brazil and Colombia.

How confdent are you in the business environment in Brazil and more broadly in Latin America? With more than 75 years and with a success story, We now have a very respected economic team running the economy that are enacting necessary reforms, such as of the spending limit or Química Anastacio is among the largest distributors of the labor. The current government’s more pro-market position is of chemical products in Brazil, offering a complete line giving more confdence to investors in the country, even if there are of products for the various segments of the market. still corruption scandals going on. Furthermore, the fght against With personalized service, quality assurance, support corruption is very positive as it shows the country will not accept specialized technician, customized logistics to customer malpractice anymore. needs and punctuality in deliveries, Química Anastacio meets all the demands through its 5 Distribution Centers, Do you have any fnal messages for the APLA delegates? own laboratories, bulk tank park and GMP packaging lines. We want to be recognized as being very strong partners to all our In Química Anastacio, trust and credibility are customers which helps them build up their businesses. We will con- always present in our chemistry and our lives. tinue to provide just-in-time products that are competitively priced, of good quality, with good fnancing and in a fexible way. Química Anastácio has more than 6,000 active customers who are both very VISIT OUR WEBSITE large and small but we provide them all with the same high quality www.quimicanastacio.com.br service. ▬ and see our complete raw material line.

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What key developments have happened tinuously looking for new, niche markets since 2013 and what has been the im- where we can add value. Univar is also of- pact of the acquisition of D’Altomare fering more packages of chemicals which Quimica? reduce costs for its customers and helps Univar has made a string of acquisitions broaden its client base. since 2011 when it acquired Arinos. The rationale behind these has been to pen- What is the balance between imports etrate the market vertically and gain and exports of speciality chemicals? more authorisations in Brazil and across Generally, Brazil is a net importer of Latin America. In 2016 we integrated chemicals. It produces some specifc ba- D’Altomare’s business into ours at our sic chemicals but not so many speciality headquarters in Osasco, having acquired chemicals so mainly we need to import them in 2014. We continue to look for these. Overall, we import about 50% of new acquisitions in order to gain more au- the chemicals we distribute. Brazil, Mexi- thorizations. Although we provide some co and Argentina are the biggest chemicals commodity chemicals, our strategy is to markets in Latin America but ultimately continue to move more into the specialty they are always going to need to import market. For this reason we have many dif- many of the chemicals they need in the Henrique ferent technical experts for each specifc future. The cost of raw materials in Brazil market, which we gained more of with the and Argentina is too high and infrastructure Bavoso acquisition of D’Altomare – a move which and logistics are a challenge, which holds was a key part of our strategy. their chemical industries back. Brazil will Univar also purchased Tagma in Septem- import more from the United States due to ber 2017. Tagma shares Univar's safety, the shale gas revolution. Maybe with Ar- integrity and quality values. With this gentina’s shale gas reserves they can also acquisition, we add tailored formulation supply more of their own feedstock but 58 and blending services to our capabilities, they also have signifcant challenges. an important move into the Brazilian agro Business Director chemicals market, aligned with our global What is the perception of Brazil’s chem- UNIVAR BRAZIL strategy for this segment. ical industry internationally? Brazil is a challenging environment due What are the main business segments to its tax system and other diffculties of that you operate in? doing business but things are improving In 2016 we consolidated our Latin Ameri- compared to ffteen or twenty years ago. It can operations into four verticals: life is very diffcult to establish a new company sciences, which includes personal care, and therefore working through a distribu- food and pharma; coating and construc- tor like Univar is a good option for foreign tion; industrial chemicals which includes companies. Despite the economic crisis, polyurethane applications, electronics, we have strong local demand and more metalworking, lubricants, textiles and foreign companies are coming to Brazil. formulators; and agriculture, oil and gas, Also, now the economic fundamentals are and mining. The goal behind this was to picking up and we are moving out from the operate as one company across the region. bottom of the economic cycle. Alongside distribution, we also carry out blending of polyurethane in Brazil and Do you have any fnal messages? have application laboratories in specifc In the last six years, Univar has been in- markets. vesting in Brazil and Mexico, and in the coming years in other countries across the How has your client base changed since region such as Argentina, Colombia, Peru 2013? and Chile. We have been hearing from The acquisition of D’Altomare has added suppliers that there is a lack of distributors silicon to our product line and therefore that work across the whole region. There- Dow Corning as a customer, which was fore, we want to operate in the region as the main reason behind the acquisition. one company, working with suppliers to We have also gained authorization from develop a strategy and offering the same ExxonMobil, Huntsman and others due to high-quality service across different coun- the expansion of our portfolio. We are con- tries. ▬

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports Global Business Reports INTERVIEW

products for polyurethanes, paints, plastics, textiles and lubricants; Victor life sciences which include cosmetics, food, pharmaceutical and household; and animal nutrition and health which include vitamins, Cutait minerals, antibiotics, enzymes and more. Why should more producers use distributors such as MCass- ab? Firstly, to sell to small and medium companies that producers do Director not have the resources to handle. MCassab has 6,000 active clients MCASSAB from the small to the very big companies. Secondly, a distributor handles logistics through distribution branches, which is especially important in a country as large as Brazil. Thirdly, we provide f- nancing of the purchasing of products and cover credit risk.

Could you give an overview of MCassab’s global presence and What are the benefts of importing chemicals from China? your product portfolio? The quality of chemicals in China has increased a lot and many We have distribution sites in São Paulo, the northeast of Brazil, are at the same standard as those produced in the United States Santa Catarina, Rio Grande del Sul and the west of Brazil. We also and Europe. have plants for pre-mixes close to Curitiba and in Mato Grande Del Sul. Internationally, we have a branch in Argentina, where we dis- Do you have any plans for international expansion and where tribute to the same segments as in Brazil, and a branch in China. We would you like to see MCassab in two years’ time? have had our China offce for a long time; it started as a procure- MCassab has doubled its size every fve years, with the exception ment offce to develop new products but three years ago we also of during the current crisis which, along with a reduction of market started local distribution for producers there. In addition, we export prices for chemicals, reduced our turnover from US$400 million some chemicals from Brazil to China. to around US$300 million. However, in the next fve years we are Our portfolio includes commodities, specialties and formulations looking to double in size again. We are optimistic about the econ- across three main divisions: industrial chemicals, where we sell omy and distribution market which is why we keep investing. ▬ 59

What do you see as the main infrastructure challenges in Bra- zil? Érica Port congestion is the number one issue which means additional costs for the entire value chain for both imports and exports. Also, Takeda Brazil does not have enough rail cars compared with the United States or even Mexico. Unfortunately, we do not see the situation improving in the near future. This is a serious problem as, if the economy was doing better, infrastructure challenges would be an Managing Director even bigger bottleneck. BRENNTAG Consolidation among distributors was a big trend in 2013. How has this trend evolved since then? Could you introduce Brenntag’s Brazil operations and the im- Despite the crisis years, Brazil’s economy is still a powerhouse and pact of the recent Gafor Distribuidora acquisition (2014)? will continue to attract foreign players. This, plus the fact that the The acquisition of Gafor Distribuidora was aimed at bringing some chemicals distribution market in Brazil is very fragmented, will of ExxonMobil Chemical’s solvents and other specialty products mean consolidation will increase in the future. into our portfolio and refects our goal to continuously optimize our product portfolio in line with market needs. This means we need to End-users of specialty chemicals require not just delivery of be close to our clients to understand how their demands are chang- chemicals but technical know-how. How does Brenntag ensure ing and is the reason for our ‘Connecting Chemistry’ logo. it provides both? For specialty chemicals, simply competing on price is not the right How much of its chemicals portfolio does Brenntag import? strategy. We have a very well-equipped application laboratory for Three years ago our suppliers were heavily skewed towards domes- coatings. This refects our value proposition for specialties which tic producers. However, about two years ago we started to import is that we can recommend chemicals for different needs, compared more chemicals as we increased the amount of specialty chemicals to commodity chemicals where operational effciency is our main in our portfolio. Nevertheless, we still have some key domestic sup- value-add. We also have application laboratories for agro-chemi- pliers in our portfolio such as Dow Chemical and Oxiteno. cals, polymers and are building one for home and personal care. ▬

