Bloomberg Línea — At a time when it is the target of a dispute over its control and energy transition to become less pollutant, Brazilian petrochemical giant Braskem (BRKM5) is preparing to increase the supply of renewable raw materials, and recently completed a 30% expansion in capacity of its biopolymer plant in Triunfo, Rio Grande do Sul.
“The main growth avenues we have identified come from biopolymers and recycling,” Walmir Soller, Braskem’s vice president of olefins and polyolefins for Europe and Asia, in an interview with Bloomberg Línea.. “Almost 25% of our portfolio by 2030 will come from circular materials.”
Olefins are a class of chemicals made up of hydrogen and carbon with one or more pairs of carbon atoms linked by a double bond. They are used as raw materials for products such as plastics, detergents, and adhesives.
The expansion of the production capacity of so-called “green” ethylene - based on sugarcane ethanol - required an investment of $87 million. From ethylene, the petrochemical company produces polyethylene, used in a wide range of applications such as packaging, housewares and toys, among others.
According to analysts, the ability to produce “green” ethylene is one of the factors that help explain the interest of market players in controlling Braskem.
The Triunfo plant was conceived in mid-2007 and began operation in 2010, following the subprime crisis in the United States. Soller said that, at the time, there was not demand for the initial capacity of 200,000 tons production per year.
“In the post-Lehman Brothers sustainability agenda we faced difficulties, but over time it resumed. We gradually gained international markets, and today we are on all continents. We export to more than 30 countries,” Soller said.
Currently, the Rio Grande do Sul plant operates with a capacity of 260,000 tons per year, and the company’s goal is to reach a total production capacity of one million tons of biopolymers by 2030.
To this end, the plan includes possible new industrial plants outside Brazil.
The petrochemical company has signed a memorandum of understanding to build a production unit in Thailand with a production capacity of 200,000 tons of biopolymers. “The investment approval should occur next year. We want to grow in a smart way, with geographical positioning and minimizing the capital used,“ said Soller.
The group is also studying a plant for the production of polypropylene of biological origin in the United States, more focused on the automotive and homeware sectors.
“In addition to the Thailand project, we are evaluating an investment in the United States. As we look ahead, we will grow with the traditional polymer family, where our competitive condition is clear, with recycled materials and biopolymers,” he explained.
Depleted capacity and growing demand
Soller avoided making comparisons between biopolymers and resins produced from fossil fuels. “The products have the same performance and do not require new investments in equipment for their use. However, the customer who buys biopolymers does not want the fossil-fuel version, they want a lower carbon footprint,“ he said.
Braskem has developed the trademark ‘I’m Green’, which can be used on the packaging of customers who consume the product made from sugarcane ethanol.
“We had a significant growth in demand and exhausted the capacity of the [Triunfo] plant. For this reason two years ago we made the decision to expand,“ Soller said.
In a global market that seeks more sustainable alternatives, plastic has become one of the villains of the environment. Soller said that although the world faces an economic crisis, the scenario is different from that of 2010. In his view, the climate change agenda is here to stay.
“Europe is leading this movement, but the United States and Asian countries have also made a commitment to seek more sustainable alternatives. The pricing of the biopolymer line pays off our investment. We have an equation that allows Braskem to continue investing in this business,” he said.
Bioplastics are emerging as an alternative to traditional polymers amid the growing decarbonization movement in the world. In a segment of giants such as German company BASF and US company Arkema, the global market for bioplastics and biopolymers is estimated to be worth $17.1 billion by 2025, according to Global Industry Analysts.
Europe is expected to represent the largest regional market for bioplastics and biopolymers, with an estimated 35.2% share of the global total. However, China is expected to have the fastest growth in the period, the consultancy said.
Dispute over control of the company
Braskem’s investments in sustainable production are taking place in parallel with the dispute over its control, in the process the sale of the company’s stake in Novonor (formerly known as Odebrecht), and the discussion of the payment of compensation for environmental damage in Alagoas.
In the first case, there are three proposals on the table: one from US fund Apollo Global Management with Abu Dhabi National Oil (Adnoc), with a joint offer of 37.5 billion reais ($7.9 billion) made in May to acquire all the company’s shares; in June, Unipar Carbocloro proposed the purchase of a 34.4% stake in Novonor, which would maintain a minority slice, for 10 billion reais, and this month, J&F Investimentos, the holding company of the billionaire Batista family, proposed to pay also 10 billion reais for Braskem’s participation.
In the second case, Braskem informed the market on July 21 that it has entered into an agreement with the municipality of Maceió, in Alagoas, for payment of 1.7 billion reais related to the subsistence of the soil in part of the city as a result of the company’s projects. About 700 million reais ($148 million) of this amount had already been provisioned in previous years, according to the company.
In 2018, a seismic tremor resulting from the company’s rock salt extraction activity in the capital of Alagoas caused cracks and ground subsidence in five neighborhoods. More than 55,000 people had to be evacuated from their homes.
In a Citi report, analysts Gabriel Barra, Andrés Cardona and Joaquim Alves Atie said that the conclusion of the agreement “is another relevant step towards the resolution of the incident”. However, they pointed out that the company still has pending discussions “that are not fully provisioned” for such as, for example, with the state of Alagoas, and amounting to approximately 1.1 billion reais.
In June, the investment bank’s research team downgraded Braskem’s shares to “neutral/high risk” from “buy/high risk” previously, even as it saw an improvement in petrochemical spreads this year, with recovery expected over the next two years.
“Spreads are still under pressure and results for 2023 and 2024 do not support an additional upside to the investment thesis at this time,” the Citi analysts said.
