Q2 2024 Braskem SA Earnings Call
Good morning and thank you all for waiting.
Welcome to Braskem's results conference call to discuss the second quarter of 2024.
Speaker Change: We have us here today, Mr. Roberto Bischoff, CEO of Braskem, Mr. Pedro Freitas, CEO of Braskem, and Mrs. Rosana Avalio, Investor Relations, Strategic Planning, and Corporate Market Intelligence Director.
Deepa Mell.
Speaker Change: We inform you that this event is being recorded. The presentation will be held in Portuguese with simultaneous translation into English.
All participants can choose which language to listen to and see the presentation in using the show captions and interpreting options at the bottom of your screen.
Speaker Change: After Braskem's remarks, there will be a question-and-answer session. At that time, further instructions will be given.
Speaker Change: should they
Speaker Change: The audio for this event will be made available on the Investor Relations website after it ends.
Speaker Change: We remind you that participants will be able to submit questions for Braskem, which will be answered after the end of the conference by the IR department.
Speaker Change: For proceeding, we'd like to clarify that any statement that may be made during this conference call regarding Braskem's business prospects, rejections.
Speaker Change: operational and financial goals all constitute beliefs and assumptions of the company's management as well as information currently available to Braskem.
Speaker Change: Thank you.
Future considerations are not a guarantee of performance and involve risks, uncertainties and assumptions.
as they refer to future events and therefore depend on circumstances that may or may not occur.
Speaker Change: Investors and analysts should understand that general conditions, industry conditions,
Speaker Change: and other operational factors may affect Braskem's future results and may lead to results that differ materially from those expressed in such future conditions.
Rosana Avoglio: Now I'd like to turn the conference over to Mrs. Rosana Avoglio, Investor Relations, Strategic Planning and Corporate Market Intelligence Director.
Speaker Change: This is Avalio. You may begin your presentation.
Rosana Avoglio: Hello, ladies and gentlemen. Thank you very much for participating in Braskem Learning School. Today we will present the results for the second quarter of 2024.
Speaker Change: According to the agenda on slide three, we will begin with the company's financial highlights for the period, which can be found on slide number four.
Speaker Change: In the second quarter of 2024, the petrochemical spread scenario in the international market improved when compared to the first quarter.
Speaker Change: due to the better balance between global supply and demand associated with the effects of conflict in the Red Sea, which will impact global logistics, resulting in higher maritime trade rates.
Speaker Change: In the scenario that led to the company's continuous effort to reduce costs and expenses, the recurring average was $220 million.
Speaker Change: 39% higher than the first quarter and 128% higher when compared to the second quarter of last year.
Speaker Change: In this context, operating cash generation increased by 9% compared to the last quarter, recording $214 million in the period, while recurring cash generation was positive in $69 million.
Speaker Change: Braskem maintains its Brokerhood's position with $2.8 billion in cash at the end of the quarter, without considering the international revolving credit line available in the amount of $1 billion.
Speaker Change: sufficient amounts to cover debt security over the next 61 months. In this context, Braskem's debt profile remains very long, with an average term of 12 years, with more than 64% of the debt securing after 2030.
Rosana Avoglio: Therefore, the company added the quarter with a leverage of 6.8 times fewer if compared with last quarter mainly due to the better result in the period.
Rosana Avoglio: [inaudible]
Speaker Change: It's important to highlight Braskem's constant commitment to resilience and financial health.
Rosana Avoglio: which has played an important role in managing results during the current pandemic.
Speaker Change: with your chemical cycle.
Speaker Change: Over the second half of 2024, the Resilience in Financial Health Initiative accumulated a positive impact of about $135 million in EBITDA and around $109 million in cash generation.
Speaker Change: In the next slide, I will comment on the company's operational and strategic timeline.
Rosana Avoglio: [inaudible]
Speaker Change: The safety of its members and cooperation is a non-negotiable commitment of the company. And at the end of the first quarter of 2024, the global accident frequency rate was
Speaker Change: 0.93 events per million hours worked.
Speaker Change: They know the first half of 22.3% from the sector average.
Speaker Change: With regard to abrasion performance, the geographical diversification of Braskem's petrochemical plants was fundamental to maintain the coastal surface and mitigate the impact of the shutdown during the quarter.
Speaker Change: In Brazil, prediction was impacted by the extreme weather events in Rio Grande do Sul, which was partially compensated with an increase in reutilization rates of Bahia and São Paulo plants.
Speaker Change: In the United States, Europe segment, lower production.
Speaker Change: due to a maintenance shutdown at one of the only propane plants in the United States, which was partially affected by the better level of production in Europe .
Speaker Change: In Mexico, the low availability of domestic ethylene is associated with a scheduled shutdown at the polyethylene plant, lasting around one month, impacted in a reduction of 5 percentage points in the utilization rate in the water.
Speaker Change: In conclusion, the implementation of the company's corporate strategy.
Speaker Change: 2020-30, continued for the past quarter.
Speaker Change: On the traditional avenue, the construction of the East End import terminal in Mexico reached a progress of 75%, and its conclusion remains expected by the end of 2024.
Speaker Change: With the start of operations for the first quarter of 2025.
Speaker Change: In June , Braskem, SOTI, and GRI signed a strategic partnership to create a national platform in the environmental solutions sector for industry.
Speaker Change: Through this investment agreement, Braskem transfers all the commerce shares into Bicentral, which will result in a positive impact for Braskem of R$284 million.
Speaker Change: regarding the decarbonization agenda. The industrial decarbonization program has consistently advanced
Speaker Change: The company expanded its partnership with Veolia, making a new investment in energy efficiency in Algoa.
Speaker Change: And it has also developed the 1st project to use large battery.
Speaker Change: in the industrial unit in Rio Grande do Sul. The two initiatives accelerated the decarbonization of the company's operation, together contributing to a potential reduction of 100,000 tons.
Speaker Change: At the end of the presentation, we will share the highlights of this agenda over the years of implementation.
Speaker Change: Thank you very much.
Speaker Change: Recycling. The company made its first sale of circular PPE produced from chemical recycling.
george judice: through a partnership with a Swiss company, George Giotis.
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george judice: Lastly.
george judice: Industrial scale tests for the development of light refinery hydrocarbons from renewable sources, HLR, were carried out through a partnership between
george judice: and Petrobras after positive results, preparing for a commercial discussion of the new solution.
george judice: Moving on to the next slide.
Speaker Change: On this topic, I will present the operational performance of the company segments, starting with Brazil segment on slide number 7.
Speaker Change: ust
Speaker Change: The utilization rate of the Brazilian petrochemical plants impacted by extreme weather in Rio de Janeiro was balanced by the production in Sao Paulo and Bahia, which contributed to a drop of only 3 percentage points.
george judice: in the usage rate for the quarter compared to the previous period.
Speaker Change: In relation to results, the EBITDA, recurring EBITDA of the segment was $231 million for the quarter, an increase of 10% in relation to the previous quarter.
Speaker Change: The result was positively impacted by the improved spread in the international market, the reduction of costs and expenses, in addition to the positive impact of positive...
Speaker Change: appreciation of dollar, considering that they're connected to different variations of dollars and part of the cost is calculated in reals. Moving on to the next slide.
