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Plastic industry sounds warning amid output drop

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Vincent

Last year, while the country's industrial production fell 1.1%, according to the Brazilian Institute of Geography and Statistics (IBGE), the country's physical output of plastics contracted 1.6%. For 2020, while the GDP forecast is of 2.3% growth, plastic processors - who produce from house appliances to auto parts - project a slower expansion, of 1.5%. Such decoupling has left the sector in alert. Its current production is at the same levels of a decade ago."The industrial production fell influenced by Brumadinho [the tragedy of Vale's dam]

, but plastics don't depend on mining activity and are present in all sectors. This is worrying," says the president of the Brazilian Plastics Industry Association (Abiplast), José Ricardo Roriz Coelho. A specific segment of this industry dragged the performance down last year. While the production of accessories for construction and packaging grew, that of sheets fell 2.6%, affected by the smaller production of consumer goods.

Mr. Roriz says that even though imports have been growing and gaining market from domestic plastic, the industry's biggest concern is the reduction of the sophistication of products made in the country. High added-value items have been increasingly imported and the idle capacity of processors has topped 30%. Given the slack and the high cost of capital, Brazilian processors, especially small and medium-sized, have been curtailing investments, which will make factories outdated. Today equipment is on average six years old.

The cost of feedstock in Brazil also doesn't help the domestic plastic become competitive, Mr. Roriz says. Last year, the tonne of polypropylene cost on average $1,165 in Brazil, against $828 of the average global price for exports, according to indices of consultancies Plattas and ICIS. In polyethylene, the spread is as high as 40%. In the case of high-density polyethylene, the average domestic price was $1,162 per tonne, compared with $977 for the international price. "There is transfer of margin to a sector that has no competition and removal of capacity to...

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