Vitopel’s growth underlines strength

Biaxially oriented polypropylene (BOPP) processor Vitopel has a lot to celebrate. Despite weak economic growth in Brazil, BOPP sales have continued to be strong.

In recent years, Brazil’s BOPP sales have increased by nearly 15%, as companies substitute plastic films for other products, such as paper and metals. “We continue to see a lot of new applications for BOPP and we expect this tendency to continue,” says Dirceu Varejão, the sales director of the company. He adds that the substitutions have mainly been in food packaging, but increasingly his company is seeing new applications in labels, including for inmold labeling, an area it claims exclusively in Brazil, and other printed materials.

In addition to increased sales through the expansion of its product portfolio, the company has also been growing through acquisitions. Founded in 1998 in Totoral, Argentina, the firm has acquired two operations in Brazil, most recently its 2005 purchase of rival BOPP processor Votocel from industrial conglomerate Votorantim for $120 million. With the acquisition, Vitopel became the largest BOPP processor in Latin America, and the fifth-largest in the world, with a capacity of 127,000 tonnes per year.

Since the acquisition, Vitopel focused on optimizing its production. The company now has 10 production lines, seven located at its two plants in Brazil and three in Argentina. One of the testaments to the company’s success is that it is now operating the world’s fastest BOPP line, a machine from Germany’s Brückner running at 530m of BOPP per minute. “In the past, 450m was considered the maximum,” notes Daniel Antonio Homobono, the industrial director of Vitopel.

The company is also trying to increase its sales of value-added products. “Right now, our focus is on improving our use of the capacity we have, rather than increasing capacity,” says Homobono. To increase sales, the company has been working closely with its customers in an effort to create products optimized for those customers, while expanding BOPP applications. The company has one production line dedicated exclusively to testing new products for its clients.

Overcoming pricing and currency

According to Varejão, that client focus gives Vitopel a significant advantage over imported BOPP. He adds that the strength of Brazil’s currency (the real) has made it harder for local companies to compete on the international market and has made imports significantly less expensive. While his company is still exporting, margins have declined significantly. On the Brazilian market, the company has also seen its margins decline due to higher costs, Varejão added.

“In 2006, we saw a series of polypropylene price hikes, all of which were absorbed by the transformers, because the end-users simply would not accept more price hikes,” says Homobono. According to the Brazilian Plastics Producers’ Assn., known as Siresp, plastics’ prices increased by an average of 30% in 2006.

Price hikes are problematic but the company need not be concerned about supply as Brazil’s polypropylene capacity is set to increase. In addition to a new plant for Petroquimica Paulinia, the joint venture between Brazilian state-owned oil company Petrobras and petrochemicals giant Braskem, Suzano Petroquimica also plans a series of PP capacity increases at its plants. Likewise, Ipiranga Petroquimica is also mulling a PP expansion.

In neighboring Argentina, where an economic recovery is in full swing, Vitopel continues to see positive growth as well, says Homobono. There, the processor currently is the only BOPP supplier, but that is about to change as Chilean packaging processor Sigdopack plans to bring a new BOPP facility onstream in Argentina in mid-2007. That facility, which will be located in Campana, Argentina, will have a 37,500-tonnes/yr capacity. Homobono says the market can absorb additional capacity and that his firm also is considering capacity increases in Argentina.

Vitopel is owned by private equity funds managed by J.P. Morgan Chase Equity Partners and DLJ/Credit Suisse, which purchased Vitopel from Arcor Partners in August 2000 for $87 million. The two funds jointly acquired a 100% share of Vitopel S.A., Córdoba, and Koppol Ltda., São Paulo for the $87 million, and Koppel became part of Vitopel S.A.

Despite its recent acquisitions, Vitopel still sees further consolidation opportunities. Furthermore, Brazil’s BOPP market is getting more competitive. Later this year, Vitopel’s main competitor there, Polo Films (Porto Alegre), will bring a new BOPP line onstream at its Rio Grande do Sul facility, bringing that firm’s capacity to 100,000 tonnes/yr for both the domestic and export markets. But Vitopel says it is up to the task. “A little bit of competition is healthy,” Homobono concludes.