Global Business Reports BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Industry Explorations INTERVIEW Global Business Reports

Quimisa has been on the market for over products and demanding more fexible pay- Rogerio 50 years. What is the history of the com- ment terms. pany and its distribution presence today? RGW: The company was launched in 1959 The distribution market is quite crowded. Gilberto when we began working with the textile in- How does Quimisa stand out? dustry, from our headquarters in Brusque, AW: We are different because we also own Santa Catarina. Over time we expanded to the logistics. We have almost 80 trucks and Wehmuth have branches in Rio Grande del Sul, Paraná, hold inventories of one to two months so we Itu, São Paulo and São Paulo city. 85 of our can deliver products very quickly and fex- & Andressa business is in commodities and we supply ibly – we are always available. We also pro- to the agriculture, feed and food, pulp and vide fexible payment terms. We have lots paper, water treatment, detergents, paint- of different packages and always have the Wehmuth ings and coatings and metallurgy industries. volume that a client needs. For textiles we supply products for soften- ers and detergents. We also supply products How much are certifcations like PRO- RGW: Owner for paints and dyes and have a contract with DIR, SASSMAQ and ISO 9001 require- AW: Regional Director, Latin America KISCO, a big South Korean company which ments to be a distributor in Brazil and QUIMISA produces many types of dyes for textiles, how do your products contribute to sus- leather, paper and others. tainability? AW: 15% of our business is in specialty AW: You need these certifcates, which we chemicals. We supply enzymes for house- have, in order to gain business with the big hold care and medical cleaning. We also companies. It is the frst step to build a part- have a lab dedicated to product develop- nership. Although, for the informal market ment. Quimisa is looking to grow its spe- they are not as important. cialty chemicals business and this year we RGW: Our products treat water and most have been growing our specialty sales at a of our products are bio-degradable. Our en- 60 rate of 5% year-to-date. Customers need zymes are an example of bio-technology and cheaper formulations so we develop special their use leads to a 20% reduction in water mixes for them, such as for stain removal. usage in washing machines. We also have a For medical cleaning we have approval system to capture the rainwater, in order to from Brazilian Health Regulatory Agency reduce and reuse water. (Anvisa). RG Are taxes an important challenge for your Quimisa distributes the largest volume business and are there any other signif- of tanked caustic soda in Brazil. What cant challenges? trends are you noticing in the market? RGW: Taxes are a challenge and differ from RGW: Caustic soda is like milk and bread as state to state. Some states like Santa Cata- everybody needs it. The most important end rina have a more benefcial tax system for market is aluminum, followed by pulp and importing, which São Paulo does not have. paper detergents, textiles and leather. De- Therefore, some companies just have a rep- mand decreased a little during the economic resentative offce in Santa Catarina so they crisis but from July 2017 until now demand can beneft from this. Sometimes customers has been growing every month. As we have based in São Paulo will ask us to invoice been facing some external factors as hurri- them from Santa Catarina, which we can do canes, tight volumes and politics instability, because of our branch in that state. we are even more focus on high quality of service and solutions, in terms of packages Do you have any fnal messages? and product mix for customers. RGW: We are innovating in animal feed and have actually hired a vet so that we can How have trends in demand for your measure the effect of feed on animals. Also, products changed due to the economic six months ago we started the production of crisis? resins for MDF wood for furniture. AW: We found during the crisis that cus- AW: Quimisa will be focusing more on the tomers stopped buying stocks of products specialties segments, as such detergents and but instead bought them on short-notice medical cleaning because we believe these when they really needed it. Also from July sectors will grow as everyone needs to wash till now, they are buying more packages of their clothes and needs healthcare. ▬

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports Global Business Reports INTERVIEW

Romero Alexandre Kaplan & Dantas Viviane Gandelman

AK: Owner Director VG: Supply Chain Director COREMAL – POCHTECA DINACO AK

Could you provide an introduction to Coremal and insight into its Could you give an overview of the role you play in the Brazilian acquisition by Pochteca? chemicals market? Our most important distribution segments are plastics and rubber, VG: This year we are celebrating our 80 year history in Brazil. We household and personal care and paint and coatings, with the last two started by supplying machinery and PVC to the plastic industry, which representing 15% each of our revenues and plastics and rubber above back then was considered a specialty chemical. What makes us differ- 20%. Coremal agreed to sell 50% of the company to the Mexican com- ent is our capacity to adapt and, over time, our portfolio has become pany Pochteca in 2013 and then 50% over fve years, with 10% sold focused on specialty chemicals. In 1967 we became a fully-fedged dis- each year. tributor and since the beginning have represented large companies like Lubrizol and Honeywell. We work with customers to develop formula- What differentiates Coremal-Pochteca from other players in the tions and solve their challenges rather than just sell chemicals, leverag- market? ing our application laboratory. Two-thirds of what we distribute is from local production and one-third from imports, so we import less than most other players. As a result, we Are you still planning to expand internationally? have a 42-day inventory which is better than the industry average. Fur- AK: A few years ago, three of our principals were pushing us to expand thermore, we have a very good organization with branches in strategic into other Latin American countries because they wanted to deal with locations in Brazil. . ▬ the same distributor so they could beneft from using the same busi- ness model across the region. We were very proud that they wanted to work with us in this way and we were ready to expand but as we 61 were doubling our sales in Brazil we decided we could capture more Carlos Fernando de growth here. Abreu & Having said that, Mexico’s chemical market is growing and it is a coun- try we would consider entering. We will also keep considering other Alexandre Castro countries, especially as our principals still want us to, but our main CFA focus is on becoming the number one, two or three specialty distribu- Monteiro tor in Brazil. ▬

CFA: CEO Harry ACM: Sales Manager COLORMIX Heise ESPECIALIDADES ACM

CEO Could you provide some background to the company? FORSCHER CFA: We founded the company due to a few important reasons. Firstly, Brazil does not have any major pigment producers, so around 95% are imported. Further, Brazil is a very big country and customers use small Where does Forscher ft into the chemical supply chain and does it or medium quantities of many different types of pigments. Therefore, now produce preparation pigments? pigments require a very specialized form of distribution. Colormix has Forscher is an importer and distributor of pigments. Since 2012, a unique portfolio to meet companies’ diverse needs as we represent the through a third-party, we have achieved our goal of producing prepara- most important organic, inorganic, metallic and effect pigment produc- tion intermediaries for pigments at an industrial scale and we are now ers globally, as well as producers of additives for the coatings, inks, testing its quality. If things go well, we will set up our own production plastics and cosmetics industries. plant. The intermediaries will have special functions that go beyond providing coloring, such as increasing the stretch of plastic. How do you help your customers with dispersion of pigments? ACM: To disperse pigments you need to use specialist milling machin- What are the key challenges you face? ery which is expensive, so therefore we provide this to our custom- Brazil is very complicated. The level of import taxes is still a big chal- ers, which is particularly helpful for small and medium companies that lenge and gets worse every day as the government is continuously in- would not be able to afford the machinery. ▬ troducing new rules. ▬

Global Business Reports BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Industry Explorations Image: Den Hartogh GBR • Industry Explorations • BRAZIL PETROCHEMICALS AND CHEMICALS 2017 LOGISTICS AND SERVICES

“Compared to before the crisis when the government had more resources, it is now more focused on opening up the market for infrastructure and encouraging private players to invest, such as from Chinese, US and European investors companies. This is a proven model that should lead to increased investment in Brazil’s infrastructure.”

