Developing countries see more resin imports as China, U.S., Europe demand challenged: Braskem´s CEO

The CEO of Brazil-based Braskem, Roberto Bischoff, said that the company that is Latin America´s biggest petrochemical organization is seeing atypical scenarios in plastic resin markets that include very large flows of plastic resin exports from the world´s top producer countries into the less developed areas because much of the Northern Hemisphere demand remains challenged.

Image courtesy of Braskem Idesa

“Atypycal scenarios are common in the industry but this scenario specifically includes a few aspects that really aggravate this,” Bischoff said at the end of the second quarter conference call.

“Deep down we are seeing China and its industry having a hard time recovering growth and this has an impact on global product rates. We also see that the U.S. is having some challenge in deteriorating demand  and Europe, which in spite of positive signs recently also feels an impact due to inflation and other pressures, (…) even as a result of the war,” he said.

“These influences combined have clearly impacted the petrochemical spreads and they also made it so that products from other regions they are exporting their products to developing countries,” Bischoff said..

Braskem is also North America´s top polypropylene producer and owns a majority stake in Braskem Idesa, an ethylene and polyethylene complex in the state of Veracruz, Mexico.

Spreads seen depressed through 2025

Tax incentives announced in China in early August may help produce some at least "timid" recovery in China resin demand, helping producers everywhere, a Braskem official said.

“(...) Likely in the second semester of next year we will see an improvement but as far as improving spreads and improving the cycle that is likely to be seen in 2025, 2026, 2027, until there is a new cycle of investments in the industry,” Braskem´s CFO Pedro Freitas said.

Slower-than-normal growth in resin demand met this year much-stronger-than-normal supply growth, Freitas said.

“If we look at polyethylene as an example, the market grows by about 3.5% a year. This year it is likely to grow by 2.7% or 2.5%, so that is 1% point in variance compared with the baseline, whereas offers are growing by 6% or 7%. So, in terms of percentages, offers had had a much stronger impact” this year on the market, he said.

Several plants have started up in recent months.

Lowered to below investment grade

Challenges faced by Braskem and other companies related to weak plastic resin demand along with a large increase in resin offers following new capacity construction completion in 2023 have led to negative rating action.

Fitch Ratings said on June 30, 2023 that it had downgraded Braskem Idesa from “BB minus” to “B plus“ which is a rating just below investment grade.

Fitch explained that the decision was taken after projecting the price for polyethylene, and its impact on Braskem Idesa, for 2023 and 2024.

“The downgrade reflects a material reduction in the outlook for polyethylene (PE) and a slower-than-expected market recovery path,” Fitch said on June 30.

“Over the past several months, PE demand in North America has experienced a 10% decline, while new supply has been ramping up globally. The confluence of these factors, as well the uncertainty of the timing of high cost capacity shutting down, has led Fitch to revise its 2023 and 2024 polyethylene reference prices resulting in a considerably lower EBITDA, which has resulted in a projected deterioration of Braskem Idesa's liquidity position,” Fitch said.

Fitch didn´t just downgrade Braskem Idesa but also placed its debt on “rating watch negative.” This, it said, to reflect “the uncertainty in obtaining the financing of the crucial construction of the ethane terminal.”

Braskem had announced in May an accord with a partner named Advario to build the ethane terminal.

In other comments, this time related to an ongoing sale process, Braskem officials said they do not have any information on what offers Braskem´s top stakeholder Novonor (formerly Odebrecht) have received and that Braskem´s management provides any information requested related to the process, as requested.

Unipar Carbocloro, a Brazilian petrochemical company with assets in Argentina and Brazil, has reportedly initiated a due-dilligence process aimed at buying Braskem. The biggest minority owner, Petrobras, has said it may sell its stake or instead perhaps do the opposite and add more petrochemical assets, in comments earlier this year. State oil Petrobras, as the top partner,  will have firs refusal rights to acquire any stake to be offered by Novonor to any company, according to reports.

Braskem, a leader in the challenged North American polypropylene market, experienced a windfall in earnings from plastic resin sales in North America in 2021. 

By Renzo Pipoli