Braskem mulls Brazil capacity cuts, units closures

Brazilian petrochemical giant Braskem is mulling a potential cut in production or even closing output capacity in Brazil because of the global petrochemical downcycle and aggressive competition from imported products.

Braskem's current utilization level remains suboptimal, hovering around 70-75pc and well below the ideal 85-90pc range. This shortfall results in significant energy inefficiencies and overall operational deficiencies that impact the company as a whole, according to Braskem's second-quarter earnings release.

Chief executive Roberto Bischoff said that the prolonged situation prompts a critical analysis considering if Braskem can recover its operational levels, or if a structural reevaluation is necessary.

"Industry experts are evaluating the long-term viability of capacity recovery," he said. "If optimization proves unfeasible, alternative strategies must be explored."

Asked if the company is considering cutting capacity or closing units in Brazil, Bischoff said that while both moves remain an option, there are no easy solutions.

"Sometimes, operational constraints leave no room for alternatives," he said. "Braskem must carefully assess its options to ensure sustainable operations."

In the short term, the focus remains on achieving the optimal balance between production capacity and market demand, ultimately serving both clients and the industry as a whole, he added.

2Q production and sales

Braskem's domestic resin sales rose by 4pc in the second quarter from a year prior, with volumes also rising in Mexico but declining in the US and Europe.

Domestic sales increased on higher demand in the period thanks to higher product stocks, Braskem said.

Domestic resin sales rose to 824,000 metric tonnes (t) in the second quarter, up from 789,000t a year earlier. On the other hand, the company's Brazil resin sales fell by 2pc from the prior quarter mainly because of the shutdown of operations at the Triunfo Petrochemical Complex, in Rio Grande do Sul state. This resulted from the historical floods in the region in late April-early May, partially offset by the allocation of resins produced at the plants in Bahia and Sao Paulo states.

In Mexico, polyethylene sales through the Braskem Idesa joint venture rose by 9pc year-on-year to 233,000t, primarily because of higher sale volumes for the construction, industrial and packaging sectors in the period. Sales rose by 12pc from the first quarter thanks to optimized stocks in the period.

Second quarter polypropylene sales hit 500,000t, according to consolidated numbers for the US and Europe. That is a 7pc drop from a year earlier and down by 2pc from the previous quarter. The declines are mainly because of the lower availability of products for sale in the US and the declining demand in Europe.

Braskem reported a $708mn loss in the second quarter, down from a $138mn loss in the same period last year. The loss was largely because of a R4.5bn ($807.6mn) decline attributed to the effect of Brazil's currency depreciating.

By Fred Fernandes