- Edson de Paiva, Operations Director, Unigel EDITORIAL Global Business Reports

Brazil’s infrastructure: A major roadblock

It is widely acknowledged that for a country’s chemical industry to succeed it needs good infrastructure. Compared to its major rivals, Brazil’s infrastructure is sorely lacking, a major problem in “ 64 a continent sized country. In this context, logistics, transport and Logistics in Brazil are terrible. Due to the high volume of storage companies do their best to keep the wheels turning for the fuels that Brazil imports currently, of which Tricon has the chemical industry. A noticeable characteristic of the logistics set highest market share, the price of logistics has increased by up is that the petrochemical industry transports 98% of its prod- three times in the last two to three years. ucts via trucks, refecting the lack of alternatives. The logistics landscape covers three main types of companies handling both dry and liquid chemicals: those that deal with stor- age, transporters and third-party-logistics, or 3PL, providers, with - Roberto Fratta, a mixture of major international participants and local companies. Director, It all starts with storage, often at Brazil’s ports given the amount Tricon Energy of chemicals it imports. A major storage provider is Ultracargo, which owns two thirds of the liquid bulk storage capacity at the Port of Aratu, the gateway for feedstock for the petrochemical in- dustry. Another major player is Stolthaven Nielsen, a global inte- grated transportation, storage and distribution solutions provider Cesari, based in Santos, is an example of a company which” for chemicals and other bulk-liquid products. Both companies goes beyond storage to provide further logistics services. It has have announced expansion plans in response to increasing de- 200,000 m² of storage, 800 of its own ISO tanks and delivers to mand. At the time of writing, Ultracargo had just received approv- production plants across the country. Alongside such companies al from the Ministry of Transport to double its static capacity at are providers Den Hartogh, one of the world’s leading logistics the Terminal of Itaqui to 100,000 m3 and also plans to double its service providers of bulk liquids and gases for the chemical indus- capacity at Suape, Breve, Aratu and Santos terminals. Stolthaven try. After its merger with Interbulk, it now has 19,000 ISO tanks, Santos, which functions both as a break-bulk facility for domestic 26,000 dry bulk containers and almost 600 trucks globally. distribution and as a regional distribution hub, is expanding its Such companies compete with international third-party logistics capacity by 16,000 cubic meters and also has land available to (3PL) providers that do not typically own assets such as BDP In- expand by a further 53,000 in the near future. The key service ternational which offers freight forwarding, customs brokerage, Stolthaven provides for its domestic clients is the consolidation of documentation, transportation, warehousing and many value- trade lines for bulk liquids. Notably, however, both companies are added services, and Leschaco which has partners for trucking, seeing most demand increases for clean petroleum products rather warehousing, ocean lining and airlines. Brazilian company IC than petrochemicals as the recession has meant less demand for Transportes transports bulk liquid and solid chemicals, air gases chemicals. Although, two chemicals which are experiencing an and liquefed gases and is present in the south, São Paulo state, increasing demand are methanol and caustic soda. Minas Gerais, Rio de Janeiro and northeast, including Camaçari;

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports Global Business Reports EDITORIAL

and Grupo Toniato provides trucking services in the south-east, lapse. There has been much investment into capacity to handle south and mid-east of Brazil. ISO tanks and containers, and this is helping us convert products from vessels into ISO tanks.” AP Moller-Maersk, which operates the Maersk Line, has invested Life in the Slow Lane US$400 million into the Santos container terminal since 2010 but to make full use of this berthing capacity must improve. Brazil’s infrastructure problems are multi-faceted and companies Moving inland, given virtually all transport of chemicals is done up and down the supply chain are broadly in agreement that it is by trucks, road quality is critical but Brazil falls short in this area one of the major obstacles holding the chemical industry back. as well. “Brazil has awful roads, although it is getting a little bit In fact, the country’s logistics woes have led to the ire of many. better after investments from the states,” complained Romero Roberto Fratta, director at Tricon Energy, a trading company of Dantas, director, Coremal – Pochteca, alluding to the lack of fed- chemicals and petrochemicals, summed up the general frustra- eral funds, especially in the recent years of economic crisis. tion: “Logistics in Brazil are terrible.” One area that has seen improvement is the organization of trucks The picture is nuanced but there is no hiding from the country’s at ports. “Although road infrastructure is still a big bottleneck, at weaknesses in this regard. To start off with, there are signifcant least at Santos the arrival and departure of trucks is now much delays at Brazil’s ports. According to Reinaldo Kröger, president better organised,” refected Albuquerque, continuing “and rail of Unigel: “The Port of Aratu operates at 92% capacity, well transport of dry goods in Santos, Paranaguá and Rio Grande is above the 50 to 60% capacity that is optimal. This causes delays increasing.” which mean companies must pay large fnes for late deliveries. Indeed, the lack of alternatives, such as rail, to transport by roads Unigel lost US$4 million in seven months because of this prob- is a big issue. Brazil has far fewer rail cars than the United States lem.” or Mexico and the transportation of chemicals is not given prior- A cursory assessment would suggest that the problem is a simple ity. “70% of our production is supported by trucks and very little lack of capacity but the problem is more complicated. “The is- via rail as Brazil has very little availability compared to Mexico sue is not storage capacity. The private sector has invested in or the United States,” commented Romero Dantas, Director, Co- infrastructure in areas in which it operates, but berthing capac- remal – Pochteca. ity, which demands public investments, did not grow in the same Finally, the infrastructure for ISO tanks, such as cleaning cen- proportion. So, handling volume have increased 10% per year, ters – a key requirement, merits analysis given a large number 65 but there has not been an increase in berthing capacity, so there of chemical products are now transported in them. Generally the is queueing, which represents a major cost for producers,” ex- south of Brazil has a good standard of cleaning facilities for ISO plained Ricardo Catran, director at Ultracargo. tanks, with facilities in Santos, Paranaguá and Porto Alegre and Jean Felipe Albuquerque, Latin America business development one being developed in Santa Caterina. But north of Santos only director and general manager, Den Hartogh, concurs: “Liquid in Rio and Salvador can tanks be cleaned. “This is a big prob- bulk terminals have been at over capacity for a long time and lem as many chemicals go to places like Fortaleza, Suape, Belém, more investments are needed. However, for containerized cargo, Manaus and others but, for example, its costs over US$2,000 and the quality of the port infrastructure from Santos to Rio Grande takes 30 days to move ISO tanks from Manaus to somewhere has improved a lot since 2012, when it was on the brink of col- where they can be cleaned,” lamented Albuquerque. 67▶

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Global Business Reports BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Industry Explorations INTERVIEW Global Business Reports

