News focus: Brazil's Braskem seeks to expand petrochemical footprint

28 March 2014 12:33  [Source: ICB]

CEO Carlos Fadigas sets his sights on further expansion in the Americas with new crackers, strategic sourcing and M&A

Already the largest force in the local petrochemicals and polymers market, Brazil’s Braskem is setting its sights on further expansion in the Americas – through organic projects, creative collaborations, and mergers and acquisitions (M&A).

 

 Major equipment for the Ethylene XXI project has already been put in place

Copyright: Braskem

The Ascent (Appalachian Shale Cracker Enterprise) project in West Virginia, US – planned to be built by Brazil’s industrial conglomerate Odebrecht and operated by Braskem – could be on the scale of the Ethylene XXI project in Mexico.

“The Ethylene XXI project in Mexico could be a good indicator of the scale of Ascent,” said Carlos Fadigas, CEO of Braskem, in an interview with ICIS at Braskem headquarters. “Ascent will be focused on PE [polyethylene] and we want flexibility of production grades,” he added.

The Ascent project could start construction in 1-2 years, and then take 3-4 years to complete, noted Fadigas. “It would be good to start up prior to 2020,” he said.

Mexico’s Ethylene XXI project, 75:25 joint venture between Braskem and Grupo Idesa, is a “top priority” and involves a 1.05m tonne/year cracker, two high density PE (HDPE) plants with capacities of 350,000 tonnes/year and 400,000 tonnes/year, as well as one 300,000 tonne/year low density PE (LDPE) plant.

MEXICO’S ETHYLENE XXI
The Ethylene XXI project is 60-62% complete and scheduled to start up in the third quarter of 2015, Fadigas said. “We’ve already passed the peak in terms of intensity of construction activity – the piping, moving the big pieces of equipment to the site. We don’t foresee any structural constraints going forward.”

The product from Ethylene XXI will be for the local Mexico market, which is a net importer of over 1m tonnes/year of PE resin.

The Ascent project is part of Braskem’s strategy to use more gas-based feedstocks and extend its PE reach to the US. The company currently has five polypropylene (PP) plants in the US but no PE production. All of Braskem’s PE production of around 3m tonnes/year is in Brazil.

“We have a PP plant in West Virginia, and a technical center in Pittsburgh. We have seen the development of shale gas all around us in Pennsylvania and want to take part,” said Fadigas.

CREATIVE DEALS
Braskem has a “creative agreement” with Odebrecht, which is a major shareholder in Braskem. “Odebrecht will carry the asset and debt, but we want the petrochemical risk – the profit associated with the asset,” Fadigas said.

The arrangement is similar to Braskem’s deal with US midstream company Enterprise Products, which is building a 750,000 tonne/year propane dehydrogenation plant (PDH) plant in Texas by 2015, he noted.

“There we will be buying the propylene at producer economics. Enterprise wants to make sure its investment has a fixed income profile. They will transfer all the petrochemical risk to us,” said Fadigas.

Braskem will buy around half the propylene output of the PDH plant, which will supply about half the demand from its three PP plants in Texas, he added.

COMPERJ STILL ON TABLE
Braskem is still in discussions with state operated oil and gas giant Petrobras for feedstock supply for the petrochemical part of the Comperj project and is aiming for a deal by the end of the year.

“There have been developments, but no step change. But we are closer to the end of the process than the beginning,” said Fadigas. “To have a plan by the end of this year would be a good goal, but it’s hard to say if this will happen.”

The petrochemical portion of Comperj would include a world-scale cracker and derivative plants in Rio de Janeiro state.

The discussions with Petrobras involve the potential natural gas liquids (NGLs) feedstock supply – how much would be available from the pre-salt offshore oil and gas fields, the composition of the gas in terms of natural gas liquids (NGLs) and the cost, said the CEO.

“We want to see the profile of the gas mix over time, and see what flexibility we would have to crack different NGLs,” said Fadigas.

The Petrobras pre-salt offshore oil and gas fields that would supply Comperj are 300km off the coast, and Petrobras would have to build infrastructure to transport the gas onshore and also fractionate it to extract NGLs for petrochemical feedstocks.

While Comperj is a long-term project, looking out even longer term, Braskem would not close any of its three naphtha crackers in Brazil, even after Comperj is completed, said Fadigas.

