Brazil takes policy measures to revitalize its chemical industry

This content is part of the WPC 2025 series, which explores key themes from the 40th annual World Petrochemical Conference.

As the Brazilian chemical industry increasingly faces competitive imports that have flooded the domestic market and highlighted its low comparative advantages, the federal government is addressing this challenge through a variety of policies and incentives that have led to substantial investments in early 2025.

Braskem, Brazil's sole producer of several chemicals, announced a $102 million government-backed capacity expansion in January. Another government incentive, the October 2024 import tax increase, has sparked disagreement among market players, with industry associations seeking its review through a late January request. Meanwhile, the recycled plastics market is optimistic about the launch of the National Circular Economy Plan by mid-2025.

Since 2016, Brazil has seen imports of chemical and polymer products rise sharply, wearing away domestic production and eroding local producers' financials, as underscored by an analysis of the country's trade balance.

In addition to generic challenges, like low productivity growth and a lack of technological advancements, the Brazilian chemical industry must also deal with higher feedstock costs that make imports more competitive.

Brazil ranked 112th among 189 countries in labor productivity growth from 2015 to 2021, according to the latest World Bank data.

In response to these challenges, the government has implemented measures to stimulate the domestic manufacturing industry, with notable incentives for the chemical sector, such as special tax regimes and support for capital expenditures.

The current administration takes a developmental approach and has adopted expansionary fiscal policies to support this initiative, including aiding Braskem in expanding its polymer production capacity.

The chemical industry is estimated to have contributed 2.5% to Brazil's GDP in 2024, based on data from the IMF and Abiquim, representing a 1 percentage point decline from a 3.6% peak seen in 2004.

The sector generates 2 million jobs and represents 11% of Brazil's industrial GDP, according to Abiquim.

REIQ reactivation

The Special Tax Regime for the Chemical Industry was established in 2013 to enhance the sector's competitiveness. It reduces cost disparities by exempting taxes on essential petrochemical raw materials, such as naphtha, ethane, propane, butane, gas condensate, and benzene.

REIQ Investments, a branch of the program, provides tax exemptions to support production capacity expansion and the development of new industrial plants in the sector.

After being deactivated in 2022, President Geraldo Alckmin reactivated the regime Aug. 24, 2023.

Since its resumption, REIQ Investments has approved and backed 19 industrial projects, the largest of which is Braskem's investments to increase the production capacity of polyethylene, polyvinyl chloride, and other chemical products in its units in Bahia, Rio Grande do Sul, and Alagoas states.

According to the company's Jan. 17 announcement, Real 614 million ($102 million) will be invested "to expand its current production capacity by about 139,000 mt."

Participants, however, expect minimal effects on the market.

"The Brazilian matrix has lower competitiveness," a trader said. "The value is small; this expansion would not change the Brazilian reality considering the imported volume."

Braskem has reduced its operating rates for PE from 89% in 2016 to 74% in 2024 and for PVC from 84% to 65%, company data shows.

Import taxes raise

Industry associations representing the food, beverage, and packaging sectors have recently come together to request a revision of the government's decision to raise import taxes on 30 chemical products from October 2024 until October 2025 at Abiquim's request.

For PE and PVC, for example, the rate increased to 20% from 12.6%.

Still, imports quickly bounced back after the tax increase, according to data from the Ministry of Development, Industry, Trade, and Services. Export volumes also rebounded, highlighting the noteworthy trend of Brazilian products not finding a market at home and being redirected to other regions.

The Brazilian Association of Food Industry, the Brazilian Association of Soft Drink and Non-Alcoholic Beverage Industries, and the Brazilian Association of the Plastic Industry requested a review of tariff changes from MDIC Jan. 30, citing inflationary pressure on their industries.

The letter stated that packaging accounts for 15%-20% of the cost of food products. It highlighted that local producers fully incorporated the import tax rate into the domestic prices of resins and polymers. As a result, some industries experienced "one of the largest increases in packaging costs in the history of the sector."

Circular economy policies

The Brazilian National Circular Economy Forum launched the National Circular Economy Plan Feb. 14 to develop the framework needed to transition to a circular economy.

Participants in Brazil's recycled polymers markets are closely monitoring the plan, anticipating a potential mandate for minimum recycled content.

National industry shows strong momentum

With the current administration's support for the domestic industry, the sector experienced significant momentum throughout 2024, with a 3.1% growth in industrial production and a 3.7% increase in manufacturing, according to the MDIC.

Moreover, the real revenue of the Brazilian manufacturing industry rose by 5.6% in 2024 compared to 2023, the largest annual growth since 2010, according to the National Confederation of Industry. The chemical industry's real revenue fell 4%, while the rubber and plastic products sector jumped 23%.

The MDIC stated that New Industry Brazil, launched January 2024, and the resumption of REIQ have contributed to this growth. NIB, aimed at boosting the national industry by 2033, has already facilitated Real 3.4 trillion in investments, with Real 1.2 trillion from the federal government and Real 2.2 trillion from the private sector.

The industrial sector also achieved a 146% increase in job creation in 2024 compared to 2023, according to data from the General Register of Employed and Unemployed, with the plastics and chemicals industries seeing notable growth.

Considering job creation is a leading indicator of economic development, the Brazilian chemical industry is poised to strengthen in the medium term, supported by government programs, but some market participants remain skeptical about the domestic chemical industry due to its low global competitiveness.

"Braskem's plant in the south of Brazil, which is naphtha based, is not competitive compared with US imports," said a second trader.