Global petrochemicals demand to remain challenging in 2023 – Braskem

SAO PAULO (ICIS)–Global demand for petrochemicals will remain “challenging” in 2023 and the recovery will only come from 2024 onward, the CFO at Brazil’s petrochemicals major Braskem said on Thursday.

Pedro Freitas added that the recovery in petrochemicals demand may start “by the end of 2023”, although he argued the recovery will depend on the pace the Chinese economy re-opens.

China’s re-opening will be key for petrochemicals spreads, which were poor in 2022 as input costs rose and prices fell.

Freitas was speaking to reporters and financial analysts after Braskem said earlier on Thursday it had posted a fourth-quarter net loss of $326m on the back of poorer spreads for many of the products it produces, especially those for polyethylene (PE) and polypropylene (PP).

ALL ABOUT CHINA
Braskem’s CFO said spreads for key polymers PE and PP, key feedstocks for plastics production, should start recovering in 2023 after “some positive news” coming from China’s re-opening.

However, it should remain an uphill struggle for Braskem.

“We still see a challenging scenario in 2023, but 2024 and 2025 should be more positive as we don’t see enough capacity coming to the market, which will be below demand growth. If China recovers faster than expected, that could be even more positive,” said Freitas.

The CFO conceded large petrochemicals capacities are set to come online in 2023 and the years ahead, but he said the chance for delays could be an opportunity for Braskem to improve its performance.

Braskem’s CEO, Roberto Bischoff, also present at the press briefings, added that the environment for petrochemicals remained “volatile” and added that, while the industry awaits for China to prop up demand, Braskem would focus on cost control as well “capture” new markets.

“The pace of China’s reopening will be one of the main factors in the recovery of spreads in the international market and the resumption of the upcycle. In this scenario, we are prioritising actions to maximise operations, capture sales opportunities … and maintain cost discipline,” said Bischoff.

Earlier on Thursday, Freitas said Braskem could consider expanding its Duque de Caxias, Rio de Janeiro, cracker if more domestic natural gas liquids (NGLs) from pre-salt reserves become available.

In an interview with ICIS earlier in March, the director for Latin America corporates at US credit rating agency Fitch said demand for petrochemicals should grow healthily if China’s re-opening happens faster than expected.

“[That] would have a huge impact on petrochemicals as the country is a big consumer of plastics. That, in turn, could have a huge impact on global prices,” said Lincoln Webber.

POLYMERS PROTECTIONIST
The Brazilian government recently announced a hike in import tariffs for several petrochemicals, a move in trade policy for which Braskem had been lobbying for.

Smaller players in the Brazilian petrochemicals industry have said, however, the new tariffs would sharply increase their costs to import product from overseas, mostly from Asia.

The hike in tariffs, however, would prop up Braskem’s earnings before interest, taxes, depreciation and amortisation (EBITDA), according to its CFO.

“Analysts estimated the previous lower tariffs had an impact of $150m in our EBITDA in 2022 and 2023. With this [import tariff hike], we will recover a part of that. It will also have an impact in our recovery of market share,” said Freitas.

“This resetting of tariffs put them in previous levels, and to the average levels of other products. It brings us back to a competitive position regarding market share.”

Front page picture: Facilities operated by Braskem Idesa in Mexico, archive image; Braskem Idesa is a joint venture between and Mexico’s Grupo Idesa
Source: Sashenka Gutierrez/EPA/Shutterstock