Speaker Change: In relation to green polyethylene,
Speaker Change: climate event in Rio Grande do Sul was the main point that influenced the decrease of 63 percentage points resulting in a stoppage and impacting the logistics for the
Speaker Change: However, the company offset the lower availability of the product for sales by means of using the levels of inventories of polyethylene in the quarter.
Speaker Change: Resulting in a volume of sales 3% lower in comparison to the first quarter of 2024. Moving on to the next slide.
Speaker Change: In the United States and Europe segment, the usage rate in the last quarter was higher.
Speaker Change: to the first quarter of 2024 by 2 percentage points, mainly due to the greater production volume in Europe , due to the formation of stocks, in anticipation of the scheduled shutdown,
Speaker Change: scheduled for the second half of 2024 and partially upset by the realization of a scheduled maintenance shutdown at one of the
Speaker Change: PPP plants between the months of April and May in the United States. On the other hand, sales volume decreased by 2% due to the lower availability of the product in the United States and lower demand in Europe .
Speaker Change: In this scenario, in the second quarter of the year, the recurring EBITDA was $46 million, 33% lower than that of the first quarter of 2024.
Speaker Change: Moving on to the next slide, we will discuss the segment Mexico.
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Speaker Change: The utilization rate was 78%.
Speaker Change: five percentage points lower than the last quarter and impacted by the lower supply of ethane in Brazil and the schedule shut down in a polyethylene
Speaker Change: plant in the second quarter of 2024. On the other hand, sales were higher by 12% due to the higher demand and the use of inventories, resulting in a higher sales volume in the quarter since
Speaker Change: The third quarter of.
Speaker Change: In this scenario, the recurring EBITDA for the period was $56 million, 53% higher than the result for the first quarter of 2024.
Speaker Change: driven by the higher sales volume and
Speaker Change: Then, as of slide 11, we are going to share with you the financial performance in consolidated terms.
Speaker Change: and the second quarter of 2024.
Speaker Change: Raskem's recurring EBITDA was $320 million, an increase of 39% in relation to the previous quarter of 2024.
Speaker Change: This is a question improvement in the results.
Speaker Change: in an improved EBITDA of 59% when compared to the same period of 2023.
Speaker Change: twothousand
Speaker Change: This result was positively impacted by the increase in spreads in the global petrochemical industry.
Speaker Change: influenced by the greater balance between supply and demand in the period and by conjunctural factors such as logistical restrictions
Speaker Change: resulting from the conflict in the Red Sea, which have influenced the increase in sea freight rates and, as a consequence, the price of resins and spreads in the international market. In addition, the increase in sales volume in the Mexico segment and that geographical...
Speaker Change: geographical of the company also contributed to this increase in EBITDA. Moving on to the next slide please.
Speaker Change: Operational cash generation was 1.1 billion reals in the second quarter, represents an increase of 50% when compared to the first quarter of 2024. The result is mainly driven by the
Speaker Change: increase in EBITDA in the period and
Speaker Change: management of the capital in the period. The recurring cash generation was positive in 357 million reals higher than the first quarter of 2024 by 856 million reals mainly due to the higher
Speaker Change: EBITDA, recurring in the quarter, and the
Speaker Change: That's.
Speaker Change: that were paid by the company that are concentrated in the first and the third quarters of the year. Lastly, considering the disbursements regarding Alagoa's cash consumption total, the R$325 million in the second quarter of the year.
Speaker Change: Moving on to the next slide.
Speaker Change: At the end of June , Braskem's debt profile remained quite long, with an average debt term of about 12 years, with 64% of the debts concentrated as of 2030.
Speaker Change: Yeah, it's the
Speaker Change: Bye.
Speaker Change: Companies' liquidity level is enough to cover its application for the next 64 years. At the end of the quarter, corporate leverage was 6.79 times.
Speaker Change: a reduction in relation to the previous quarter as a result of the better EBDA in the period considered a net debt of $5.36 billion.
Speaker Change: The total rating of the companies in June , which ratings maintain
Speaker Change: rating Braskem's as BB+, in line with our S&P rating. Finally, the company reinforces its commitment to maintaining its liquidity position, cost discipline, and continuing implementation of measures.
Speaker Change: to reduce its corporate leverage and recover investment rate.
Speaker Change: [inaudible]
Speaker Change: Moving on to slide 15 now. Regarding the Alagoas event, the company continues to make headway in the work front, where the main updates of the period will be presented below, starting on slide 16.
Speaker Change: ever
Speaker Change: In relation to the social urbanistic actions, out of the 11 projects that were planned to have been concluded together, five projects are in the phase of removal. And in relation to the areas...
Speaker Change: The project in Mutente reached 75% of execution. As for the action plan in the socio-urbanistic area, 48 actions have been completed in June by the authorities signatory of the agreement.
Speaker Change: Up to the end of June , together with Fleschow, the Financial Support Plan reached 99.3% of all the proposals that have been paid, while 14 of the 33 measures
Speaker Change: planned for the agreement have already been implemented. On this front, 1.9 billion reels have already been provisioned so far, of which about 700 million reels have already been disbursed and 1.4 billion of reels in balance.
Speaker Change: remain at the end of the second quarter of 2024. Let's move on to the next slide.
Speaker Change: Until the end of 2024, the percentage of execution of the program of relocation of the people reached 99.7%.
Speaker Change: Is he doing the total area risk?
Speaker Change: Risk Area.
Speaker Change: according to the civil authorities, have been unoccupied.
Speaker Change: In relation to the financial compensation program and relocation support, more than 99.9% of the estimated proposals have already been presented, with about 98.4%
Speaker Change: have already been accepted, and about 96.9% have already been paid, with a general acceptance rate of 99.6%.
Speaker Change: On this action front, total provision to date was R$ 5.8 billion.
Speaker Change: which 4.7 billion reals has already been disbursed and 1.2 billion reais are in balance at the end of the second quarter of 2024.
Speaker Change: Now moving on to the next slide.
Speaker Change: We'll present next the current status of the closure plan.
Speaker Change: think
Speaker Change: The sand-filling group has a total of 13 mines, of which 5 are fully filled.
Speaker Change: Two are underway, and four mines are in the activity planning phase. The natural fuel group has a total of six mines, of which five are completely filled.
Speaker Change: people
Speaker Change: Cavity 18 is in the evaluation phase with an indication
Speaker Change: and filling measures will be necessary. In conclusion, of the 16 mines moved to the buffering and pressurization group, 7 have already been pressurized and are being monitored.
Speaker Change: while nine are under pressurization confirmation stage. And after this pressure check process, any additional measures may be necessary.
Speaker Change: think
Speaker Change: On this front, 3.9 billion reels have already been provisioned until March.
Speaker Change: of which 2.7 million have already been disbursed and 1.4 billion rails are in balance at the end of the quarter of 2024. The actions mentioned are estimated to be completed by 2026.
Speaker Change: Now, let's move on to the next slide.
Speaker Change: By the end of June 2024, the total provisions related to Alagüe's events were around R$15.9 billion.
Speaker Change: of which about 10.6 billion have already been disbursed.
Speaker Change: and approximately 1 billion reals has been registered in the other obligations to be paid line. Additionally, about 500 million reals are in performance of the present value adjustment.
Speaker Change: At the end of the second quarter, the provision balance was R4.8 billion.
Speaker Change: Now, let's move on to slide 20.
Speaker Change: We will present the perspective for the next quarter, in addition to making some comments on the main advances in the priorities for the year in the company.
