Brazil’s Braskem Q2 Earnings Down, Possible Divestment Needed
Braskem, a major Brazilian petrochemicals company, may be forced to sell some assets to deleverage if economic conditions worsen in coming months, says US credit rating agency S&P.
Braskem reported a sales and earnings fall during Q2 compared to last year due to lower sales and selling prices in the main operating jurisdictions.
Pedro Freitas, Braskem CFO, said a recovery in global prices for its main products, petrochemicals and polymers, may be pushed to 2025 due to weak growth in China and market overcapacities.
Lower earnings in 2023 may push Braskem’s ratio of earnings to debt close to seven times (7.0x), where any ratio about 3.0x is concerning.
S&P expects Braskem’s earnings before interest, taxes, depreciation and amortisation (EBITDA) could stand in 2023 at R$4.5 billion (€836 million), down 30-35% compared with 2022.
“[However,] we expect a rapid improvement in EBITDA and cash flow in 2024 and 2025, which would allow a leverage reduction to about 3.3x in 2024 and closer to 2.5x in 2025,” S&P said as reported by ICIS. They added that global capacities will increase into 2024, while the industry struggles with slow global economic growth. This will leave petrochemical spreads at low levels until mid-2024.
Braskem’s significant EBITDA drop was more severe than that for global peers that use natural gas-based ethane as feedstock, as opposed to Braskem’s crude oil-based naphtha use, said S&P. Under usual market conditions, ethane's competitive edge over naphtha in Braskem's basic chemicals pricing is partially offset by correlation with oil prices. Yet, reduced demand for these chemicals, particularly due to a Chinese slowdown, has prevented price increases.
