Braskem Fights Oil Headwinds

Braskem executives insist they will find a solution to a raw material dilemma that threatens to shut down most of the Brazilian chemical giant’s petrochemical capacity at the end of this month. Lower oil prices are also forcing the company to take another look at a U.S. project.

Three out of Braskem’s four Brazilian ethylene crackers rely on the Brazilian state oil company, Petrobras, for most of their supplies of naphtha, an oil-derived feedstock. Contracts between the two companies amount to about 7 million metric tons of naphtha per year. But these contracts are set to expire at the end of this month, threatening operations at those plants.

The expiration comes at an inopportune time. Petrobras, which also owns a 36% stake in Braskem, is in disarray over a corruption probe and accusations that company executives took kickbacks from contractors. The scandal has toppled Petrobras management, including CEO Maria das Graças Silva Foster.

In a conference call with stock analysts earlier this month, Braskem Chief Executive Officer Carlos Fadigas said he expects to renew the naphtha contract for only six months. “It’s unlikely that we’ll find a long-term solution due to the fact that Petrobras has new management,” he told analysts. He noted that the company has been operating under six-month contracts for the past year.

Separately, Braskem and another parent company are reevaluating a U.S. petrochemical project because of plummeting oil prices. Cheaper oil has reduced the competitive advantage that North American chemical makers, which make petrochemicals from natural gas, have enjoyed for several years.

Odebrecht, the Brazilian conglomerate that owns 38% of Braskem, has been planning to build an ethylene cracker and three polyethylene plants in Parkersburg, W.Va. The plants would be operated by Braskem and fed with raw materials from the Marcellus Shale formation.

Recently, Sasol blamed low oil prices for a delay at a proposed facility in Louisiana that would convert natural gas into diesel and other transportation fuels.