North America´s top polypropylene producer Braskem expects repeat of 2021 spreads

Braskem, Latin America´s biggest petrochemical company and North America´s biggest polypropylene producer, expects U.S. spreads for the rest of 2022 near the 2021 levels.

Braskem´s polypropylene plant in Texas. Image courtesy of Braskem

Braskem, majority owned by Novonor (formerly known as Odebrecht) and based in Sao Paulo, has five polypropylene production assets in the northeast of the U.S. and in the Gulf Coast. Braskem is North America´s biggest polypropylene producer. Polypropylene is one of the most traded plastic resins along with polyethylene.

The 2021 extraordinary spreads, and profitability, resulted from tightness attributed to Winter Storm Uri, as well as to the impact of hurricanes, that reduced plastic production in that year. Demand was strong as the economy re-opened after the 2020 Covid-related lockdowns.

“According with external consulting those spreads must remain not just above the recent historical average but also relatively near to what was observed in 2021,” said Rosana Avolio, investor relations manager, in Braskem´s first quarter 2022 earnings call on May 12.

U.S. running rate at 88%

“During the first quarter 2022 the utilization rate of the petrochemical plants in the U.S. was 88%, 15 percent points above first quarter 2021. This happened due to the normalization process of operations after the scheduled maintenance,” Avolio said.

“In the U.S., the sales volume during the (first) quarter was 408,000 tonnes, or a 9% increase from the previous quarter,” Avolio said.

With relation to sales, there was a 15% increase from the fourth quarter because of the maintenance in the previous quarter that curbed production, she added.

“The expectation for the rest of the 2022 quarters is that those spreads will remain in healthy levels and above the recent historical average,” she said.

Geopolitical context

Brent futures traded at $127.98 per barrel on March 8, 2022 only two months after closing 2021 at $77.78 per barrel, largely as a result of the Russia-Ukraine war. As of May 20, Brent front-month traded at $113 per barrel.

“The expectation of external consulting for the polyethylene spreads based on gas suffered little in function of the current geopolitical context. So projections continue to point to a level above the recent historic average, remaining above $1,100 per tonne in all quarters during 2022,” Avolio said.

“In relation to U.S. polypropylene spreads, according to external consulting those spreads must remain not just above the recent historic average but also relatively close to what was observed in 2021,” she said.                                                                                                                                                                                                                                                  

“The anticipation of the company aligned with the perspectives of external consulting from the area is that the people will continue to see spreads above the recent historical average,” Avolio said.

“We saw an increase in raw material prices but in the last three or four week there was a recovery of international prices of our products,” she added.

Brazil, Mexico

As for Brazil, the expectation is that spreads for PVC and polyethylene will remain near recent historic averages while those for polypropylene may contract, Avolio said.                             

The sales volume in the U.S. should remain at the same levels of the previous quarter despite projections of a production decline.

“In Mexico, the first quarter utilization rate was 80% in relation to the fourth quarter 2021,” she said.

Pemex supplied 34,000 barrels per day of ethane to Braskem Idesa in the first quarter 2022, an increase from 31,000 barrels per day supplied in the fourth quarter of 2021.

Fast track performance

The company has put in place a “Fast-Track” system to import ethane for its ethane cracker that produces ethylene that is polymerized into polyethylene in Nanchital, Veracruz, a 1.1-million-tonnes-per-year polyethylene plant.

The Fast Track achieved an average supply of 16,200 barrels per day for the first quarter of 2022, helping reach a 65% utilization.

As for the polyethylene production and utilization rates, it was 208,000 barrels per day or 80% in the first quarter of 2022 compared with 151,000 tonnes or 58% in the first quarter of 2021.

After June it may be close to full capacity, officials said.

Ethane project

Braskem Idesa, a Braskem joint venture with local partner Idesa, has a project to spend $400 million in an ethane import terminal that is currently about 10% advanced, said CFO Pedro van Langendonck Teixeira de Freitas.

The company is looking for construction to be completed in time to allow a third quarter 2024 startup, he said.

Braskem Idesa has a capital and expenditures budget of $218 million for 2022 considering both strategic and operational capex.

Emissions and recycling

Braskem units had released into the atmosphere 423,000 tonnes of CO2 equivalent in the four quarter of 2021. This was reduced to 421,000 tonnes in the first quarter of 2022.

The company emissions in the first quarter of 2022 declined due to enhancement in furnaces and boiler operations implemented since the end of 2021.

Post-consumer recycled resin sales declined to just 2,000 tonnes in the first quarter of 2022 from 2,900 tonnes in the fourth quarter.

Braskem will see new polypropylene capacity coming online in North America. InterPipeline will start a plant in Western Canada. Exxon Mobil will also likely start a plant in Louisiana, according to industry sources.

The plants represent the first new polypropylene capacity in North America since Braskem started up its Texas plant in Sept. 2021.

By Renzo Pipoli