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High prices, weak demand put pressure on plastics

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Vincent

Resin distributors and plastics processors in Brazil faced a first quarter more turbulent than expected and there is no expectation of improvement in margins and demand in the very short term. High prices in the international and domestic markets, more expensive freight, strong inventories and the stabilization of consumption, in the wake of the rise in interest rates and the effect of inflation on the income of Brazilians, turned on a warning sign in the sector."We expected a good recovery in 2022, but the oil appreciation together with the invasion of Ukraine by Russia had a direct negative effect on distribution," says Laercio Gonçalves, president of the Brazilian Association of Plastic Resins Distributors (Adirplast) and owner of Activas, one of the largest distributors in the country.According to the businessman, although the resin prices have risen, following the oil barrel that remains above $100, it was not possible to pass on this increase internally because of the current high inventories along the value chain. Between 2020 and 2021, Mr. Gonçalves recalls, there were moments of resin shortage. To avoid the risk of running out of material, distribution customers chose to work with inventories above the normal level."The demand is still good in certain segments, such as packaging. In others, such as automotive, the drop in volume is sharp. Margins are flattened", says the president of Adirplast. In addition to a consumption below expectations, there is pressure from freight costs and the low availability of containers, used for imports. Between 25% and 30% of the resin consumed in the country is imported and, since the beginning of the year, the volumes are decreasing. "Imports, today, are about 20% below normal and are expected to drop even more in the...

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