Braskem sees global impact of polyethylene capacity increases lasting until 2024
Officials at Brazil-based Braskem, Latin America´s biggest petrochemical company with polyethylene production capacity in Brazil and Mexico, said that the global market for this petrochemical plastic resin that is the most traded petrochemical commodity will feel the impact of supply increases beyond 2023.
“When we look at polyethylene next year, we see a growth in supply more than a growth in demand, not at the tune of this year but higher,” said Pedro Freitas, CFO at Braskem, during the company´s third-quarter 2022 earnings call held on Nov. 9.
“But, 2024, we see a reverse in that trend because investments for 2025 aren´t being made now. Things that should be under construction now aren´t. So, looking at those numbers coming from external consultancy, we have this outlook that 2023 will still see more capacity kicking in but then will see a reverse (…),” Freitas said.
Capacity additions for 2023
About four million tonnes of new polyethylene capacity were to see the completion of construction in 2022 in North America. However, higher running rates in plants like Shell´s new Pennyslvania complex are scheduled only for mid-2023.
Polyethylene prices in North America have plunged in 2022, according to market sources. Prices shared by Braskem along with its earnings included U.S. reference polyethylene prices that showed a drop from an average of $1,839 per tonne in the third quarter of 2021 to just $1,155 per tonne in July-September 2022.
U.S. executives had said earlier in the past that any new ethane-based North American capacity may displace less competitive, coal or naphtha-based ethylene production elsewhere.
Slow demand growth
“We expect to see growth in demand across the world below historical levels of course because of some events but based on macroeconomic news,” Freitas said.
As a result, the company decided to reduce its capex budget for next year to $1 billion, down from $1.2 billion.
“For the year the expectation that we have now is about $1 billion. We´ve reduced that number within the portfolio by $200 million in capex without major impact on the operations because demand is lower so we don´t need to have plants working at full steam,” he said.
“We don´t need to have operational level to the max so we need to see that on a case-by-case level,” he added.
Freitas said the company´s management didn´t anticipate the magnitude of the weakening of plastic resin demand that occurred during the past 11 months.
“To have that level of lockdowns in China so widespread and for so long of course has an impact on demand and that led to that drop in spreads. That is one of the main reasons,“ he said.
A secondary driver was the Ukraine war and subsequent increase in Europe´s energy costs, he added.
U.S. polypropylene prices also down
U.S. polypropylene prices fell in the third quarter. Braskem is North America´s biggest polypropylene producer with five plants in the U.S. located in the Northeast and in the U.S. Gulf Coast.
Braskem also faces in 2023 new polypropylene capacity additions in North America by rival producers including Canada´s InterPipeline, with plans to fully start up its new PDH (propane-to-propylene) and polypropylene integrated plant near Edmonton, Alberta in 2022.
Braskem´s utilization rate in the third quarter for its U.S. polypropylene capacity was 74%, down from 81% in the second quarter of 2022.
In the case of the U.S., the decline was due to the “region´s weaker demand and short unscheduled shutdowns,” Braskem reported along with its earnings.
U.S. polypropylene sales were only 381,000 tonnes in the third quarter, down 19% from 468,000 tonnes in the second quarter. They were also lower than 442,000 tonnes in the third quarter of 2021.
As for Mexico, the utilization rate in the third quarter of 2022 was 76%. The utilization rate in the preceding quarter was 67%, and in the third quarter 2021 was 68%.
Braskem and Mexican group Idesa own a 1.1-million-tonnes-per-year polyethylene capacity plant in Nanchital, Veracruz.
Polyethylene sales in Mexico were 180,000 tonnes in the third quarter and 190,000 tonnes in the second quarter.
The utilization rate of petrochemical complexes in Brazil was 79%. Braskem´s third quarter 2022 production in Brazil included 892,000 tonnes for the domestic market and 188,000 tonnes for exports. That compared with 879,000 tonnes produced for domestic sale within Brazil in the second quarter and 230,00 tonnes for exports.
Braskem prepares for company sale
Braskem informed on Nov. 3 that its majority owner Novonor (formerly known as Odebrecht) has informed that there is some movement around plans to sell the company and to prepare.
Reports about a potential sale of the company have been published for the past years but this time Braskem management has been asked to get ready as the process appears to have advanced.
Braskem managers were told that “it may be necessary for Braskem to interact with potential interested parties,” Freitas said.
Novonor and Brazilian state oil Petrobras are the two main owners of the company´s equity.
By Renzo Pipoli