Speaker Change: The expectation for the third quarter of 2024 is that the company's usage rate will show an improvement in Brazil.
Speaker Change: and green polyethylene segment due to the resumption of the production after the weather event in Hilbron-Dosu regarding sales, an increase in volumes expected for the quarter due to the greater availability of product, and also the improved demand mainly influenced by the consumer.
Speaker Change: goods sector.
Speaker Change: and also basic sanitation.
Speaker Change: In the United States and Europe segment, the expectation is that the usage rate will be in line with the previous quarter due to the schedule shutdown in Europe , affected by the increase in the utilization rate in the United States, with the resumption of production after the planned stoppage that happened in the second quarter of 2024. On the other hand, the greater availability of products in the United States, combined with better sales expectations for our exports, may positively influence
Speaker Change: an increased volume of sales. Finally, in Mexico, the trend for the second quarter is of an increase in production as the expectation of a stable supply of ethane.
Speaker Change: In relation to sales, the demand in the region is very healthy.
Speaker Change: Inventories may eat back to the sales.
Speaker Change: As to spreads in the international market, the expectation is that there will be a gradual balance in the global scenario influenced by the logistics restrictions that continue positively impacting the spreads in the international market.
Speaker Change: Moving on to the next slide.
Speaker Change: was
Speaker Change: In this slide, I would like to share the advances we have been making in the decarbonization front, which is a fundamental aspect of the long-term strategy of the company.
Speaker Change: Considering the initiatives implemented in 2024, the company added more than 240 million tons of potential to reduce
Speaker Change: CO equivalent for the year. Taking into consideration all the initiatives that we have already implemented since 2021, more than 10, 100 projects.
Speaker Change: And also, we count on a very good portfolio.
Speaker Change: related to efficiency of the energy matrix and improvement, and we reached a reduction that was higher than 900,000 CO2 equivalent per year, in a horizon of...
Speaker Change: sues
Speaker Change: The teams continue to focus on planning and on the implementation of...
Speaker Change: solutions together with our partners, in order to make viable and also to boost initiatives such as electrification of equipment, the purchase of renewable energy, in addition to other structural…
Speaker Change: actions that can accelerate to this journey.
Speaker Change: Moving on to the next slide, we're going to...
Speaker Change: share the resilience of the company.
Speaker Change: Among the priorities defined for the year of 2024,
Speaker Change: advances approximately 51 million dollars of positive impact on EBITDA
Speaker Change: from the commercial strategy and $53 million by means of actions of cost reduction and also reduction expenses up to the end of the first quarter of 2024. And we captured about $119 million.
Speaker Change: by means of prioritizing CapEx initiatives and $59 million with the use of working capital for and cash generation. Lastly, $31 million were obtained by means of monetization actions.
Speaker Change: ac
Speaker Change: Moving on to the next slide. To end, we are going to provide an update on the May advances in the front and the priorities for the year. In Montreal, we made headway in all fronts during the quarter.
Speaker Change: with a total balance disbursed of more than 11 billion Brails.
Speaker Change: up to the end of the...
Speaker Change: the second quarter of 2024. As mentioned earlier, financial resilience actions totaled a positive impact of about $129 million in EBITDA and about $181 million in cash generation.
Speaker Change: On the front of optimizations in the assets operation strategy, the company has obtained significant progress in the decarbonization agenda, and in the quarter alone, two new initiatives contributed to an additional reduction of 100,000 tons per year.
Speaker Change: In addition, the company has evolved in the competitive
Speaker Change: competitiveness of its logistics process, becoming a Brazilian shipping company.
Speaker Change: This was granted so that we can operate with our own fleet, increasing competitiveness and reducing costs. In the quarter, there was also an advance in the competitiveness of the Brazilian industry.
Speaker Change: mo
Speaker Change: And this has been one of the main focus for the company, as a result of the challenges that the company has been facing. In this scenario, we would like to show that, talk about the opening by the Foreign Trade Secretariat of Investigation to review the United States.
Speaker Change: PCC and the dumping law. In line with the company's strategy, the strategic company with Solvay and GRI was signed in June with the transfer of Citrails common shares.
Speaker Change: The partnership designed for the efficient management of the environmental solutions for the industry will result in a positive impact on the economy.
Speaker Change: Tipping Pact for Braskem of R$ 284 million. Finally, in Mexico, we maintained efforts in completing the construction of the Eiffel Terminal, achieving a fiscal progress of 57%, 13% higher than the stage of March 2024.
Speaker Change: We conclude the results presentation of the second quarter of 2024 for Braskem. Thank you very much for your attention and we will continue proceed with the Q&A session.
Speaker Change: Braskem
Speaker Change: things of thing or as these things.
Speaker Change: what is
Speaker Change: And now, ladies and gentlemen, we will begin the question and answer session.
Speaker Change: To ask a question, please click the raise hand button or submit it in writing through the chat or Q&A window. To remove the question from the queue, please click on the lower hand button.
Speaker Change: Our first question comes from Rodrigo Meida from Stantander. Please, you can proceed.
Rodrigo Meda: Hello, good morning Rosana, Roberto, Pedro and everyone from Braskem. I have two things I want to ask about. First, I want to talk about Brazil. You mentioned a little bit...
Speaker Change: about some of that, but I'd like to hear a little bit about your opinion on when it comes to demand.
Rodrigo Meda: So you're free now.
Speaker Change: Usually, this is a stronger quarter, so we'd like to hear about what you believe is going to occur for July , August .
Rodrigo Meda: I'm interested in that. And, when it comes to Brazil, could you please share with us a little bit about any updates when it comes to the import tariffs for COMEX?
Rodrigo Meda: Do you have anything you could say about the technical aspect? Are your forecasts aligned with Abhi Kim?
Speaker Change: And also, could you mention something about ABP?
Rodrigo Meda: I'd like to get your take on that topic as well. Now the second thing I want to ask about is the United States
Rodrigo Meda: You mentioned in your outlook.
Rodrigo Meda: Some very interesting points about the flat spreads.
Rodrigo Meda: program.
Rodrigo Meda: is
Speaker Change: And I'd like to hear what that means specifically for Braskem. I think last week one of your competitors mentioned in their results, Paul, the higher prices for July .
Speaker Change: So I'd like to get your opinion on whether you've seen some price changes in there and how has inputs been priced differently for you in your case. Thank you.
Speaker Change: they ball
Paul: Hello, Rodrigo. How are you doing?
Speaker Change: Thank you for your questions.
Speaker Change: Well, first I'll start with demand. We don't measure demand specifically.
Speaker Change: What we do measure is apparent consumption, apparent usage. So that's consumption plus imports minus exports.
Speaker Change: to come
Speaker Change: So.
Speaker Change: It's a less reliable metric than demand, but for this year our forecast for growth in polymer demand is in the order of 13% in Brazil, so it's very expressive growth.
Speaker Change: Part of that comes from higher imports under that formula, but when we look at our own sales
Speaker Change: We have been seeing sales recovering more slowly.
Speaker Change: for the year in the order of two to three percent. So we see that the competitiveness of imports are higher, are stronger. And that links with your other question about import tariffs and anti-dumping and
Speaker Change: commercial protection
Abbey Kim: Now, Abbey Kim's argument, it was built along with the Associates, so our request, our argument is exactly the same in the PPP, DVC imports, up to, and so on, up to the 20% level.
