Tags: Braskem | BAK | DOW | materials

Brazil’s Braskem Bets on U.S. Plastics

By    |   Wednesday, 24 Aug 2011 11:27 AM

In this chilly economic climate, U.S. investors are flocking to Brazil’s hot economy for relief. But Brazilian companies are headed in the opposite direction. Faced with the appreciation of the local currency and tough competition at home, firms like petrochemical producer Braskem (BAK) are taking advantage of the strong real to expand internationally.

At the top of Braskem’s shopping list are polymer producers in the United States, the world’s largest thermoplastic resins market. In July, it announced plans to buy the polypropylene business of The Dow Chemical Company (DOW) for $323 million.

This will be Braskem’s second acquisition in the United States after buying the polypropylene business of U.S. petroleum and petrochemical manufacturer Sunoco (SUN) in 2010.

The deal is expected to close in the third quarter, pending regulatory approvals, making Braskem the largest producer in the United States of polypropylene — a versatile polymer used in food packaging, textiles, stationary, auto components, and other products.

Dow’s polypropylene business has total annual production capacity of 1.1 million tons, with two plants in Texas and two in Germany. The U.S. plants add up to 505,000 tons and will increase Braskem's polypropylene capacity by 50 percent.

The two plants in Germany have combined annual capacity of 545,000 tons.
The purchase will enable the firm to capture approximately $140 million in synergies through a more diversified portfolio and a more leveraged fixed cost base, said Braskem's CEO Carlos Fadigas when the acquisition was announced.

International diversification

Braskem, which is controlled by Brazil’s Odebrecht construction conglomerate, reported net income of $256 million in the second quarter, down 57 percent from a year earlier.

Gross revenues surged 29 percent year-on-year as a moderate recovery in sales volume and better prices partly compensated for higher raw material costs and the negative impact of the real’s appreciation on exports.

The company's second-quarter sales volume for polyethylene and polypropylene fell 5 percent in Brazil from a year earlier but rose 31 percent in foreign markets.

Braskem has raised prices for resin and other products despite having to compete with increased imports caused by the stronger real, which gained 15 percent in the 12 months through June.

Analysts were pleasantly surprised by the results. "We think Braskem should be one of the stocks benefiting most from the chemicals supercycle, given its high operating leverage," said Subhojit Daripa, an analyst at Morgan Stanley, in a note to clients.

In the event of a global economic slowdown, which could devalue the Brazilian currency in which most of the company's costs are denominated, Braskem may be better positioned than its competitors to weather the storm, said Daripa.

Most of the company’s revenues are still in Brazil but it is reducing its exposure to the real by diversifying markets. Since 2002, it has opened offices in the United States, Holland, Chile, Argentina, Venezuela and Colombia.

In May Braskem opened an office in Singapore, as Asia is expected to account for 60 percent of the petrochemical market by 2014.

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In this chilly economic climate, U.S. investors are flocking to Brazil s hot economy for relief. But Brazilian companies are headed in the opposite direction. Faced with the appreciation of the local currency and tough competition at home, firms like petrochemical producer...
Braskem,BAK,DOW,materials
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2011-27-24
Wednesday, 24 Aug 2011 11:27 AM
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