Increased production from the steel and chemical sectors in Latin America is believed to be driving the demand for industrial gases in the region, with the gases majors all ready to heavily invest in this surge.
Brazil and Mexico account for 75% of the industrial gases market in Latin America, with at least one-third of volumes being produced by on-site plants. The industrial gases business is thought to have been growing by around 10% per year in Brazil and annual sales are around $1.3bn, according to market sources. White Martins, a division of US gases giant Praxair, dominates this market with about a 65% market share.
White Martins operates 49 industrial gas and chemical plants in Brazil and has an approx. 65% market share in the country, with CEO Domingos Bulus commenting, “As the biggest economy of South America, Brazil is a key market for Praxair, representing more than 80% of the sales in the region.”
The company aims to invest at least $180m in Brazil alone, but is also present in eight other countries in South America including Argentina, Bolivia, and Chile and has invested nearly $1bn in the region between 2003 and 2008. White Martins' main goals are to focus on four major platforms in South America, these being on-site customer supply systems, energy, applications technology, and productivity.
The development of new industrial gas technologies and applications is also a priority for the company and according to Bulus, adds 2% to South American annual sales growth. Pointing out the fast-growing Brazilian steel industry and the window for investment and development that this opens, Bulos added, “We can foresee many opportunities this year.”
According to a report by ICIS news, the four major players in the South American region, notably France's Air Liquide, US-based Air Products, Germany’s Linde, and White Martins, plan to invest a total of $440m in Brazil in 2008 to meet growing demand.
Air Products’ industrial gases business, which has 10% of the Brazilian market, is roughly divided into three segments, with these consisting of packaged gases and high-pressure gas, liquid gases at cryogenic temperatures, and gases produced at Air Products plants within or near customer facilities. Indeed, in the case of an on-site project Air Products typically signs a long-term contract for between 10 and 20 years and sees this as a key area for growth.
R. Fernandes, Analyst with Rio de Janeiro-based Techsource Consultores, noted, “The main business strategy of players in Brazil is to sign those long-term contracts with large industrial clients and build on-site plants.”
Maintaining a stable supply of gases is an important factor for Air Products too however, as Mike Olivares, Air Products’ Vice President for Latin America/South Africa, explains, “Industrial gases can be applied in about every market you can think of but many people do not know this industry well. Often, people remember that they use industrial gases when they have a shortage or lack of them. If they do not remember, it's a good thing. That's why reliability is such an important part of our operating philosophy and a key differentiator among competitors.”
Air Products, which supplies hydrogen, carbon monoxide, synthesis gas (syngas) and steam to the world-scale Camacari petrochemical complex in Brazil, expects to achieve double-digit sales growth in the years ahead.
Another of the gases majors, Linde estimates it has about a 15% market share in Brazil, offering nine categories of gas and chemicals, and is looking to build on the booming growth in the country and wider region in the near future.
The development of new industrial facilities, continued infrastructure investment and new technologies all require gas as a feedstock for production and this is considered to play a fundamental role in the region’s growth.
Clemis Miki, Regional Manager for Linde South America, commented, “We have been growing steadily at a two-digit rate in Brazil and South America. We intend to continue growing above market levels by investing in projects related with steel and nonferrous metals, as well as the petrochemical and pulp markets.”
Domestic steel production reached a record 34m tonnes in 2007 and is forecast to grow to nearly 88m tonnes by 2015, according to the Brazilian Materials and Metallurgy Association (ABM). The challenge for the industrial gases industry will be to meet the requirements that this demand provides, while keeping prices competitive.
“Industrial gases companies are bound to invest in Brazil. We should be seeing strong investments soon or they will not be able to meet the growing demand,” says Carlos Sadao Shiratsu, Vice Director for ABM's energy division.
Meanwhile Air Liquide is looking to build its South America portfolio in another area of the market, that of energy.
The Brazilian government recently announced a plan to invest $92bn in the energy sector in the period between 2007 and 2010, leading to potentially massive refinery and petrochemical projects.
Capitalising on such growth, Air Liquide is believed to be planning to invest over $200m through the end of 2009, eyeing the steel, petrochemical, and pulp and paper markets, where new projects are being developed.
Walter Pilao, Industrial Commercial Director for Air Liquide, says the company aims to consolidate its second-placed position in the Brazilian market and boost its market share to 20% by 2011.
“We are currently building three major gases facilities and a new acetylene plant, besides the development of two other projects which we might be announcing soon,” Pilao told ICIS.
Air Liquide is also present in Argentina, Chile, Uruguay and Paraguay, but is believed to see Brazil as the most important market in Latin America and will focus its investments in the country.