"Overall, we had a reduction of volumes between 5% and 8% during H1 2020, but we benefited from lower raw material costs, so we increased margins in our surfactants and specialty products. These factors, together with a devaluation of the local currency in Brazil, which reduced our fixed costs, all contributed for a very good first half of 2020."
Could you provide an overview of Oxiteno’s operations?
We are a producer of surfactants and specialty chemicals. All our sites are in the Americas: Brazil, Mexico, US and Uruguay. The four main industries we serve are crop solutions, where our products are used in the formulation of herbicides, fungicides and insecticides; home and personal care, including I&I (institutional and industrial), where we provide surfactants for the formulation of detergents, cleaners, disinfectants, shampoo, etc; the coatings industry, with oxygenated solvents and surfactants used in coatings for the automotive industry, construction and other applications; and lastly, we are present in the oil and gas industry, providing surfactants for fracking operations and oil production. Beyond these four core markets, we also serve other segments like leather, textiles, pulp and paper and the food industry.
How did you adapt to lower petrochemical prices in 2019 and the pandemic in 2020?
2019 was a challenging year for us, because we had very squeezed spreads in the petrochemical business. Petrochemical products are still relevant for us, like mono-ethylene glycol for the PET industry, and the margins were very thin. On top of that we had some inventory losses related to our oleochemical business, where we are a large importer of palm kernel oil. Our new facility in the US started operations in a context of a bad crop season in that country due to the floods. Meanwhile, in Brazil economic recovery was much lower than anticipated. As a result of all this, we implemented a cost-cutting project, whereby we simplified our administrative structure without touching the core innovation teams.
2020 started in a completely different mood, with a much better situation in agrochemicals, and then we had COVID-19. Our H1 2020 results, however, were much better than during the same period of 2019, with a good crop protection business in both the US and Brazil, and sales for home and personal care increasing a lot. Of course, anything related to durable goods like automotive, construction and textiles slowed down. Overall, we had a reduction of volumes between 5% and 8% during H1 2020, but we benefited from lower raw material costs, so we increased margins in our surfactants and specialty products. These factors, together with a devaluation of the local currency in Brazil, which reduced our fixed costs, all contributed for a very good first half of 2020.
Within your core markets, where do you see the biggest growth opportunities?
Even without touching the Amazon, Brazil has the largest amount of arable land available so the agribusiness is a strategic sector for us. The industry is becoming very sophisticated, with big data and IoT usage to know exactly how much water, fertilizer or pesticide you need to apply in each segment of the farm. Now you apply pesticides with drones, so that presents new challenges and new surfactant developments.
The other star segment for us is home and personal care. It is clear that the world will not be the same after this pandemic in terms of cleaning standards. Besides, if you look at the ageing population there is a strong opportunity in areas such as skincare products, for instance.
How do you see the oil and gas industry developing?
There are some opportunities in Brazil, with Petrobras concentrating on upstream activities and the development of pre-salt, which already accounts for 60% of the country’s oil production. In the US, the fracking business is more sensitive to the oil price and this year it has suffered a lot, but it is coming back. Then, in Argentina you have the shale deposit of Vaca Muerta, which is very important. Mexico faces a different reality and will depend on the energy reform dynamics.
Can you provide examples of innovations, and what does your ‘Greenformance’ concept entail?
In crop protection, soybean rust is a problem in Brazil, as the fungicide used has some side effects on the plant. So, we have developed formulations that have a much milder impact. Also, we have worked on some tank mix adjuvants to stabilize formulations. In the home and personal care area, Oxiteno has participated in the formulation of high concentration detergents, that save packaging, freight and emissions in general.
Most of what we do in our innovation activities is to find more sustainable ways to solve our customers’ problems. The Greenformance concept looks at having an end-to-end study for every product. I do not like to talk about a ‘cradle to grave’ process, because sometimes you can recycle the waste material. We recently launched our sustainability plan until 2030, which comprises of nine sustainability pillars taken from the UN Sustainable Development Goals.
What are the prospects for Oxiteno and Brazil?
The Brazilian market seems to be recovering faster than expected. Of course, unemployment increased in the second quarter, but the government allowance of 600 reais for poor families has helped a lot. In July and August we are already seeing strong recovery. I believe we will come out of this pandemic stronger, because digitalization has accelerated a lot and this is a big leap in productivity for all companies