IC Transportes is celebrating 35 years, with the client so that we can understand their could you provide an update since our pre- changing needs and provide personalized op- vious interview in 2012 on the company’s erations. Client profles in the transportation capacity and performance? market are changing here in Brazil, as clients Since 2012 we have had the biggest growth understand that the cheapest option does not historically for the company. We are a dy- mean the most effcient. We are always ques- namic company and are constantly adapting tioning how we can add value for a client, the feet and workforce in accordance with and although price is important, we look frst demand. We now have over 1,000 trucks, to quality, expertise and safety. Moreover, we 1,000 semi-trailers and 1,500 employees. are reliable and fexible, with capacity to deal Into the middle of 2014 we were benefting with different loads, meet client’s deadlines, from Brazil’s growth period, then we fell adapt schedules or make alterations the client victim to the crisis until the end of 2016. De- may request during operations. spite the downturn, agribusiness experienced growth as it beneftted from a good harvest How does IC Transportes prepare drivers and the rising dollar, favorable for exports; for transporting chemicals? whilst industrial clients were transporting Brazil may have a large availability of driv- smaller volumes. This year, we are seeing a ers, but not with the specifc expertise we strong reaction from our biggest sectors, the need. We train drivers within the company Ivan chemical and agribusiness sectors. here on site due to the complexity of some of We also increased the number of affliates the products we transport. The training cov- Camargo and expanded in other locations. Today we ers the specifc legislations and certifcations are present in the south of the country, Sao of products, as well as approvals from orga- Paulo state, including our headquarters in nizations. For example, with the air gases, Sumaré, Minas Gerais, Rio de Janeiro and it takes 90 days to prepare a driver and then in the northeast, including Camaçari. Other they often become specialists for that certain players left the market during the crisis years, product type. 66 which accelerated IC Transportes plans to expand geographically, especially in the Wait time at ports is a growing concern for Director and Owner northeast. Another motive of expansion was producers losing them time and therefore IC TRANSPORTES to further support our clients. For example, money. However, we hear that the queue for both Linde Gases and Air Liquide we for truck loads at Santos has improved, do are now responsible for 100% of their liquid you agree? transport in Brazil. Port infrastructure in Brazil continues to be a serious problem and the crisis certainly has Could you explain the importance of tech- not helped to encourage port investments, nology in IC Transportes operations? yet there are opportunities, especially in the “ In the past fve years, we have evolved signif- northeast. At Santos, the big difference made Client profiles in the icantly in cutting-edge technology, including has been in the scheduling for the trucks. Be- the implementation of a sharing center sys- fore, all the trucks would arrive and wait in transportation market are tem to improve the client’s access to informa- a queue, whereas today you can book your changing here in Brazil, as clients tion. We invested in new monitoring systems, space. However, sometimes they do not have understand that the cheapest one with the ability to warn the driver about an available window for unloading, so in- option does not mean the most risk areas or nearby accidents and another stead of waiting there at the port, the truck efcient. system for the client to watch their load’s will wait at our garages or at a point along the transportation in real time. We look to invest journey. The scheduling has not resolved the as much in modernizing the feet as in tech- fow of traffc, in fact, the issue has just gone nology to provide more security in service further away from the port! for the client. ” Do you have a fnal message for our read- How does IC Transportes balance quality ers and APLA delegates? of service with staying competitive in the We are optimistic and believe that after such market? a negative experience we can improve and Today, we have clients that share our values come out benefting, this is my hope. Within in high quality and the use of technology to this context, I hope that we learn from this improve safety and effciencies. The market crisis, grow, solidify our operations and con- regulates the price, and it is important to stay tinue to provide clients with a top quality competitive, so we keep working closely service. ▬

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports Global Business Reports EDITORIAL

DOMESTIC SALES IMPORTS EXPORTS 84.07 MMton + 32.6 MMton + 15.2 MMton

MOVING OF INDUSTRIAL CHEMICALS (including fertilizers and intermediate) 132 million tons (movement)

ways and we are investing accordingly, especially in the north of Brazil, where we are using the Amazon River. We have become a “ market leader in this area in the last six years,” remarked Antonio Today we see new opportunities in cabotage of waterways Rosa, commercial director, Grupo Cesari. and we are investing accordingly, especially in the north This is in line with the recommendations of Abiquim, which has recommended to the government that it encourage the greater use of Brazil, where we are using the Amazon River. We have 67 of cabotage. Den Hartogh has also begun to offer vessel transport become a market leader in this area in the last six years. of goods from Brazil to Argentina, bypassing road connections.

- Antonio Rosa, Privatization drive Commercial Director, Grupo Cesari With a primary budget defcit of almost US$6.4 billion in July 2017, the government has not been in a position to make signif- cant investments into infrastructure. To help plug the gap, Bra- zil’s government is embarking on a massive R$44bn privatization ” drive, which will include infrastructure assets. Signifcant parts of ◀ 65 the plan include the sale of concessions for 900 km of highways Creative Solutions and tenders for port projects with the goal of attracting R$20 bil- lion of investment. Analysts predict that large greenfeld invest- How to make the most of Brazil’s infrastructure is an essen- ments are unlikely but the government has committed R$10 bil- tial goal for logistics companies operating in the country. Price lion to new highways. There is optimism across the supply chain is not always the most important factor for customers. “Client that the privatization drive will improve Brail’s infrastructure. profles in the transportation market are changing here in Brazil, “The government’s privatization drive will have a positive effect as clients understand that the cheapest option does not mean the on infrastructure as the private sector is much more dynamic and most effcient,” remarked Ivan Camargo, director and owner, IC can complete projects more quickly,” argued Marcos De Marchi, Transportes. Each provider has its differentiating factors. BDP, chairman of the board of directors, Abiquim. for example, has the best-in-class BDP Smart Suite, which pro- Chinese and European companies have already shown a keen vides information, reports, metrics, alerts, documentation and interest in investing in Brazil’s infrastructure. “Compared to be- more across a region or the world. Grupo Toniato has set up two fore the crisis when the government had more resources, it is now new companies, which use technology to provide next-generation more focused on opening up the market for infrastructure and en- ‘4PL’ and reduce costs through the pooling of resources, and IC couraging private players to invest. This is a proven model that Transportes has invested in a monitoring system which allows cli- should lead to increased investment in Brazil’s infrastructure,” ents to watch in real time the transportation of their goods. predicted Edson de Paiva, operations director, Unigel. Other actors, liked Cesari, are looking to bypass road in favor of Brazil deserves better infrastructure and until it gets it, its chemi- cabotage. “Today we see new opportunities in cabotage of water- cal sector will continue to perform below its potential. ▬

Global Business Reports BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Industry Explorations INTERVIEW Global Business Reports

new companies. Due to the crisis, chemical companies have been André looking for logistics providers with a better, more effcient service offering, which we have been able to provide due to these invest- ments. Furthermore, as demand has increased, our extra capacity Façanha has paid off. Therefore, for us crisis has been an opportunity to strengthen our business.

What sectors have done well in the years of economic crisis? CEO Depending on categorization, demand from the chemical segment GRUPO TONIATO decreased by 5 to 20% last year and the year before, but agrochemi- cals increased by around 5%. Overall, we are working at about the same level as in 2014. Paints have performed particularly badly as the automotive and construction industries have really suffered as consumers have had less disposable income. Furthermore, special- What new developments have there been since 2012? ty chemicals which are raw materials for these sectors, have also Grupo Toniato has 43 years of experience in Brazil and transports suffered. Agrochemicals operate to different fundamentals because agrochemicals and specialty chemicals. In the last fve years, we they are like medicine for plants so you need to protect them against expanded a lot, from around 1000 employees to more than 2000. the elements whatever happens. We have also moved more into agrochemicals and have expanded our geographical reach out of the south-east of Brazil to include the Has your client base changed since 2012? south and mid-east of the country. In addition, we have invested in Most of the important players are our clients. Since 2012 we have facilities in Minas Gerais, Paraná, Rio Grande do Sul and São Paulo expanding our operations with most of our clients. For example, states, including R$100 million in new warehouses and a feet of some customers have used us more as they have been looking to trucks and forklifts. reduce logistics costs and use less providers. Another advantage we We have also invested a lot into technology and have opened two offer them is our geographic presence and productivity. ▬

