Houston — Abiplast, Brazil's plastics industry trade group, has asked the country's government to immediately lift import duties on PVC imports, including flows from the US, after petrochemical producer Braskem decided to shut down some upstream manufacturing that could trigger a PVC shortage in South America's largest economy, the organization said on Wednesday.
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Abiplast this week asked Brazil's government for an "immediate drop" in PVC import duties regardless of where it is made. Brazil currently imposes a 16% duty on US PVC, an 18% duty on Mexican PVC and 14% tariffs on PVC from China and South Korea, the group said in emailed answers to questions. Duties on PVC imports from other countries are taxed at a lower rate of 6.5%, the group said.
Abiplast's push stems from Braskem's decision last week to shut its salt mining operations in the state of Alagoas after a study by the Brazil Geological Survey linked those activities to fissures and other geological damage in area neighborhoods.
In addition, Braskem also said last week the company would shut related chlor-alkali and ethylene dichloride (EDC) plants in Maceio, the capital city of Alagoas, and is assessing the impact on downstream PVC production in Alagoas and neighboring Bahia, as all are integrated into Braskem's PVC chain.
A source familiar with company operations said Wednesday the company had begun shutting down the chlor-alkali and EDC plants.
The salt mining stoppage cuts Braskem's access to salt to make brine for chlorine manufacturing. Chlorine mixed with ethylene makes EDC, a precursor to PVC, a construction staple used to make pipes, window frames, vinyl siding and flooring and other products.
Caustic soda, a key feedstock in the alumina and pulp and paper industries, is a by-product of chlorine production in chlor-alkali plants.
"PVC production continues at a lower operating rate, and Braskem is importing EDC and caustic soda," the source said.
Brazil is the top export market for US caustic soda. Braskem started importing occasional cargoes of EDC in 2017 to supplement its PVC output.
Braskem in April issued two packaged tenders for 8,000 dmt of caustic soda and 10,000 mt of EDC each for delivery in May and June, and last week issued a separate tender for another 10,000 mt of EDC for delivery June 20-30.
Pricing was unclear on the April deals as well as last week's EDC-only tender, but sources have seen no immediate boost in pricing for either product.
Sources expect prices to rise, particularly for caustic soda, which has been under pressure at $320/mt FOB USG, its lowest level since September 6, 2016, according to S&P Global Platts data. US EDC, by contrast, at $360/mt FOB USG, is at its highest level since October 23, 2014, Platts data show.
The shutdowns of the Maceio chlor-alkali and EDC plants mean Braskem will no longer produce its own input for its Alagoas PVC plant, which could generate a PVC shortage in the Brazilian market, Abiplast said.
The group said Brazil's internal consumption of the resin in 2018 was around 1 million mt, with a deficit of 286,000 mt. "That supply concern" prompted Abiplast to push for the lifting of PVC import duties to increase flows into Brazil.
The group said it maintains a constant dialogue with Brazilian government officials and is calling attention "to the probable consequences of this paralysis and shortage of PVC in the Brazilian market."
According to Braskem, the Alagoas PVC plant's capacity is 460,000 mt/year and the Bahia plant can make up to 250,000 mt/year. The Alagoas chlor-alkali plant's capacity is 460,000 mt/year of caustic soda and 400,000 mt/year of chlorine, while Bahia's chlor-alkali capacity is 79,000 mt/year of caustic soda and 64,000 mt/year of chlorine. The Alagoas EDC plant is Braskem's sole EDC capacity.
The source familiar with Braskem operations said the company had already been importing EDC and caustic soda to maintain PVC output when all the plants were operating normally "to continue production and avoid a PVC shortage in the domestic market."
Braskem also announced late Tuesday the company had received notice from the New York Stock Exchange that it had begun the process of delisting Braskem's American depository shares because the company would not file its 2017 annual report to the US Securities and Exchange Commission by an extended deadline of Thursday. Braskem's shares began trading in over-the-counter markets Wednesday under a new ticker, BRKMY.
Braskem has 10 business days to appeal the delisting to an NYSE committee, and the company said late Tuesday it intends to do so "at a day not yet scheduled."
The company has yet to file its 2017 20-F, an annual report that must be filed by all non-US private issuers with shares traded on US exchanges by certain deadlines.
Braskem missed a March deadline and the New York Stock Exchange extended it to Thursday. The company cannot file its 2018 20-F until the 2017 report is filed, but Braskem has said the 2017 report does not meet requirements for internal controls and has been undergoing review.
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