Braskem has three naphtha cracker sites – in Sao Paulo, Triunfo (southern) and Camacari (northeast). It also has an ethane/propane cracker in Rio de Janeiro.

“Comperj would add capacity to supply the domestic market. There would be no cracker rationalisation,” said Fadigas. “We have 29 polymers plants with around 50 lines, so rationalisation could happen there, but not at the crackers.”

 Mexico's Ethylene XXI project will help fill the country's polyethylene gap

Copyright: Braskem

OPTIMISING ASSETS
“We are focused on extracting more profits from the assets we have – we are working to create more integrated complexes,” Fadigas said. “We have attracted BASF onsite, and have also partnered with Styrolution of building an ABS [acrylonitrile butadiene styrene] plant.”

BASF is building a €500m acrylics complex at Braskem’s Camacari site downstream of propylene production, for start-up by the end of 2014. The complex will include butyl-A, 2-ethyl hexannol (2-EH) acrylates, acrylic acid and superabsorbent polymers (SAP).

Also at its Camacari site, Braskem is expanding and converting one of its PE lines to produce metallocene linear low density PE (mLLDPE), adding 120,000 tonnes/year, of which 100,000 tonnes/year will be mLLDPE. Start-up is expected in 2015.

Braskem and Styrolution also plan to build a 100,000 tonne/year ABS and styrene acrylonitrile (SAN) plant in Brazil, with construction scheduled to start in early 2015 and start-up by 2017.

TWO TURNAROUNDS FOR 2014
Braskem has two cracker turnarounds scheduled for 2014 versus one in 2013. Maintenance at the larger of the two crackers in Rio Grande do Sul (Triunfo) started in mid-March. The complex has two crackers – one of 720,000 tonnes/year, and the other of 480,000 tonnes/year.

“We are stopping one line, and the maintenance is expected to last 30-40 days,” Fadigas noted.

The naphtha crackers have downstream polyethylene PE, PP, butadiene (BD) and benzene production, which will be impacted.

Braskem also plans to take its 700,000 tonne/year naphtha cracker in Sao Paulo down in September for 30-40 days for scheduled maintenance. Downstream from that cracker are PE and PP plants.

Even with the two turnarounds this year, Braskem aims to come close to its 90% cracker operating rate achieved in 2013.

“We are challenging the team to almost fully compensate for this with higher utilisation elsewhere,” said Fadigas. “We also strive to achieve record production of PE in 2014. We exceeded budget and made new records in 2012 and 2013,” he added.

In 2013, Braskem produced 2.58m tonnes of PE, at an operating rate of 85%.

PVC ACQUISITION
Meanwhile, Braskem aims to complete its planned acquisition of polyvinyl chloride (PVC) producer Solvay Indupa, which operates in Brazil and Argentina. The deal, currently under regulatory review, would expand PVC production in Brazil by 42% and expand its capacity in the region to 1.25m tonnes/year, making it the fourth largest PVC producer in the Americas. It would also expand caustic soda capacity by over 60% to 890,000 tonnes/year.

The antitrust review could take six months to one year to complete, said Fadigas.

MACROECONOMIC OUTLOOK
In Brazil, Braskem faces a difficult macroeconomic climate. The GDP growth in 2013 of 2.3% is expected to slow further to 1.7% in 2014, according to a Brazil central bank survey of economists.

“The cost of doing business – infrastructure, the cost of energy, and the cost of raw materials in key value chains – is too high,” said Fadigas.

“The industry is also impacted by high interest rates, and also the exchange rate [vs the US dollar]. The value of the real is too strong.”

The Brazilian real has strengthened from a rate of around 3 to the US dollar a decade ago, to around 2.3 today, hurting export competitiveness. Brazil has run record manufacturing trade deficits for several years, as it largely exports base commodities such as iron ore and soybeans, and imports manufactured goods, including plastics resins, he noted.

Brazil maintains an import tariff of around 14% on polymer resins such as PE, PP and PVC. It has zero-tariff trade agreements between the four Mercosur countries of Argentina, Venezueula, Uruguay and Paraguay, along with preferential rates with nine other countries, mostly in Latin America, noted the company.


By: Joseph Chang
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