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Quattor Rises

A new company aims to challenge Braskem for leadership in Brazil's chemical industry

by Alexander H. Tullo
December 8, 2008 | A version of this story appeared in Volume 86, Issue 49

A Company In Formation
Quattor's current structure showing ownership and products.
NOTE: Percentages on arrows are ownership by entity where arrow originates.
Quattor's current structure showing ownership and products.
NOTE: Percentages on arrows are ownership by entity where arrow originates.

A COLLECTION of chemical facilities in the southeast of Brazil has been brought together to form a new company. Called Quattor, it is the second firm in a decade after Braskem to emerge from the country and become an important player on the world chemical stage.

Quattor intends its name to evoke the four elements of nature: earth, wind, fire, and water. Vítor Mallmann, the new company's chief executive officer, likes that it isn't one of the pragmatic names favored by Brazilian technocrats.

"If it was a name created by engineers, it probably would have been poly-something," he says. Mallmann adds that the name is easy to pronounce for people outside of Brazil. "Petroquímica União—try to say that for someone who doesn't speak Portuguese," he jokes about one of Quattor's predecessor firms.

The name also suggests a combining of elements, which is what Quattor is doing by cleaning up remnants of the complex and unwieldy Brazilian petrochemical industry. Under its traditional structure, numerous local and international companies made "downstream" petrochemicals such as polyethylene, polypropylene, and ethylene glycol. Along with the state oil firm Petrobras and financial investors that include pension funds and public shareholders, these firms would own stakes in "upstream" ethylene crackers. Getting all shareholders to agree on anything was a major obstacle to expanding the industry.

This started to change in 2002 when Braskem was formed to consolidate the vast petrochemical complex in Brazil's northeast. Braskem has since grown to include two of the country's four largest chemical facilities, and it is considering building two more complexes elsewhere in South America.

At the time, Mallmann was an executive with Unipar, which held a large stake in Petroquímica União, an ethylene cracker in São Paulo, and a stake in Rio Polímeros, an ethylene and polyethylene complex under construction in Rio de Janeiro. Mallmann and his colleagues watched the formation of Braskem with some trepidation. "The natural movement after the consolidation of one group was to have another one consolidate to keep up the competition," he recalls.

THESE IDEAS started to materialize last year. First, Petrobras purchased the polypropylene maker Suzano Petroqu??mica. Then, Petrobras merged this business, as well as small stakes in Petroqu??mica Uni??o and Rio Pol??meros, with Unipar's chemical holdings to form Quattor. Petrobras came away with a 40% stake in the new company, whereas Unipar fetched the remaining 60%.

Quattor includes a more than 82% interest in Petroquímica União. It has full ownership of Polietilenos União and the Unipar petrochemical division. It owns nearly all of Quattor Petroquímica, formerly the Suzano polypropylene business. It also has a roughly 75% interest in Rio Polímeros.

Mallmann says job one for the new company is consolidating these holdings further. It is buying out the remaining shares of Petroquímica União and Quattor Petroquímica. Quattor will swap its own equity for the minority stake in Rio Polímeros that the Brazilian development bank BNDES owns. It will then do a "reverse incorporation" that leaves Quattor Petroquímica the last legal entity standing. "At the end of the day, we are not going to have any more of those names," he says. "They will all just become plants."

The company then intends to list about 6% of its shares on the Brazilian stock market. Quattor doesn't yet have consolidated sales figures, but the company estimates that it will generate about $4 billion in sales annually, making it the second largest chemical maker in Brazil behind Braskem.

Jorge O. Bühler-Vidal, director of North Brunswick, N.J.-based Polyolefins Consulting, notes that Braskem has been a big company for a long time, whereas Quattor is still in the midst of forming itself. But Quattor will be a formidable rival. It has an 18% share of the Latin American polyethylene market compared with Braskem's 34%, Bühler-Vidal says. In polypropylene, Quattor has 25%, and Braskem has 32%. "If you look at polyethylene and polypropylene, Braskem is bigger but not that much bigger," he notes.

Mallmann says the benefits of the merger are cost reduction and critical mass. The company has initiated 92 projects to cut costs out of the merged assets. A bigger company, Mallmann notes, will also better support R&D. For example, the company has a project to convert glycerin made during biodiesel production into propylene for subsequent conversion into polypropylene.

Mallmann says Quattor will be more able than its predecessors to fund capital projects. Quattor is completing a $900 million expansion program that began before it was formed. This month, it is completing a project to boost the capacity of its São Paulo ethylene cracker by 40% to 700,000 metric tons per year. Downstream from this plant, the company is starting up a 230,000-metric-ton linear low-density polyethylene plant. It has expanded capacity at its Rio de Janeiro and São Paulo polypropylene plants by 100,000 metric tons apiece.

The company is also evaluating participation in the $8.5 billion Petrobras refining and petrochemical project, dubbed Comperj, which is expected to produce some 1.6 million metric tons of polyolefins. Mallmann says the project needs to be competitive not only in Brazil but in the export market as well.

A role in the project would further cement Quattor as a larger seller of plastics in Brazil and give it an international presence befitting Brazil's number two chemical company.



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