Speaker Change: will you come nextx
Speaker Change: this show on YouTube.
Speaker Change: So we do have the forecast that ChemX will Issue a position soon. This is not under our control or IB Chem's
Speaker Change: But we expect that in the third quarter we will see some kind of a definition from ChemEx on that topic. The arguments have been made, the rationale, all the explanations, and now it's up to the government to make their decision.
Speaker Change: With regard to anti-dumping, what we have concretely is PVC anti-dumping, which we requested a review for, now in May and June , for PVC anti-dumping.
Speaker Change: people
Speaker Change: There was a remedy, an 8.2% tariff there, and we requested that to be increased. Historically, that level is 16%.
Speaker Change: And in association with Unipar, we submitted a request to increase the current level because the 8% red MIDI is not being successful given the level of dumping that we see. Today, it's at 49% of PVC.
Speaker Change: That's what we measure. But there is room there. We believe that there is technical room for that anti-dumping remedy. And it is a legitimate defense mechanism, and it's being applied by many countries around the world. And we do think it can be reviewed in the case of PVC.
Speaker Change: not
Speaker Change: And, lastly...
Speaker Change: badges.
Speaker Change: when it comes to the spreads.
Speaker Change: in the United States.
Speaker Change: it say you
Speaker Change: There is a spread between PP and propene, and then there is the purchase of propene. Our mean propene purchase price is lower than the value that you see on screen.
Speaker Change: And there are many different contracts that we have with vendors and suppliers, but we do have the flexibility to consume a greater portion of the contracts.
Speaker Change: We have flexibility within the contract minimums and maximums, so we do have the flexibility to find a mix that is more profitable for the company.
Speaker Change: that point
Speaker Change: appro
Speaker Change: Specifically, when we look at the short-term scenario,
Speaker Change: in the PP scenario in the United States.
Speaker Change: bookmark
Speaker Change: We see a little bit more demand growth than what we expected. So it is possible that the spread may turn out to be better than what we posted here. But nothing revolutionary. It's not really going to be a game changer.
Speaker Change: But it is possible that as a result in the improvement to demand that we've been seeing that the spreads can improve a little bit more
Speaker Change: And talking about the company overall when we look at the July results
Speaker Change: We haven't yet closed the July numbers but we have indications when we look at how the business has been doing and it is a rather good month.
Speaker Change: July , I mean, compared to the year-to-date history.
Speaker Change: We'll see you guys.
Speaker Change: It should be a higher month. So the seasonality in the third quarter typically is the best quarter in the year, and it seems that this year that is holding true as well when we look at our expected seasonality.
Speaker Change: Braskem, Braskem, Braskem
Pedro: Perfect. Thank you, Pedro.
Speaker Change: Our next question comes from Vicente Palanga from Bodesco BBI. Vicente, please proceed.
Speaker Change: jis
Vicente Palanga: Good morning, everyone. Good morning, Pedro, Rosanna. Thanks for taking my questions.
Speaker Change: re don
Vicente Palanga: I'd like to ask you to comment about the spike in container prices.
Speaker Change: How have you been dealing with that in your internal market pricing? Have you already started equalizing the prices, balancing them out?
Speaker Change: My second question is, could you talk a little bit about the spike in the price of butadiene?
Speaker Change: And to what extent should that is likely to be recurring?
Speaker Change: Hello Vicente, how are you? Thank you very much for the question. So first in relation to the freight, right?
Speaker Change: This is what we saw. In fact, as a result of the conflicts in the Red Sea, we saw an increase in sea freight.
Speaker Change: And this has an impact in the resin and also impact in the frays, for example, from Asia to Latin America.
Speaker Change: So it's a double effect so as to say this higher effect of the residence as you have monitored along the second quarter
Speaker Change: And we see that this is also reflected in the next month of the third quarter. And there's a second effect, which is the import parity. This is a market dynamic at the global level of the local producer of any country.
Speaker Change: They define the pricing in the regional and domestic market using the import parity. So whenever this rate is higher, the domestic price, the local price, naturally, since it's a variable, the price goes up.
Speaker Change: So, we saw the rate as I mentioned.
Speaker Change: And we follow the reference for PPP and PPC. We follow the Asia reference. So we saw this increase not only in the international references, but also in the domestic prices as a result of the import disparity. In August , however, we saw
Speaker Change: Lower price
Speaker Change: If we compare ear-on-ear, we saw that the phrase increased $100 per ton, and in August we saw this normalizing, but still at a higher level.
Speaker Change: So, those effects that have been providing support to those international spreads.
Speaker Change: we see that this is going to be carried over to the next period.
Speaker Change: in relation to Butadiene. We saw that the prices increased almost by 50%. And as an effect, we saw some shutdowns in Asia, a lower offer in the global market.
Speaker Change: The prices impact in an important way those central areas in Asia started the operation in the past few weeks and we expect that for the next weeks, but we see this price at high levels.
Speaker Change: stand
Speaker Change: And based on the external consulting, we understand that those levels are going to be kept at high levels up to the end of this month or beginning of next year.
Speaker Change: par
Speaker Change: I have a solo.
Speaker Change: Thank you, Rizana. Now, let's, if you'll allow me, can we go back to the topic of shipping?
Speaker Change: If we look at container prices in June ,
Speaker Change: They were $3,000 for 40 feet, up to $6,000. So it seems that the delta there can still be captured.
Speaker Change: Especially when we talk about import parity from Q2 to Q3, is that correct?
Speaker Change: Yeah, that's exactly that. We saw lower prices in August , but still higher than the average level.
Speaker Change: two people
Speaker Change: and I base myself from the crisis of last year. So we still see this effect, positive effect, in the third quarter. Thank you, Vicente.
Speaker Change: Thank you very much.
Speaker Change: then of
Speaker Change: Our next question comes from Enrique Dumont from BTG Factual.
Enrique Dumont: Hey everyone, how are you doing? Good morning. Thanks for the chance to ask my question. I'd like to ask what you think about working capital and CapEx dynamics for the rest of the year, working cash. Apologies.
Speaker Change: What do you think that will mean for the results?
Speaker Change: And do you think we can capture that over the year 2024 still?
Speaker Change: And my second question is, I understand that you were not so strongly affected by the catastrophe in Rio Grande do Sul, but you mentioned the fabric infrastructure, so do you think we still have some impact to be seen in the rest of the year?
Speaker Change: We got a plane re-k.
Enrique: Thanks for your questions.
Speaker Change: So first, CapEx. We did post a CapEx video, except for Mexico, at $340 million.
Speaker Change: We are still in line with that trend. There may be a 5% difference. That's what I think for the year. The foreign exchange variation is also likely to have an impact there because...
Enrique: Of course, there is $1 to BRL exchange. Part of the CapEx is in BRL, part is in USD. The USD portion does not change. Equipment...
Enrique: But the other portions, such as labor, is going to have some variations. So there may be a slight increase there. But when we look at, when we dollarize these numbers, there may be a higher increase.
Enrique: But we don't know yet. But we think the year's CapEx is going to be around $400 million.
Enrique: oh
Enrique: Now, with regard to working cash...
Enrique: I think our perspective for the rest of the year when we look at
Enrique: The first half of the year overall.
Enrique: We did see a recovery in working cash.
Enrique: With the rise in prices it is possible for there to be some usage of that but we're also working on inventory and that is likely to counterpose that. So my expectation is that there's not going to be a material change to the work in cash.
