Brazil Petrochemicals Report Q4 2009

Brazil Petrochemicals Report Q4 2009

The Brazilian domestic petrochemicals market was showing signs of recovery by mid-20009 with BMI’s
latest Brazil Petrochemicals Report forecasting a return to growth in Q4. However, long-standing issues
regarding access to more competitively priced feedstock will need to be addressed if Brazil is to achieve
its long-term goal of competing with Asian and Middle Eastern rivals on the global market.
Compared to global markets, the Brazilian petrochemicals industry is faring relatively well in terms of
sales volumes, but product prices have fallen at a faster rate than the decline in feedstock costs up the
supply chain and consequently margins are under considerable pressure. According to Brazil’s chemical
industry association, the Associação Brasileira da Indústria Química (Abiquim), Brazil’s chemicals
product trade deficit fell 36.6% y-o-y to US$6.3bn in H109. Exports were up 15.9% y-o-y to 5.6mn
tonnes, but in terms of value they fell 18.7% to US$4.6bn. Meanwhile, chemical imports fell 43.5% to
8.1mn tonnes, valued at US$10.9bn (down 30.1%). Abiquim also reported a 21.5% contraction in the
domestic market in H109. Operating rates averaged around 78% in H109 and reached 84% in Q2, which
was an improvement on the 64% seen in January and 55% in December but just below the 85% level that
BMI believes is necessary to ensure healthy margins. Abiquim stated that the index of production fell
3.9% y-o-y in H109 and would have been greater if it had not been for two major scheduled maintenance
turnarounds in H108.
BMI believes that restocking and a modest recovery in demand in both domestic and external markets
should help lift capacity utilisation rates to 85-90% going through H209, returning to growth in Q409 – in
part due to the base effect of the poor results in Q408 but also in the context of a slow recovery in
demand. Thermoplastic resins may see a rise of around 5% y-o-y in H209, but the declines seen in H1
will weigh down the result for the whole year. As such, by end-2009, BMI expects petrochemicals
growth to be around -5%, based on improvements in consumer confidence and a forecast 0.6%
contraction of the economy.
The downturn is, however, leading to a revision of investment programmes in South America with
leading Brazilian petrochemicals producer Braskem’s joint venture (JV)’s with Venezuela’s Pequiven to
be delayed by two years, although as plants – with total capacity of 1.3mn tonnes per annum (tpa)
ethylene and derivatives – will be based in Venezuela’s Anzoategui state and it will not affect our
forecasts for Brazil. In an announcement in February, Dow Chemical has pushed back by one year its
planned US$1bn PE plant based on sugarcane-derived ethanol, with capacity of 350,000tpa of LLDPE, to
2012. This is in line with BMI’s belief that construction projects that have yet to begin, or are just
starting, may be delayed by 12-18 months, and as such does not change our forecasts. The planned
US$8.5bn refinery and petrochemicals complex in Rio de Janeiro is also not likely to come onstream until
2013, a year later than scheduled, with partners yet to decide on feedstock pricing and future demand.
Investment in the petrochemicals industry should see ethylene production capacity up 63% by 2013,
compared with 2008 levels, fuelling growth in the polyolefins sector. Petrobras has committed itself to the
US$9.8bn Comperj complex, which includes a 1mn tpa ethylene unit and downstream plants. The project
is also set to raise ethylene capacity by 1.3mn tpa by 2013. If the planned second phase of Comperj is
completed in 2012, Brazil’s PE capacity should reach just under 3.10mn tpa, while PP capacity should
reach 3.45mn tpa and PVC capacity 1.05mn tpa. This would make Brazil self-sufficient in thermoplastic
resins and giving it an exportable surplus of at least 3.5mn tpa. However, BMI believes that the
deterioration in global financial markets will delay the project by six to 12 months.
Over the medium term, BMI believes Brazil will need to diversify feedstock sources away from naphtha,
which could undermine its competitiveness. In spite of growing naphtha demand, which is expected to
touch 14.6mn tpa by 2010, naphtha production in Brazil is expected to drop to 10mn tpa in 2010. The
naphtha deficit is forecast to reach 3.4mn tonnes by 2015.

Executive Summary ....5
SWOT Analysis.7
Brazil Petrochemicals Industry SWOT........ 7
Brazil Political SWOT .......... 7
Brazil Economic SWOT ........ 8
Brazil Business Environment SWOT 8
Global Market Overview.........9
Global Ethylene Capacities .. 9
Table: World Ethylene Production By Country, 2008 And 2013 (‘000 tonnes capacity) .......... 9
Polypropylene.......... 12
Global Oil Products Market Review......... 15
Table Global Oil Prices, 2003-2013 (US$ per barrel).... 19
Latin America Overview.......20
Table: Planned Polyolefins Projects In Latin America ... 23
Brazil Market Overview........24
The Braskem Story... 25
Sector Performance . 25
Regulation..... 26
Brazil Petrochemicals Business Environment....27
Limits Of Potential Returns. 27
Risks To Realisation Of Returns .... 28
Brazil’s Legal Framework .. 29
Corruption .... 30
Industry Trends And Developments .........31
Consolidation 31
Table: Petrochemical Assets Integrated With Braskem, 2007.... 31
Projects And Expansions .... 33
Financial Performance ....... 36
Industry Forecast Scenario ..39
Table: Brazil’s Petrochemicals Sector, 2006-2013......... 41
Macroeconomic Outlook..... 42
Table: Brazil – Economic Activity, 2006-2013 .... 44
Company Monitor......45
Braskem........ 45
Rio Polimeros .......... 48
Ultrapar........ 49
Politeno ........ 50
Dow Quimica 51
Country Snapshot: Brazil Demographic Data .....52
Section 1: Population.......... 52
Table: Demographic Indicators, 2005-2030........ 52
Table: Rural/Urban Breakdown, 2005-2030 ....... 53
Section 2: Education And Healthcare....... 53
Table: Education, 2000-2003 ........ 53
Table: Vital Statistics, 2005-2030.. 53
Section 3: Labour Market And Spending Power .. 54
Table: Employment Indicators, 1999-2004.......... 54
Table: Consumer Expenditure, 2000-2012 (US$) 55
Table: Average Annual Wages, 1996-2002.......... 55
BMI Methodology ......56
How We Generate Our Industry Forecasts .......... 56
Chemicals And Petrochemicals Industry .. 56
Cross Checks 57
Business Environment Ratings....... 58
Table: Petrochemicals Business Environment Indicators And Rationale.......... 58
Weighting...... 59
Table: Weighting Of Indicators ..... 59