VINACHEM

The upcycle for global petrochemicals and polymers will only occur from 2025 onward as the market deals with slower than expected growth in China and overcapacities, the CFO at Brazil’s Braskem said on Wednesday.

Pedro Freitas added that the industrial downturn in China continues to cast a shadow over global petrochemicals, with demand for polymers such as polyethylene (PE) averaging this year growth of 2.7%, compared to the historical average of 3.5%.

Brazil’s petrochemicals, added the CFO, are even enduring higher pressure from input costs, much higher than other large chemicals producers, and a public policy to support the chemicals industry has now become indispensable, he added.

Earlier on Wednesday, Braskem said its sales and earnings in the second quarter fell sharply due to lower demand and production in Brazil, the US, and Europe, as well as the appreciation of the Brazilian real against the dollar.

WAITING FOR CHINA

While China’s services sectors are recovering strongly following the strict COVID-19 policies in 2020-2022, the industrial recovery global petrochemicals were hoping for has not happened, said Freitas.

However, the Chinese government – worried about keeping industrial employment booming – has started implementing stimulus policies which may start having a positive impact in global petrochemicals from the fourth quarter onward.

However, a full recovery in prices for petrochemicals – Braskem, and the wider Latin America, are “price takers” in the global markets – will not occur straight away in 2024, said Freitas, as the market still digests the capacities added in 2022 and 2023.

“New capacities in polymers have added in the past two years around 7m tonnes/year of material, which represents growth in supply of around 6-7%, while demand is growing at 2.7%, lower than the historic average of 3.5%,” said Freitas, speaking to reporters.

“We can see demand picking up in the fourth quarter, thanks to China’s stimulus, and from the second half of 2024 the markets could start recovering as no new capacities are added and demand returns to the average of 3.5% growth per year. The upcycle should occur in 2025-2027 with a strong recovery.”

The company’s CEO, Roberto Simoes, also at the press conference, said that the current downcycle is “atypical” for its severity, adding that around “half of global petrochemicals” demand is being negatively affected by one factor or another.

“We are seeing the convergence of slower growth in demand and new capacities in the second half of 2022 and this year, start-ups which were in part delayed by the pandemic,” said Simoes.

“All these factors are clearly impacting [petrochemicals] spreads – Asia and the Middle East are exporting a lot of product to developing countries [such as Brazil, pushing spreads lower].”

BRAZIL CHEMICALS WOES

Brazilian chemicals are having a tough year, in line with the wider manufacturing sectors, which added in July their ninth month in contraction territory, despite improved prospects for the wider economy.

Chemicals demand fell by 5% in the first half of 2023, according to Abiquim, the country’s chemicals trade group.

Chemicals is in a lobbying spree as they see the current government of Luiz Inacio Lula da Silva more inclined to support industrial sectors than the previous cabinet led by Jair Bolsonaro.

The industry is confident the tax incentive known as REIQ will be re-implemented in due course.

Brazilian chemicals producers are also hopeful an agreement signed in July between the country’s state-owned energy major Petrobras and Abiquim aiming to tackle the “critical situation” in chemicals will also bear fruit, perhaps in the form of lower feedstocks costs.

Brazil’s chemicals mostly use crude oil-based naphtha as a feedstock, unlike their peers in the US where the shale gas boom has flooded the market with abundant, cheap ethane.

“Braskem’s performance is also linked to the competitive disadvantage the chemicals industry in Brazil suffers. Industry and public authorities need a shared view about what industrial policy we want, as a country,” said Freitas.

“Many companies are facing potential scenarios in which plants have to go idle – that is a scenario everyone should be trying to avoid.”

About Braskem’s potential sale, the CFO said he would not comment as it is for the company’s shareholders to comment.

Braskem’s main shareholders are Novonor, which is trying to dispose of its stake to clear its debt burden, and Petrobras.  – ICIS –