Enrique: But, again...
Enrique: All of that variation in foreign exchange may have an impact.
Enrique: So it's not likely that working capital is going to have a material impact, but for Capex,
Enrique: It's likely to be around 400 million dollars.
Speaker Change: As far as deliveries in working capital, it's in the order of $100 million.
Speaker Change: and that's part of our package of measures to tackle the low cycle and we've already delivered 59 million dollars and that's found in one of the slides in our presentation. Well there is a positive effect there on that front.
Speaker Change: That's four rear grinders to school.
Enrique: The units are already working at 100% again.
Enrique: We did have approximately one month of downtime.
Enrique: And that does, in accounting terms, that has approximately $30 million in cost, fixed cost, that we incurred without any production. We maintained that fixed cost in spite of having no production.
Enrique: ja might be
Enrique: And we have resumed the operation already.
Speaker Change: deal that
Speaker Change: Now, what did we lose?
Speaker Change: We lost very little polymer sales because we weren't able to...
Speaker Change: supply from other plants in the country. And as far as chemical sales, we did lose out the entire center, the entire region.
Speaker Change: stocked and fuel also there was a regional stockage there as well. Now our clients are making up for lost time right now so they're rebuilding their inventory. So part of the impact that we saw
Enrique: and recently has been made up in July , so it's being made up for to some extent.
Enrique: train.
Enrique: As for infrastructure...
Enrique: What's still pending is, I would say that the port has gone back, come back into operation.
Enrique: So, the, uh, the...
Speaker Change: The flow of sea transport has been almost fully resumed.
Enrique: As far as roads...
Enrique: there's
Enrique: Some...
Enrique: film.
Enrique: tmer
Speaker Change: Corrections there, that reconstruction is going to take a little bit longer. As far as ethanol and green ethane, we did have a rail operation that was pending, and it was affected. We believe it should be normalized within the next two to three months, the rail situation. But for the time being...
Speaker Change: We're seeing some impact in the ethanol supply for the South, which has been generating some additional costs, as well as some reduction in volumes. So today, overall, the main impact that still remains is ethanol for the production of green polyethylene.
Speaker Change: We have resumed production, but we would like to produce at a bigger volume.
Speaker Change: All right. Thank you, Pedro. Thank you.
Speaker Change: Our next question comes from Anne Milne from Bank of America.
Speaker Change: And please, you may proceed.
Anne Milne: Okay, good morning. I had to unmute myself.
Anne Milne: Good morning, Pedro, Rosana, and Roberto. Thank you very much for the call. I was just hoping you could provide an update on the global supply and demand dynamics of capacity.
Speaker Change: and what you might be seeing from China in particular and any other region, Middle East perhaps.
Speaker Change: Are you seeing any capacity being shut down in any of the divisions or new plants coming online and maybe what indicators you're monitoring so that we could see that?
Speaker Change: And the second question is really just, if you could just give us an update, is the Kuwait Investment Authority still continuing to do due diligence on the company, and is there any indication of other players who might be interested? Thank you very much.
Speaker Change: Hi Anne, very good to hear from you. I'll translate the question in Portuguese and then I'll answer in Portuguese, okay?
Speaker Change: I will first translate the question for everyone and then I will answer in Portuguese.
Speaker Change: didnn't t
Speaker Change: So, the question is...
Speaker Change: In our opinion, what is the global dynamic for supply and demand for products?
Speaker Change: especially when we look at China and the Middle East and any other regions where we see relevant changes in that sense.
Speaker Change: And, also, what do we see for closing out capacity for new plants, as well as other indicators that we are monitoring as far as plant events.
Speaker Change: And her second question has to do with sales.
Speaker Change: or the company from Kuwait.
Speaker Change: and any other topics. I'll answer the second question first because it's shorter. We do not have another company. That Kuwaiti company is still in the due diligence process.
Speaker Change: Okay.
Speaker Change: st
Speaker Change: Anyway, today it's the only company we are conducting that process with.
Speaker Change: Thank you.
Speaker Change: And it is still ongoing. It has not ended.
Anne Milne: into your
Anne Milne: Now, back to the first question about supply and demand.
Anne Milne: Braskem
Anne Milne: In polyethylene, we see new capacity coming in. It's more relevant than what happened up to the last year.
Anne Milne: This year I would say that we have a bit more balance in polyethylene between supply and demand.
Anne Milne: And in polypropylene, we see more capacity coming in, especially in China, up until next year.
Speaker Change: Still, my head's on.
Speaker Change: Now let's go back.
Anne Milne: So there is a reduction in new capacity, and as demand for polyethylene grows, we are already looking at balance at a global level, it's still pretty low.
Anne Milne: But in polypropylene, we do think there are new capacities that are going to come in before next year.
Speaker Change: i can do with
Anne Milne: this
Anne Milne: Now, when we look at how the industry is responding to that scenario,
Anne Milne: just go so
Anne Milne: We see a lot of discussion between the players.
Anne Milne: is
Anne Milne: talking about competitiveness.
Anne Milne: and also reviewing their industrial assets. Many players are doing that.
Anne Milne: Cheerful out now.
Anne Milne: Earlier in the year, I was in Asia, so lots of discussion in Japan about assets. In Korea, we see the early stages of a discussion. It's still slower, but it does exist. And another...
Anne Milne: this
Speaker Change: Another line that has been closed and perhaps with no forecast for coming back into operation in Singapore Shell sold their refinery that is linked to the cracker
Anne Milne: to another player. We don't yet know how that'll behave looking forward. But we see low operation rates. The information we have for China is that the mean operation rate is lower than 70%.
Anne Milne: The.
Anne Milne: So we see strong actions by the players to reduce offers on the market.
Speaker Change: We saw SABEC, Exxon, now Basel as well, reduced their asset production in Europe . So we see reduction in the players in that sense.
Speaker Change: Shorter
Speaker Change: So the indicators that we look at, of course, the buy and demand for the product, and the announcements made by the players, what they've been saying, what they've been...
Anne Milne: publishing and we also look at the expectation for capacity around the world.
Anne Milne: Bye.
Anne Milne: We do still see global rates around 80% in PENPP for some time to come. It's a slow recovery starting...
Anne Milne: going up until next year. In PE, a little bit more...
Anne Milne: PP as well, but a little bit slower, so
Anne Milne: Might have to do.
Anne Milne: Currently, we are not seeing faster recovery because...
Anne Milne: We don't yet have all the effects, all the factors in increased production yet. In production rationalization, we should say.
Anne Milne: But we don't yet know
Anne Milne: where it's going to come from or from whom.
Anne Milne: We think it's going to come from Asia, but we can't say who exactly is going to do that.
Anne Milne: The spreads have stopped dropping. They are recovering at positive levels.
Anne Milne: So that's another positive indicator. Again, it's a slow recovery, but it is a positive indicator.
Anne Milne: And when we look at Braskem itself...
Anne Milne: We put one of our PP lines into hibernation.
Speaker Change: one of the lines we have in Marcos Ruque. It was due to the lack of inputs. It's actually a very competitive plant when it comes to cost, but it lacked the efficient inputs to run both lines at 100%. So we decided to keep one line at 100% and
Speaker Change: pause the other one instead of, let's say, running both lines at 70 or 80 percent.
Speaker Change: Question being.