68

Rodrigo In 2017, ocean freight rates are forecast to increase due to factors such as supplier consolidation, increased bunker prices and slower capacity growth. However, rates will remain moderate due to the Seabra uncertain global economic environment. In terms of the economy, the trend is becoming more positive. Yet, for at least the next one Director – Latin America, to two years, we see a lack of carrier capacity, particularly after Global Strategic Sales mergers between carriers like Maersk Line and Hamburg Süd. We BDP INTERNATIONAL expect this merger to have a signifcant impact on the region and recommend clients have direct contract with carriers to guarantee space. In this scenario, BDP plays the role of 3PL and forwarder How diversifed is your client base in the chemicals sector? managing direct contracts and outsourcing some functions inside In Latin America, a large part of our business is focused on the the companies, with value-added services such as compliance, agro-chemicals sector. We also have many accounts in the poly- technology, reports and KPI-driven operations. mers market and our Uruguay offce was established to service Distribution in the region is often more complicated compared to polymer customers. We also offer our services for a range of prod- other parts of the world. As a result, although BDP provides quotes ucts in the health and personal care, civil construction, consumer, that provide global coverage, Latin America must always be dealt and oil and gas sectors. with separately. BDP manages a wide range of chemical shipments, such as haz- ardous and non-hazardous, short and long shelf life, variable vola- What are your key goals for the next few years? tility and so on, spanning all classes with diverse end uses and With 15 owned offces and growing in the region, our goal is to be regulatory limitations. present in every important market where our clients in the chemi- cals sector have operations. Recent expansion plans include open- What trends are you noticing in the distribution market for ing new offces in Peru and Uruguay, which add to the BDP LA- chemicals in Brazil and the wider region? TAM existing offces in Argentina, Brazil, Chile and Colombia. ▬

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports Global Business Reports INTERVIEW

Antonio How are plans to connect Cesari’s operations to Brazil’s ports via a duct and tunnel system and bringing railroad to Cesari’s sites progressing? Rosa The duct and tunnel projects are still in development and waiting to obtain environmental permits. We will not make any invest- ments unless we have these licenses in place. The railway invest- ments however went ahead after we received concessions and li- Commercial Director censes from the government. We have a train with 102 carriages GRUPO CESARI that handles 250 containers a day.

Could you tell us more about Cesari’s customised solutions department? Could you provide a brief overview of Cesari’s history? Our employees are embedded within a company, overseeing op- Cesari has been in the market for 65 years and has always focused erations, which differentiates us in the market. We aim to reduce on the transporting of chemicals. Around the year 2000, it was a company’s total transport and logistics spend by 10%, as well as a boom period for Brazil and Cesari became a market leader in improving productivity and safety management. transporting petrochemicals and derived chemicals. At this time we decided to diversify to other areas such as storage for solids What are your key goals going forward and do you have any and liquids, logistics and maintenance, cleaning and modal trans- fnal messages? port for ISO tanks. Now is the time for us to be planning for investment to be ready Today we have 200,000m² of storage and we deliver to produc- with the solutions our clients will need once the economy picks tion plants across the country. We have increased our volume ca- up. We have lots of projects in the pipeline of fve to ffteen years pacity so that we now have more than 800 of our own ISO tanks, in the petrochemical and chemical sector that we are ready to ready to meet the requirements for our clients. launch once things improve. ▬

69 Ricardo What are the main challenges at Brazil's ports? The issue is not storage capacity. The private sector has invested Catran in infrastructure in areas in which it operates, but berthing capac- ity, which demands public investments, did not grow in the same proportion. Director ULTRACARGO Can you tell us about effcient service and safety at Ultra- cargo? Through Integra, our storage management system, our clients can Ultracargo has more than 50 years of history and is the larg- gain access to information such as: times, schedule, inventory, est independent liquid bulk storage company in Brazil. Could and movements. It also facilitates decision-making and the un- you provide a brief introduction about the company and de- derstanding of the terminal’s operations. We are designing an im- scribe your position in the chemicals supply chain? provement for this system. Ultracargo began its operations in 1966, initially with road trans- We are at the forefront of the best safety practices, with a new fre portation operations, driven by the chemical industry. After a few protection system that has been developed in a superior standard years, the company started its liquid bulk storage operations. We that exceeds legal and regulatory requirements. We also launched experienced great growth in the 80s and 90s. In 2008, we doubled a program with the aim of promoting a behavioral change across our size with an important acquisition in Santos, Paranaguá, and the company. Rio de Janeiro. In 2010, the company took the strategic decision to sell its transport business and focus on port liquid bulk storage. Do you have any fnal messages? The port issue demands the involvement of the government and Could you tell us about any recent capacity expansions and of private companies, together. As an industry, it is important to are there any planned for the future? share knowledge with the government to assist in decisions to be We have plans to grow our terminals. We just had approval from made that will affect all parties involved. In terms of Brazil, my the Ministry of Transport to double our static capacity at the Ter- perspective is positive for the coming years. Reforms are being minal of Itaqui. made, and we will be in a more favourable position for growth. ▬

Global Business Reports BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Industry Explorations INTERVIEW Global Business Reports

What other added value services do you provide in Brazil? Health, safety and the environment is always a priority and we Jean Felipe support our customers in the proper handling of ISO Tanks. We are not only involved in door-to-door transport. We support our Albuquerque clients navigate import taxes which differ by state; for example, we operate imports through Santa Catarina where the taxes are only 4% as compared to 18% in Rio de Janeiro and São Paulo. Furthermore, our market knowledge means we know the best Latin America Business transport routes and ports for a particular distribution need. Development Director and General Manager DEN HARTOGH How much of a challenge is Brazil’s infrastructure bottle- necks for Den Hartogh? Liquid bulk terminals have been at over capacity for a long time and more investments are needed. However, for containerized cargo, the quality of the port infrastructure from Santos to Rio Could you provide an introduction to Den Hartogh and in- Grande has improved a lot since 2012, when it was on the brink of sight into the impact of the acquisition of Interbulk? collapse. There has been much investment into capacity to handle In 2016, we acquired Interbulk, bringing together our 7,000 tanks ISO tanks and containers, and this is helping us convert products with their 12,000 and expanding our dry bulk containers to 26,000 from vessels into ISO tanks. and trucks to almost 600. This expanded our international reach and we are now a top player globally. We have offces in 23 coun- Do you have any fnal messages? tries and operations in almost 300 ports. We provide customised Our key goal is to be ever more in line with our customers’ supply solutions and operate in the retail as well as wholesale market. In chain and sales departments. Our logistics solutions help leverage Latin America, our headquarters are in Rio de Janeiro where we our clients’ global sales, given that companies operating in Brazil started as part of Interbulk in 1996. Some of our clients include compete not just with local companies or even just Latin Ameri- Dow Chemical, Solvay and BASF, as well as many others. can ones but competitors from all over the world. ▬

70

Are you seeing an uptick in new projects in the chemical in- Akira dustry as the economy improves in Brazil? The mindset of investors is different than fve years ago when there were more greenfeld projects. Now they are more focused Koga on brownfeld investments such as re-vamps and projects to im- prove effciency. They want to do more with less to increase pro- duction which means we are experiencing less demand for our Commercial Director services compared to previous years. We do expect new large MAMMOET LATIN AMERICA greenfeld projects in fve years time because of the cyclical na- ture of such projects, but they are unlikely to return in the next one to two years.

