Brazil trucker strike hits Braskem's output, sales, tax exemption

Source: ICIS News

2018/08/09

HOUSTON (ICIS)--The nationwide trucker strike that hit Brazil earlier this year caused Q2 output and sales to decline for polyolefins producer Braskem,  executives said on Thursday.

In addition, Braskem could lose a tax exemption because of a deal that the Brazilian government reached with the truckers to end the strike.

The Brazilian Truck Union called for the strike on 21 May, and it quickly spread to most of the nation's 26 states. The strike was called off later that month after the truckers reached the deal with the Brazilian government.

The strike was especially disruptive to Brazil because the nation relies on roads to distribute more than 70% of the goods produced in the country, according to the credit-ratings company Fitch Ratings.

The strike caused logistical problems that led to declines in production and sales for Braskem, the company said.

The charts below show Q2 production figures and utilisation rates for Braskem's resin production in Brazil. Figures are listed in tonnes.

Source: Braskem

Year on year, Q2 polyethylene (PE) production fell by 2.86%, polypropylene (PP) by 6.65% and polyvinyl chloride (PVC) by 3.09%.

Some of Braskem's customers suffered even larger disruptions because of the strike, said Fernando Musa, Braskem CEO. He made his comments during an earnings conference call.

As a result, the strike also lowered sales volumes for resins, as shown in the charts below.

Source: Braskem

Second-quarter domestic PE sales fell by 5.31% year on year. PP sales actually rose by 3.84% while PVC fell by 0.48%.

For exports, PE fell by 17.1% and PP by 7.05%. PVC rose by 17.9%.

For the second quarter alone, Braskem estimates that the trucker strike cost the company real (R) 200m ($52.6m) in earnings before interest, tax, depreciation and amortisation (EBITDA).

Because of the trucker strike, Braskem has lowered its forecast for Brazilian demand growth for resins, Musa said. Before the strike, Braskem expected demand to grow by 4-5% in 2018. Now, the lower end has fallen to 2%.

The actual figure will depend on how well Braskem's customers recover from the strike, Musa said.

"We did see good recovery in the back end of June when everyone came back," he said. Several value chains also had good production and sales in July. "We need to see how this plays out."

While Braskem expects production and sales to recover, the company will likely lose a tax advantage that the government had granted the chemical industry.

As part of the deal to end the strike, the Brazilian government had agreed to lower fuel taxes. To make up for the resulting shortfall in revenue, the government would remove a tax exemption it grants to Brazil's petrochemical industry, called the special regime for the chemical industry (REIQ), according to a news service of the Brazilian Senate.

The tax exemption covers petrochemical feedstock, the Senate said. If the removal becomes law, it would take effect on 1 September.

The removal of the exemption should increase government revenue by R740m in 2019, the Senate said.

For Braskem, it would raise taxes for these feedstock 9.25% for domestic material and 11.75% for imports, the company said.

($1 = R3.80)