Speaker Change: all them each
Speaker Change: All units, that's enough.
Speaker Change: and try it. Bye.
Speaker Change: Of course, looking at the NAFTA basis of ours, we do have discussions about the competitiveness of the industry and operations in Brazil.
Anne Milne: yeah
Anne Milne: We see some players announcing the closure of some capacity in Brazil.
Anne Milne: We do look at that. It's not something that we currently have in the short-term have any perspective for doing as a result of cost.
Speaker Change: no cour to
Anne Milne: again in the short term.
Anne Milne: But this is an analysis of the type that we do perform in order to see whether it will lead to that decision at any given point.
Anne Milne: This type of a decision is going to strongly depend on demand growth. Brazil has seen interesting demand growth, as well as the rationalization of some other players.
Anne Milne: Thank you very much.
Speaker Change: with a big ad.
Speaker Change: Our next question comes from Gabriel Barra from Citi.
Speaker Change: Gabriel, please, you may proceed.
Speaker Change: peoplewhat
Gabriel Barra: Hi everyone.
Speaker Change: Good afternoon.
Speaker Change: I have two questions I want to mention on the topic of capacity.
Speaker Change: Follow
Speaker Change: I was thinking about what Roberto said
Speaker Change: most of
Speaker Change: and especially his interview talking about competition here.
Speaker Change: especially in terms of import costs and competition with imports.
Speaker Change: So, could you please comment or add to your answer, in that sense, or put it into context?
Speaker Change: compared to what was mentioned in the beginning when you talked about import prices. Is that likely to have an impact, and if so, how on the company's capacity and what is the timeline likely to be for that discussion?
Speaker Change: And also, what about values? How would that influence the company moving forward?
Speaker Change: a face
Speaker Change: spo
Speaker Change: The second question, I remember in our last conference call, there was a lot of discussion about cash generation for this year, and unless I'm mistaken...
Speaker Change: I think this year we should think about a neutral cash flow, and for next year we should think about positive cash generation, looking at the improved spreads and perspectives. So I'd like to get your opinion about whether we can still...
Speaker Change: Keep those thoughts in mind.
Speaker Change: And putting into perspective the drop in forex exchange prices, the depreciation in forex.
Speaker Change: [inaudible]
Speaker Change: youknow
Speaker Change: Is there likely to be an improvement in that perspective when it comes to cash generation?
Speaker Change: yeah
Speaker Change: So that's what we're going to do.
Speaker Change: Looking at the rationalization all around the world and what that means for imports here in Brazil
Speaker Change: will because
Speaker Change: I'd say that what we have today,
Speaker Change: Braskem
Speaker Change: First, there is a recurring analysis and the decision to choose the rates, they do come from a contribution margin. So we don't have a contribution margin.
Speaker Change: Introduction
Speaker Change: then we do not produce.
Speaker Change: We only produce when we have a positive contribution margin.
Speaker Change: A variable winning.
Speaker Change: And there is a second level of analysis that involves fixed costs for capex and cash flow per asset. That analysis is a lot more complex.
Speaker Change: [inaudible]
Speaker Change: It is not a recurring analysis that looks...
Speaker Change: at every month, but to date, that analysis has been indicating that the assets we have generate positive cash. Some more, others less, but it is the type of analysis that we perform.
Speaker Change: and the effect of the use process.
Speaker Change: when we think about that type of a discussion.
Speaker Change: What that indicates...
Speaker Change: as far as tightening the spreads.
Speaker Change: is that possibly some specific assets
Speaker Change: May be generating negative cash, but that's a very
Speaker Change: When we look at the Sao Paulo site, the Rio Grande do Sul,
Speaker Change: site, or the Bahia site, they all have positive...
Speaker Change: results, but within a specific site, some may have, some lines may have negative production. So we do look at that, but any discussion about rationalization is a long-term
Speaker Change: analysis.
Speaker Change: So, in the scope of our discussion with the government, and that also involves looking at imports, and...
Speaker Change: defense mechanisms.
Speaker Change: I'm sorry, I'm sorry.
Speaker Change: Our analysis of the imports is...
Speaker Change: is that it's fleeting, the low, the lack of competitiveness in Brazil does not only apply to us.
Speaker Change: Precise at your mother
Speaker Change: So, it's more, it's a specific thing that requires an acute intervention in industrial protection policies in the short term, whether that's in commercial defense or in incentives.
Speaker Change: incentives for the petrochemical industry. And these are topics that Abikim has been frequently and strongly bringing to the federal government, as well as the development of a long-term program. And that's something we do already see in many countries around the world, both those things.
Speaker Change: both the increase in commercial defense barriers and also the country moving toward an energy transition decarbonization and improving their product portfolio.
Speaker Change: So we have been bringing those two pillars to the government in discussion. In the shorter term...
Speaker Change: strengthening the discussion of defense mechanisms in the short term as well and looking at the medium and long term a Restructuring program to restructure the petrochemical industry and that's more structural and long-term strategy
Speaker Change: So in the first, the former, there is the anti-dumping dynamic I mentioned, import taxes that we are discussing with the federal government.
Speaker Change: There is the rate as well.
Speaker Change: and strengthening the rake.
Speaker Change: to levels that it has already been at in the past, and more structurally in the long term. That means investments in new renewable plants, and Brazil does have that strategy, and it makes...
Speaker Change: total sun to convert part of our fossil base into renewable energy.
Speaker Change: We also have investments in energy efficiency and also new capacities when we look at the pre-salt and ethane, for instance, in pre-salt we can double or even expand the Duque de Caxias unit.
Speaker Change: So there are structural discussions as well that involves inputs from the pre-salt as well as converting part of the production into renewables.
Speaker Change: That requires investment. The current state we're at in cash and leverage, in the point we are at in the cycle, if we don't have support from the government to promote that transformation, it's going to take a lot longer.
Speaker Change: So, we are focusing strongly on those two pillars for the short term.
Speaker Change: Looking at investments in protection.
Speaker Change: and in the long term restructuring the production in the country, it makes total sense for it to happen. What we really need is the political will for that to occur. And we do see other countries doing that. We see it in the US, Europe , Japan.
Speaker Change: And I could actually mention many other countries that are all coming on board into that plan. But right now we're looking at the specific vocation that Brazil has in renewables. It is very strong.
Speaker Change: So
Speaker Change: It's almost a sure thing, I should say.
Speaker Change: Now as for 2034 our forecast was to have neutral cash generation except for the state of Alagoas. Alagoas consumes cash this year. The obligations we have in Alagoas
Speaker Change: It's important to highlight that. And there's also an investment in cash. It's Braskem Edesa, not Braskem, but the Mexico terminal is also...
Speaker Change: It also has contributions from Braskem Idessa to build that terminal. And that's going to come from the funding that was built up there. I should highlight that without Alagoas.
Speaker Change: If we exclude Alagoas, this quarter did have positive cash generation in our operations.
Speaker Change: Braskem Braskem Braskem Braskem
Speaker Change: For 2025, of course, it does depend on the recovery of our spreads, but our outlook is that it should be a little bit better than 2024 in that sense.
Speaker Change: But there's still a lot of uncertainty when it comes to 25. There's been lots of internal discussions here at the company. When we look at TE,
Speaker Change: and incoming capacity for PP. What does that mean for the 25 scenario? Right now, we are beginning our discussions about the...