What is the importance of Mammoet’s Brazil offce in the Have there been any recent new innovations or product wider company and what are your main strengths as a busi- launches at Mammoet? ness? The launch of the PTC 140-200 ring cranes has been a game- Mammoet’s São Paulo offce is the headquarters for all of its Lat- changer in Brazil. Also, the MTC-15 terminal crane possesses in American operations below Mexico. Whilst the economic situ- new technology. It is a very powerful crane designed specifcally ation in the region is challenging, SHV Holdings, the owner of for remote areas where there is no port structure. Mammoet, still sees it as a very important area for the business. Brazil is by far the biggest market in the Latin American region Do the delays at Brazil’s ports effect your operations? for Mammoet so most opportunities are here. Our strength is that Mammoet has a global feet of equipment so we import and ex- we are at the vanguard of planning, engineering and logistics and port a lot of cargo. Due to the delays at the port, it is sometimes a can provide varied solutions with the ability to scale up for large, challenge to meet schedules. We do our best to mitigate the port more complex projects, and scale down for those that are smaller delays through careful planning and communicating with the cli- and less complex. ent upfront, explaining the possibilities. ▬

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports Global Business Reports MAP

PORTS

Porto de Macapá

Porto de Vila do Conde Porto de Santarém Porto de Itaqui Porto de Porto de Luíz Corrêa Belém Porto de Pecém Porto de Fortaleza Porto de Manaus Porto de Areia Branca Porto de Natal

Porto de Porto de Cabedelo Porto Velho Porto de Recife Porto de Suape

Porto de Maceió

Porto de Barra dos Coqueiros 71 Porto de Salvador Porto de Aratu Porto de Cáceres Brasilia Porto de Ilhéus

Porto de Pirapora Porto de Ladário

Porto de Corumbá Porto de Barra do Riacho

Porto de Vitória

Porto de Formo Porto de Niterói Porto de Rio de Janeiro Porto de Sopetiba Porto de Angra dos Reis PACIFIC Porto de São Sebastião OCEAN Porto de Santos Porto de Antonina Porto de Paranaguá Porto de São Francisco do Sul Porto de Itajaí Porto de Imbituba Porto de Laguna Porto de Estrela ATLANTIC OCEAN Porto de Porto Alegre Porto de Cachoeira do Sal Porto de Pelotas Porto de Rio Grande

Global Business Reports BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Industry Explorations INTERVIEW Global Business Reports

cals and we are very competitive in this so we can provide a good Roberto price and service to the client.

What trends are you noticing in the distribution of chemicals in Fratta Brazil? Logistics in Brazil are terrible. Due to the high volume of fuels that Brazil imports currently, of which Tricon has the highest market Director share, the price of logistics has increased by three times in the last TRICON ENERGY two to three years. It is very diffcult to fnd space to import new products and we have to sometimes import via ISO tanks rather than bulk vessels. The demurrage costs at ports are also terrible as it takes What has been the history of the Tricon Energy in Brazil and a week to berth a vessel at Aratu or Santos, although Paranaguá is a what are your current main service areas? little better. Tricon Energy is a trading company that has one of the biggest in- dent sales of chemicals and petrochemicals in the world. Our opera- Given Tricon Energy’s headquarters in Houston, what has been tions in the country are split into our fuel business and our chemicals the impact of Hurricane Harvey on imports of raw materials to business, which is further split into chemicals, petrochemicals and Brazil? plastics. Our petrochemicals and chemicals business includes distri- There has been no major supply interruption to our clients but the bution of caustic soda and methanol. prices in Brazil have increased very rapidly. Caustic soda increased by 35% in one week because of the hurricane and compounded by Tricon Energy has operations all around the world. What advan- the longer term inability to bring more bulk vessels to the country tages does this bring? due to the infrastructure challenges. On the other hand, local produc- Our positions in the Middle East, Europe, Asia, United States means ers have raised their prices so now petrochemical companies in Bra- we can source from different places for the same product, which is zil are making money and they are exporting more so the hurricane very important. Logistics makes the difference in commodity chemi- has actually been a good thing for the industry. ▬

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stand which chemicals are potentially harmful and managing the Fabriciano risks accordingly. What trends are you noticing in the risk management of chemi- Pinheiro & cals in Brazil?

FP MP: Compared with more developed markets in Europe and North America, Brazilian companies do not have as advanced an ap- Michel Polity MP proach to safety and environmental issues and often focus more on the quality of chemicals. However, ABIQUIM, through the Nation- FP: Managing Partner al Commission on Chemical Safety (Conasq), has played a very MP: Director Latin American Expansion important role in implementing UN Globally Harmonized System INTERTOX (GHS) for classifcation and labelling of chemicals. This represent- ed a change of mindset in Brazil as previously the country was be- hind many other countries in terms of chemical safety. How did Intertox begin and what is your position in the market today? How are you looking to expand internationally? FP: Intertox has been in the market for eighteen years. It began MP: We see Latin America as a huge potential market for Intertox, because we realised there was a market need for advisory services in particular Argentina, Chile, Mexico and Colombia. We are fo- on risk management of environmental and occupational toxicology. cusing on marketing our software capabilities to larger companies We started by offering specialized training programs and reports. in these countries; whilst for smaller companies, we are aiming to For example, we assisted our frst client Petrobras in this way by assist them with obtaining security documents for handling chemi- helping them understand potential hazards and how to prevent oil cals. We also plan to provide training services to companies in the spill accidents. Generally, we have had to do a lot of education region. In addition, the GHS has failed to unify regulation in the of the market about the importance of toxicology across the entire region, which presents an opportunity for Intertox to advise on reg- lifecycle of chemicals from production, to handling, storage and ulatory compliance. We have the expertise and software to really disposure. Now that we have helped educate the market, we focus help companies throughout the region. This is all part of our goal to on providing services in chemical risk, toxicological risk and en- be the key consultancy in Latin America for chemical, toxicologi- vironmental risk. Our main value-add is helping companies under- cal and environmental risk management services. ▬

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports Global Business Reports INTERVIEW

Could you provide an overview of you presence in Santos? Santos is a crucial strategic facility for Stolthaven’s international network as it enables the company to consolidate our import and export services for Latin America. Our key service for our domestic clients is to consolidate trade lines. Santos plays an important role as one of the main storage facilities for the petrochemical industry and as a distribu- tion center for clean petroleum products. 60% of our tankage is used for clean petroleum products, whilst 40% is used for the petrochemical industry. Our facilities have access to three berths and immediate access to highways. Since 2002, we have expanded our capacity and currently we handle 133,750 cubic meters, which we are expanding by 16,000 cubic meters. This is in line with Brazil’s Miguel expected continued increase of clean petroleum imports until 2030. We also have land available to expand by a further 53,000 cubic meters so in the near future we project we will have close to 200,000 cubic meters of capacity. In terms of chemicals, we store (Mike) several families of polyols, chemical alcohols, vegoils and caustic soda. In addition, we handle a lot of imports and exports of ethanol. Brazil is a very big exporter and leader of Sealy second generation, green ethanol which we ship all over the world. How competitive is the market for importing and storing these products? It is a very competitive market. Stolthaven Santos does not focus on renting tanks but on 73 consolidating trade lines and ensuring the quality of products that are being handled for General Manager our clients. We provide extra value in services such as logistics, market intelligence and STOLTHAVEN SANTOS operational excellence.

Is the lack of capacity for handling of liquid bulk products at ports negatively af- fecting Stolthaven’s business? On the contrary, it is providing a business opportunity for us to invest in capacity. Brazil transports 98% of its products via trucks, compared to the past when rail was more com- mon, across a continent sized country. This means there is a lot of demand for fuel which Brazil’s ports are not able to supply at present. Although, due to the economic crisis, the demand for certain types of products from many industries decreased, which meant we had more space for diesel and gasoline derivatives imports. However, we foresee that the economic recovery is just around the corner. Even with the pre-salt petroleum exploitation discoveries, Brazil will continue to import fuels as it has insuffcient refning capacity. Generally, we can react very quickly to mar- ket fuctuations and this allows us to maintain our leading position.

