Issue Date: May 16, 2011
Braskem was formed in 2002 to create order out of Brazil’s byzantine petrochemical industry. It accomplished that goal, in the process completely conquering the basic petrochemical and polymer sectors in the booming country. Now, the company is marching north, with aims to establish a strong presence in other Latin American countries and the U.S.
In 2001, the Brazilian petrochemical industry was a tangled mess. Control of the country’s largest ethylene complex, in the northeastern town of Camaçari, was divided among seven firms that owned downstream plants. Merely reaching a consensus on operations and capital projects was a formidable task. The situation at Brazil’s two other petrochemical complexes wasn’t much better.
Then Brazilian firms Odebrecht and Mariani won control of the Camaçari complex by picking up additional stakes as well as some downstream polyethylene assets in a government auction. The following year, Braskem was born when the two firms merged their new assets with their existing operations, notably Odebrecht’s polyethylene and polyvinyl chloride businesses.
The new firm adopted U.S.-style management and transparency. Braskem’s shares even began trading on the New York Stock Exchange. Bringing so many operations under one roof cut costs, fattened profits, and encouraged Braskem to continue consolidating the Brazilian industry. Another series of transactions gave it control of a second ethylene complex—in the southern Brazilian state of Rio Grande do Sul—by 2009.
Last year, in a deal valued at $4 billion, Braskem purchased Quattor, its only remaining petrochemical rival in the country. The purchase gave it a cracker in São Paulo, a newly built cracker and polyethylene plant in Rio de Janeiro, and a Brazilian monopoly in ethylene, polyethylene, and polypropylene production. Braskem went on to establish a U.S. beachhead through the $350 million purchase of Sunoco’s polypropylene business.
Today, Braskem is big not only by Brazil’s standards but also by the world’s. It earned more than $1 billion on net sales of $14.5 billion in 2010, making it larger than U.S. chemical firms such as Chevron Phillips Chemical and Celanese. Braskem’s combined capacity to produce polyethylene, polypropylene, and PVC is more than 6.5 million metric tons per year, making it the largest polymers maker in the Americas.
Braskem executives promise that their company will be as aggressive in its second decade as it was in its first. In addition to the Sunoco acquisition, planned moves beyond Brazil include ethylene and polyolefins plants in Mexico, Peru, and Venezuela. “We are already the leader in the Americas, but we want to strengthen that position by having a stronger presence in other countries on top of Brazil,” Braskem’s newly minted chief executive officer, Carlos Fa digas, told reporters at a recent gathering at the New York Stock Exchange.
The U.S., now a lower cost petrochemical maker thanks to new feedstocks from shale, is among the company’s targets. Fa digas would like to add polyethylene to the polypropylene operations it acquired from Sunoco, and it is considering both acquisitions and building new capacity. “We believe there is some consolidation that will happen over time in the U.S.,” he said. “We are going to be keeping track of these opportunities.”
Fadigas insists that his company can afford more acquisitions. The company recently raised more than $2 billion in new equity from Odebrecht and state oil company Petrobras. These deep-pocketed boosters now own 38% and 36% of the company, respectively. And Fadigas asserts that smaller purchases, like the Sunoco deal, won’t make a dent in Braskem’s balance sheet.
Fadigas, 41, also notes how smoothly the integration process has been for Quattor and Sunoco. Quattor’s earnings have increased nearly 80% since 2009, and Sunoco’s have jumped 50%.
Indeed, the credit ratings agencies Standard & Poor’s and Moody’s both raised their view of Braskem in March, citing the firm’s track record with its past growth initiatives. “Braskem has delivered operating and financial improvements ahead of our expectations because of its successful integration of Quattor’s assets,” wrote S&P analyst Alexandre Menezes.
Investing more in the U.S. petrochemical business is hardly an original idea; Chevron Phillips and Dow Chemical both announced plans for world-scale crackers on the U.S. Gulf Coast in recent weeks. Fadigas admitted as much to reporters. “I think it is a fair statement to say that most, if not all, petrochemical companies are considering whether it is viable, and feasible, and what would be the right investment to add capacity in the U.S.,” he said. “Braskem is just one of them.”
After the conference, Fadigas also acknowledged to C&EN that companies are less inclined to sell their petrochemical assets than they were a few years ago, making acquisitions potentially more expensive. “Valuations have changed,” he said. “That makes finding an attractive target more difficult for sure.”
But Braskem is willing to pay more than it might have a few years ago. “Valuations have changed because the intrinsic value of some of those assets changed as well,” Fadigas said. “Eventually, the buyers, and we would include Braskem as one of the potential buyers, will also have a different appetite in terms of price for these assets.”
Rina Quijada, CEO of the Latin America-focused consulting firm IntelliChem, explained that feedstocks are the key to understanding Braskem’s push outside Brazil. “They go wherever there is a hint of feedstock availability to build a unit,” she said. “They aren’t going to go to Chile and Argentina. There’s no feedstock there.”
The furthest along of its international plans is a $2.5 billion joint venture complex in Mexico that would have 1 million metric tons apiece of ethylene and polyethylene capacity. Braskem would have 65% of the complex, and local chemical firm Idesa would own the rest.
In contrast, Braskem’s Venezuelan aspirations have languished. In 2006, it announced plans for new ethylene, polyethylene, and polypropylene plants with state petrochemical firm Pequiven. Now, the cracker and polyethylene projects are on hold. Fadigas said the polypropylene project is active, although the partners are still discussing basic terms such as location and raw materials.
The Peruvian project is in the conceptual stage. A cracker with about 900,000 metric tons of capacity is a possibility, Fadigas said. But he cautions that a petrochemical project needs enough feedstock to last for 15 to 20 years to get a good return.
Braskem has plenty of initiatives at home, where demand for petrochemicals and plastics seems insatiable. Braskem’s key Brazilian initiative is “green” polyethylene. Last year, the company opened a plant in Rio Grande do Sul that can produce from ethanol dehydration 200,000 metric tons of ethylene per year. The ethylene, in turn, feeds a polyethylene plant on the site.
The company is planning a $100 million investment to convert ethanol into propylene for green polypropylene. The plant is scheduled to come onstream in 2014. It is also considering a second green polyethylene complex with as much as 400,000 metric tons of capacity. It could be located in São Paulo or Mato Grosso to be closely integrated with sugarcane processing.
The company is also mulling participation in Comperj, a massive, Petrobras-led oil refining and petrochemical project in Rio de Janeiro. Originally, the project was to take heavy oil from Petrobras’ offshore oil fields and use high-severity catalytic cracking to convert it directly into ethylene, propylene, and other chemicals. Now, the ethylene cracker would likely be a 1 million-metric-ton unit fed mostly with ethane from offshore gas fields.
Time will tell whether Braskem can pull off all these initiatives. But even if it is only halfway successful in realizing its aspirations, Braskem’s second decade will be quite productive.
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