Speaker Change: five-year long-term Scenario that's going to occur in the coming months. So we will soon have a clearer outlook for 2025
Speaker Change: om
Speaker Change: And with regard to forex and oil, it's hard to say still.
Speaker Change: There may be an impact. On the one hand the drop in oil removes working capital from the operation and the opposite is also true. Our target is still to reach 100 million dollars in working capital recovery. We've currently hit 59.
Speaker Change: But as far as that balance goes, we still need to understand how that's going to occur. Remember that devalued, lower for improved, are a bit in dollars, but it increases our financial expenditures in BRL.
Speaker Change: So there is a two-pronged effect.
Speaker Change: There's an impact both in dollars and in BRL.
Speaker Change: in different indicators.
Speaker Change: on both sides of the equation.
Speaker Change: All right Pedro, thank you.
Speaker Change: It'll go
Speaker Change: Our next question comes from Luiz Carvalho from UBS. Luiz, please you may proceed.
Speaker Change: Love you. Peace.
Speaker Change: shef
Luiz Carvalho: Hello, Dishal, Pedro, Rosana. Thanks for taking my question and kudos for your work during this very challenging past few months in the industry.
Luiz Carvalho: The question is for Pedro. I'd like to get a bit more depth on this topic because when we look at 25, as you mentioned, we have the elections in the U.S. coming up.
Speaker Change: [inaudible]
Speaker Change: Over the past week, we've had, let's say, some fears in the market.
Speaker Change: about a
Speaker Change: potential recession, economic recession, globally.
Speaker Change: And I'd like to understand a little bit about what your thoughts are as far as the company goes.
Speaker Change: Thinking about a scenario that is, let's consider a more challenging scenario for the industry. Let's say we don't see spread recovering in 25.
Speaker Change: In that case, how would you prepare for a scenario that is even longer, involving spreads
Speaker Change: that are at more compressed, more strongly compressed levels, whether it's liability management or closing capacity. What kinds of exercises are you running?
Speaker Change: What simulations are you running? And the second question, and maybe you can combine both things, what do you see in terms of feedstock and capacity being rationalized abroad with regard to feedstock?
Speaker Change: So, talking about naphtha, methane,
Speaker Change: And if you could follow up on your last comment about the availability of gas here in Brazil. And of course we invariably discuss that with Abikim.
Speaker Change: Let's say various different parts of the industry are clamoring for cheaper gas prices. But we see appetite from major consumers in assuming long-term contracts.
Speaker Change: even at prices that are linked to international references.
Speaker Change: you get with people.
Speaker Change: And we see a gap, let's say, in the oil and gas producers and the risk of building infrastructure without having guaranteed demand. So, what do you think about the petrochemical industry's behavior?
Speaker Change: and also about sidestepping, perhaps, to complement the gas market.
Speaker Change: yeah
Luis: Hello, Luis.
Luis: All right
Speaker Change: assic
Speaker Change: The international scenario...
Speaker Change: that discussion.
Speaker Change: Touches on what I mentioned earlier about the scenario for next year and the discussion we've been having now about what our budget outlook is
Speaker Change: for next year.
Speaker Change: and the start of the cycle. We are looking at alternative scenarios.
Speaker Change: that are exactly in that line, U.S. for instance, that may result in more protectionism or less. If it's more protectionism, there will be a bigger impact on our U.S. operations.
Speaker Change: And this holds true around the world. If the world becomes more protectionist...
Speaker Change: than our local operations. We do have flows between countries but most of our sales are local sales in the different markets where we operate. So that reinforces competitiveness and capacity for the operations that we have locally at different countries.
Speaker Change: Conversely, a recession will reduce demand.
Speaker Change: or it will at least reduce the growth of demand and
Speaker Change: That equation, this fine-amount equation I mentioned, may be worse than a baseline scenario.
Speaker Change: that con see
Speaker Change: In our scenarios, we are already considering lower growth worldwide. We've been doing that since last year.
Speaker Change: know
Speaker Change: There, it would need to be a very strong recession in order to have a negative impact on our forecast.
Speaker Change: Everything we've been doing, all the forecasts and scenarios we've been working on since last year, already consider, they do already consider a lower scenario, a lower level around the world.
Speaker Change #100: So everything Rosanna mentioned with reduction in fixed costs, reduction in CapEx and working capital, other asset monetization strategies, all of that.
Speaker Change: ends up being wrapped into our process, our preparation process, which started over a year ago, well over a year ago, so I would say it is already ongoing.
Speaker Change: Sometimes, of course, a new idea will arise. Oh, we could do this or that. And then we implement that. We are changing some operating parameters.
Speaker Change: some business assumptions that we have. We are reassessing and sometimes we have new cost opportunities.
Speaker Change: money
Speaker Change: We have been...
Speaker Change: striving to talk to our vendors and suppliers much more closely, whether that means
Speaker Change: reviewing and revising contracts, which will improve our costs, but also working on different technologies and new ways for them to provide services for us, which again will be interesting for our side of the contract.
Speaker Change #110: So, but we don't have a specific.
Speaker Change: actions in mind. We have hundreds of tiny different actions, as Rosanna mentioned a few, and every new idea that comes in gets put into the treadmill to for us to put it into work.
Speaker Change: Thank you very much.
Speaker Change: As for NAFTA, as you mentioned, there's also coal in China, but I would say that is primarily NAFTA.
Speaker Change: Correlation
Speaker Change: But as you
Speaker Change: As for natural gas in Brazil,
Speaker Change: We always talk about natural gas, but it's important to separate natural gas from ethane. Ethane is a fraction of natural gas.
Speaker Change: Sometimes people say, actually say gas, broadly. There are some industries that consume methane gas, that's the standard cooking gas that we have here in Brazil.
Speaker Change: as inputs. What we consume is ethane, that is not cooking gas.
Speaker Change: That is a fraction of what we consume.
Speaker Change: So for us, natural gas?
Speaker Change: It means energy. We burn it to produce energy and steam.
Speaker Change: So that is an important distinction because when you talk to Abiquen...
Speaker Change: They talk about everything at the same time, and they use the word gas broadly.
Speaker Change: However, in the case of Braskem,
Speaker Change: We constantly assess...
Speaker Change #108: Gas for energy? Methane?
Speaker Change: That is something we always assess for opportunities. We do have shorter-term and longer-term contracts. We're always discussing...
Speaker Change: with different producers.
Speaker Change: in attempts to make that gas more competitive and more available for the industry.
Speaker Change: We do believe there are regulatory developments that are important for the country that are yet to occur that will mean reductions in those costs. Just to give you an idea, in the U.S. gas delivered to the address physically
Speaker Change: It's two, two dollars per barbecue.
Speaker Change: Here in Brazil that value is 14.
Speaker Change #125: Braskem [inaudible]
Speaker Change: The Brazilian costs are sevenfold in the U.S. So there's definitely, without a doubt, opportunities to improve competitiveness here.
Speaker Change: And for other players, that's going to mean drops in input. That's part and parcel of having a strong petrochemical industry in the country.
Speaker Change: country. Now for us, in addition to all of that, we also have ethane. And that also comes into the topic of regulating the ethane market.
Speaker Change: We have countries where players are required to remove ethane from gas. Or countries where conditions actually mean that that happens. In the U.S. that's very clear, but in the Middle East...