How is Stolthaven adapting to technological change? We are preparing ourselves for a leap into the future in terms of automation. Technology today sustains our operational intelligence. All of our contact with clients, agencies and transporters are now all done online, which means technology is playing an increasingly important role. We will invest a lot into this into the future, especially to ensure the safety and automation of our operations.

What are your key priorities going forward? We want to consolidate the level that we have in the market today in the Port of Santos where we have about 14% of the local market. Also, we want to maintain our operational excellence and increase our capacity. We do not produce products but we provide a cru- cial part of the value chain for manufacturers to make products to be put on the shelf and will continue to be focused on that. ▬

Global Business Reports BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Industry Explorations GBR • Industry Explorations • BRAZIL PETROCHEMICALS AND CHEMICALS 2017 FINAL THOUGHTS

“The essential pre-conditions for a successful industry are competitive raw material and energy. Alongside these are good infrastructure and logistics, R&D investment and labor training. We are not competitive enough because we are not performing well on all these fve elements.”

- Marcos De Marchi, Chairman of the Board of Directors, Abiquim INTERVIEW Global Business Reports

downstream to chemicals. IHS merged with barrier for Brazil’s petrochemical indus- Markit and now offers what we call: ‘The try? New Intelligence’. We partner with leaders In this business, access to abundant and Rina in business, fnance and government to help competitively priced feedstock is key to suc- our customers be more effcient and make cess and competitiveness. Brazil is working Quijada more informed decisions to secure their fu- hard to improve its feedstock position. It ture. has therefore recently invested in terminals to source from international markets. Its Senior Director, Latin America What is the outlook for the business envi- pre-salt reserves are off-shore and costly, IHS MARKIT ronments in Latin America? so getting access to feedstock requires in- The entire region has gone through diffcult novation. Pre-salt will provide additional times in the last ten years but from Mexico feedstock for expansion of cracking facili- down to Patagonia, the next few years will ties. Nevertheless, it is unlikely there will be present a better business environment for a greenfeld facility of over 1 million mt of investors. However, the risk continues and ethylene and derivatives in Brazil by 2020. political stability will need to improve in There may be an increase in production ca- order to attract signifcant foreign direct in- pacity in Argentina but it is unlikely there vestment. will be a similar plant to the Ethylene XXI Regarding Brazil, despite the crisis and cha- in Mexico being built in Brazil. os, it has shown the world that its democ- At the same time, Brazil is becoming more racy is strong and institutions are frm. Bra- fexible in its feedstock sources. Braskem zil is going through a painful exercise and just completed construction of an ethane has successfully tackled corruption. We be- terminal in Rio de Janeiro state where it What sets IHS Markit apart from other lieve the Brazilian economy has reached an receives ethane from the US Gulf Coast. A consultants advising the petrochemical infection point where the economy should second terminal is expected to be completed industry? start to turn around. Brazil will come out of in Aratu by end of the year. Soon, 15% of We are a completely integrated source of this crisis stronger and opportunities for the additional ethane will come into Brazil’s information: from ‘Wellhead to Walmart’. petrochemical industry will return. feedstock mix, making it more competitive. 76 Under one umbrella we can provide so- Most state-owned companies in Latin Amer- lutions from oil exploration, midstream, To what extent is access to feedstock a ica are trying to divest their petrochemical

Bain produced the 2014 report ‘Study focus of the industry; BNDES and the gov- Rodrigo of the Potential for Diversifcation of the ernment has been diluted since the economic Brazilian Chemical Industry’, funded by and political crisis. The most important thing BNDES. Are there any updates on the is that we regain this lost momentum and Mas fndings of the report? come together again around an agenda for One of the key areas of opportunity in 2014 the industry. was for renewably sourced feedstock but now economic incentives are less favor- Abiquim recommends that the govern- Partner able compared to when there was a higher ment has a proper industrial policy and a BAIN & COMPANY oil price; although, this does not mean that ministerial group for the chemical indus- bio-sources are no longer a strategic priority try. Do you agree with this proposal? for Brazil. Secondly, due to the economic cri- It is correct that the management of these sis, large government investments to support issues by the government is very diffused. the chemical industry are not possible. This The Ministry for Industry, Foreign Trade makes the proposals of the report, such as tax and Services needs to better coordinate with reforms, less feasible and there needs to be ministries responsible for infrastructure, en- some readjustment because of this situation. ergy and resources, technology, health and Thirdly, consumption patterns have changed environment that look after regulations and due to the exchange rate which has made licenses of new products. The problem is some sectors more or less competitive. But that there is no single point of accountability in terms of the general direction, there are no for moving the proposals of the report for- signifcant changes to the proposals we rec- ward. Having a group such as this would help ommended. The major challenge now is to streamline initiatives a lot. bring these proposals back onto the agenda of the government as they were in 2014 as the How has the trade balance in chemicals

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports Global Business Reports INTERVIEW

assets and focus on exploration and pro- duction. In Brazil, Petrobras is looking to divest its petrochemical assets and has al- ready sold its PET (polyethylene terephthal- João Luis ate) resin unit to Mexico’s private company, Alpek. On the other hand, important market Ribeiro De participants like Braskem, Unigel and Oxi- teno are no longer just Brazilian companies; they are investing abroad and are now much Almeida more engaged in global markets. We expect changes in the petrochemical industry in Latin America to bring business opportuni- ties for investors in the region. Partner, Mergers and Acquisitions How transformative is the potential for and Oil and Gas green feedstock? DEMAREST ADVOGADOS Although green feedstocks are very wel- come when they are competitive, the im- pact of shale gas is immense and the United States will be the number one exporter of LPG when fve years ago it was not even Could you introduce the company and the oil and gas practice? on the radar. By next year we expect signif- We are a full-service law frm focused on helping foreign investors in Brazil. Our oil and gas cant surplus polyethylene and other olefns practice is focused on the market in Rio, where most companies in the sector are located. derivatives to come on stream in the United We provide full-service legal support for the whole supply chain. The main area we work in States based on very competitive ethane, is transactions and we also often help clients in administrative proceedings with regulators. propane and butane. For example, Exxon- Demarest also works with petrochemical and chemical companies, as well as agrochemical- Mobil just completed a new facility to ex- related companies like Monsanto who are very strong in Brazil. port over 1 million mt of polyethylene. Therefore, green polyethylene will have to Do you expect consolidation to continue in the oil and gas and chemicals industries 77 compete under this new scenario. ▬ going forward? Because of the crisis in Brazil and high prices of gas and electricity, we are seeing a lot of assets changing hands and many for sale but not so many interested investors.