Speaker Change: oh
Speaker Change: They could burn ethane or energy, but they remove ethane from the street gas and
Speaker Change #117: They sometimes even apply a discount to the price of the gas that they sell.
Speaker Change: one
Speaker Change: Here in Brazil, we had a change in the ANP, National Regulations.
Speaker Change #101: That volume was limited to 12%. We think it should be lower. We think ethane should be removed from gas more strongly, but the ANP defined 12% ethane.
Speaker Change: as their level, but there's more ethane yet to be removed.
Speaker Change: from that overall gas volume, and that's likely to mean more inputs, but that will require investments into ethane extraction plants.
Speaker Change: And as more locations are made available along the shore...
Speaker Change: I think we're going to have improvements. The expansion in Rio de Janeiro that we've been discussing for very, very long...
Speaker Change: and that we believe is going to be very positive for the country, and that will add value to the input, is something we believe has the potential to occur and it becomes easier with that regulation.
Speaker Change: i got
Speaker Change: But, it's not yet a given because that volume now needs to be extracted from the overall gas volume and made available for the industry.
Speaker Change: All right, that's very clear, Pedro. Thank you.
Speaker Change #112: Our next question comes from Phil Moez from Schroeders. Please, you may proceed.
Phil Moez: Hello, thanks for taking my question. I'd like to dive in on the topic of ethane.
Phil Moez: a little bit more.
Phil Moez: I'm looking at the Monvio benchmark price here and it seems to be plunging quarter to date.
Speaker Change: to $30.50 per gallon.
Speaker Change: besides the escalation in the Middle East that
Speaker Change #103: limits the competitiveness of exports. Are there any other deflationary factors that you're looking at that impact the price of ethane? And what do you assume for ethane prices in the third quarter and fourth quarter of this year?
Speaker Change #115: Hi Till, thank you. Like I did with Anne, I'm going to translate the question and then...
Till: answering Portuguese, okay?
Speaker Change #115: Till's question is with regard to ethane. He sees the price of ethane drop very strongly in the U.S. market.
Speaker Change #104: And that is true, it's at $88 per ton or 30 cents per gallon.
Speaker Change: So, in fact, it is an expressive drop in the price of ethane. And this represents competitiveness. And so his question is, how do we see that scenario for the future, especially considering the
Speaker Change: recession serum. So what do we think about Q3 and Q4 for those prices?
Speaker Change #119: Give me a run out.
Speaker Change #119: so
Speaker Change: First
Speaker Change #126: The price of ethane in the U.S. is strongly linked to the price of natural gas. And there's a lot of natural gas production in the U.S.
Speaker Change: So, that ends up creating a very strong offer, a very strong supply of ethane, because natural gas supply grows.
Speaker Change: The U.S. is exporting more and more natural gas, and that means more ethane is available.
Speaker Change: that does exist in the U.S. but there are logistical bottlenecks.
Speaker Change #104: There are new terminals that are being built, but until they are ready, we think the price of ethane is still going to be strongly linked to the price of natural gas in the United States.
Speaker Change #119: Looking now at Q3 and Q4, on average it's $130 per ton, which is approximately a 50-fold increase.
Speaker Change #104: compared to what we have today, but it's still a very low level.
Speaker Change #104: If we look at NAFTA, it's $600. So we're looking at a competitiveness difference in $500 per ton in inputs.
Speaker Change #104: For the second half of the year, we think $130 per ton.
Speaker Change: which is roughly 50% higher than the level it is currently at today.
Speaker Change: And we think it's going to remain at this lower level until our new export capacities increase.
Speaker Change: And there's also, in fact, from the Panama Channel.
Speaker Change #107: I think you've all been following the Panama Channel level. The very low water levels there limits the passage of ships.
Speaker Change #115: So ethane exports from the U.S. to Asia are now more strongly limited. So that means more accumulation of ethane in the Gulf of Mexico and consequently lower prices.
Speaker Change #126: All right, thank you very much.
Speaker Change #107: We now conclude the question and answer session.
Speaker Change #107: path
Speaker Change: What
Speaker Change #111: Hello, good afternoon everyone I would like to thank you
Speaker Change #108: I'd like to thank everyone for being here at our earnings call, and I'd like to conclude with a few remarks.
Speaker Change #108: NOS TIVEMOS
Speaker Change #108: As far as our results...
Speaker Change #108: As Pedro mentioned, we had a quarter that had better results when compared with the last few quarterly results here at the company.
Pedro Rozanna: especially when we look at Ibiza.
Speaker Change: major
Speaker Change #112: I see these improved results as a combination of three main factors.
Speaker Change: Okay.
Speaker Change: None of them are very strongly structural.
Speaker Change: The first one is linked to the foreign scenario, where we see better spreads.
Speaker Change: abroad internationally, but still clearly lower than expected and that's due to the lack of rationalization at relevant levels by the industry, but there's still a imbalance
Speaker Change: between supply and demand that is very clearly present.
Speaker Change: The second one, which for the past few quarters has been mentioned in our report, is linked to the financial preservation initiatives.
Speaker Change: which, in the year to date, have already added up to something in the order of $300 million, and that includes the impacts both of EBITDA and cash flow.
Speaker Change: compart
Speaker Change: And we have regularly shared those results with you.
Speaker Change: The third and last one...
Speaker Change: the no
Speaker Change #115: Thank you.
Speaker Change #115: This one is related to the profile of our production capacity, especially in Brazil.
Speaker Change #115: which despite the weather event in southern Brazil and Rio Grande do Sul
Speaker Change #115: we were able to leverage one of our strategic competitive advantages which is the geographical diversity of our petrochemical centers.
Speaker Change: which has allowed us to respond to an emergency
Speaker Change: which did lead to a very significant drop in production and the results were felt at different other centers and this allowed us to become a better player, especially in the resin market.
Speaker Change #129: you can't wecomm
Speaker Change: don
Speaker Change: In any case, I'd like to conclude by making a comment about the Brazilian chemical industry overall, which still suffers
Speaker Change: from issues linked to input competitiveness, and that's something we discussed at length today.
Speaker Change: to tri e e
Speaker Change: Infrastructure and also productivity.
Speaker Change: few
Speaker Change: And this, as a result, has been reflected in usage rates of the installed capacity that the Brazilian industry has.
Speaker Change: Messianum
Speaker Change: So usage of installed capacity. In the first quarter of this year usage of installed capacity by the Brazilian chemical industry was
Speaker Change #106: at 63%, as low as 63%, which is the worst level seen in the past 18 months according to a report prepared by Abbey Kim.
Speaker Change #110: If we look specifically at the month of May, that number was even lower. It dropped as low as 59%.
Speaker Change #106: In this scenario, it is important to highlight the need to have a broader industrial policy.
Speaker Change #106: and one that seeks to strengthen the chemical and petrochemical and also the plastics.
Speaker Change: as a way of mitigating the effects of increased competitivity,
Speaker Change: Uh
Speaker Change: competitiveness from abroad. If we look at the current scenario where we have significant overcapacity.
Speaker Change #110: Lastly, I'd like to thank all of you once again for the trust you have in us, for taking part in our call, and we look forward to seeing you all in November when we publish the results for our third quarter. Have a great afternoon, everyone, and see you in a few months.
Speaker Change #112: Braskem
Speaker Change: Can you say?
Speaker Change #130: Braskem's video conference is now complete. We'd like to thank everyone for being with us and have a great afternoon.