What trends are you noticing in foreign investment? changed since you conducted the report? Brazil’s economic growth has been built on three pillars, which are foreign investment, When we conducted the report, the trade huge investment from BNDES and the participation of state-owned companies. Because defcit in chemicals was about US$28 bil- of the crisis, the government is trying to reduce the role of state-owned companies in the lion, but this fgure has gone down due to economy and has embarked on a huge privatization program. BNDES is also tightening its the fall in consumption caused by the eco- lines of credit. These developments mean there are more opportunities for foreign investors nomic crisis. In 2014, the Brazilian real was and foreign fnancing. In the near future, there will be a larger presence of foreign investors, valued higher than it is today which affected in particular from China. This year China has just passed the United States as the largest the competitiveness of Brazilian producers. source of foreign investment. There are no real legal restrictions on foreign investment Nevertheless, Brazil still has a competitive in Brazil but challenges include the tax and labor system, the political situation and poor disadvantage compared to other markets due infrastructure. to the cost of raw materials and other inputs. In 2014, we found that sometimes the cost of What impact do you expect shale gas to have? producing a chemical in Brazil was 20% or Globally, there is a huge pressure from cheaper LNG, especially as the United States has more than it cost in the United States. become a net exporter of gas. There are a couple of projects to build re-gas facilities in Brazil, one in the north-east and another in Rio, to add to the three that already exist. It is Are the sectors identifed in 2014 still the unclear what the role of Petrobras will be in the importing of gas, so there are many differ- most competitive today? ent things going on in the market. Ultimately, the country will need the infrastructure, so it Directionally things have not changed very will have to be built. much. The three industries which we picked out as competitive that are still doing well Do you have any fnal messages? even despite the crisis are agrochemicals, an- There is a big commitment in the country to open up its oil and gas market, with many imal feed and cosmetics. Whilst they did ex- bid rounds for oil and gas exploration and production, whilst the government is looking perience a drop in demand, they rebounded, to liberalize the gas market and Petrobras has a huge divestment program. If all of this is especially agrochemicals which recovered implemented successfully, there will be a better environment in two or three years for the very quickly. ▬ petrochemical industry. ▬

Global Business Reports BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Industry Explorations FINAL THOUGHTS Global Business Reports

“Brazil will come back; the $1 million question is when and how. What is happening now is a very strong exercise in democracy that will have a strong positive impact on the country and the economy. The prospects for the nutritional industry are therefore bright. The country is bigger than the corruption scandals but it will probably take a bit longer to recover than other crises as the country has hit rock bottom.”

-Maurico Adade, President, Latin America, DSM

“Brazil, despite the crisis and chaos, it has shown the world that its democracy is strong and institutions are firm. Brazil is going through a painful exercise and has successfully tackled corruption. We believe the Brazilian economy has reached an inflection point where the economy should start to turn around. Brazil will come out of this crisis stronger and opportunities for the petrochemical industry will return.”

- Rina Quijada, Senior Director, Latin America, IHS Markit

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“We truly believe in the potential of the region. The reason behind this is that we see the openness and willingness to innovate in our customers. When you look ahead, there are is great field of opportunities for the industry, in particular in sectors like pulp and paper, agrochemicals and cosmetics.”

- Adriano Magalhães, Managing Director, Wacker

“We believe Brazil represents a huge opportunity with much demand for petrochemicals and overall it is a good place to invest.”

- Marcelo Cerqueira, Vice President, Chemicals & Vinyls, Braskem

“Brazil is hard place to do business due to the corruption, tax and labor system but still there are opportunities.”

- Newton de Oliveira, President, IBG

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports Global Business Reports FINAL THOUGHTS

There will be 10 billion people in the world by 2050, and the land we have for food production will not be enough, thus we need to increase crop yields meaning that the chemical industry has room to play a key role.

- Ralph Schweens, President, BASF South America

We have adapted due to the crisis and it has actually made us and the Brazilian market more competitive. In fact, Brazil is now exporting more gases than it was during the growth years. A similar change has also occurred in the automotive industry, which has increased its productivity and exports.

- Alexandre Bassaneze, Managing Director, Air Liquide Brasil

79 The last two years were extremely challenging, as several sectors of the economy registered a month-on- month decline, there was a crisis of confidence and consequently reduction of consumption and investments. This had a strong impact on the market and several production chains. As a result, the constant search for operational efficiency, cost reduction and maintenance of competitiveness have become critical factors for survival.

- Armando Bighetti, President, quantiQ

If you can understand how consumers are using products through the collection of big data, then you can design better products, so definitely this is having an impact. However, for a B2B company like Eastman, the key to better design is still winning with the customer, i.e. working closely with them to identify unmet needs and building a relationship based on trust.

- Pedro Fortes, Corporate Development Manager for Latin America, Eastman Chemical Company

Global Business Reports BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Industry Explorations COMPANY INDEX Global Business Reports

COMPANY / INSTITUTION Website

ABIQUIM www.abiquim.org.br

AIR LIQUIDE www.airliquide.com/fr

ARKEMA www.arkema.com/en

ASSOCIQUIM www.associquim.org.br

Bain & Company www.bain.com/offces/saopaulo/en_us/index.aspx

BASF www.basf.com/br/pt.html

BDP INTERNATIONAL www.bdpinternational.com

BNDES www.bndes.gov.br/wps/portal/site/home

BRASKEM www.braskem.com.br

BRENNTAG www.brenntag.com

CABOT www.cabotcorp.com

80 Cesari www.cesari.com.br/Home.aspx

Colormix Especialidades www.colormix.net.br

COREMAL - POCHTECA www.coremal.com.br

CRODA www.croda.com/en-gb

Demarest Advogados www.demarest.com.br/en-us

Den Hartogh www.denhartogh.com

DINACO www.dinaco-sa.com.br

DSM www.dsm.com/corporate/home.html

EASTMAN www.eastman.com

ELEKEIROZ www.elekeiroz.com.br

Forscher www.forscher.com.br

GRUPO TONIATO www.grupotoniato.com.br

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports Global Business Reports COMPANY INDEX

COMPANY / INSTITUTION WEBSITE

Huntsman Performance Products – Brazil www.huntsman.com/corporate/a/Home?p_langswitch=1

IBG www.ibg.com.br

IC TRANSPORTES www.ictranspotes.com.br

IHS Markit ihsmarkit.com

INTERTOX LTDA www.intertox.com

Leschaco www.leschaco.com/de/start.html

M CASSAB www.mcassab.com.br/pt

MAMMOET www.mammoet.com

OXITENO www.oxiteno.com/webcenter

Quantiq www.quantiq.com.br

QUIMICA ANASTACIO www.quimicaanastacio.com.br/site/index.php

81 QUIMISA www.quimisa.com.br/home/index

RHODIA - SOLVAY GROUP www.solvay.fr/fr/company/le-groupe/index.html

SOLENIS solenis.com/en

STOLT NIELSEN www.stolt-nielsen.com/en

Tecniplas www.tecniplas.com.br

Tricon Energy www.triconenergy.com

ULTRACARGO www.ultracargo.com.br/br

UNIGEL S.A. unigel.com.br

UNIVAR AMÉRICA LATINA www.univar.com

Wacker www.wacker.com/cms/en/home/index.jsp

YOKOGAWA www.yokogawa.com

Global Business Reports BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Industry Explorations CREDITS Global Business Reports

EDITORIAL AND MANAGEMENT TEAM

Project Director: Laura Brangwin ([email protected]) Project Journalist: Matthias Lomas ([email protected]) Project Coordinator: Lina Jafari Editor: Mungo Smith ([email protected]) Operations Director: Miguel Pérez-Solero ([email protected]) Graphic Design: Gonzalo Da Cunha ([email protected]) Graphic Design (adverts): Özgür & Deniz ([email protected]) General Manager: Alice Pascoletti ([email protected])

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THANK YOU

We would like to thank all the executives and authorities that took the time to meet with us.

Also, special thanks to:

LATIN AMERICAN PETROCHEMICAL AND CHEMICAL ASSOCIATION (APLA)

THE BRAZILIAN CHEMICAL INDUSTRY ASSOCIATION (ABIQUIM)

THE BRAZILIAN ASSOCIATION OF CHEMICAL AND PETROCHEMICAL DISTRIBUTORS (ASSOCIQUIM)

MINISTRY OF INDUSTRY, FOREIGN TRADE AND SERVICES (MDIC)

THE BRAZILIAN DEVELOPMENT BANK (BNDES)

Industry Explorations BRAZIL PETROCHEMICALS AND CHEMICALS 2017 Global Business Reports