Brazil Petrochemicals Report Q2 2008

Growth in the Brazilian petrochemicals industry will be sustained by increased capacity, consolidation and overseas expansion, with the inauguration of 2.25mn tonnes per annum (tpa) of polymer capacity by 2012, according to BMI's latest Brazil Petrochemicals Report.

Investment in the petrochemicals industry will see ethylene production capacity up 75% by 2012, compared to 2007 levels, fuelling growth in the polyolefins sector. In March 2008, Petrobras started construction of a US$8.4bn refinery to process heavy oil from the company's offshore fields. Once completed in 2012, the plant will be able to process 150,000 barrels per day (b/d) into ethane, benzene, butene and other raw materials for the petrochemicals industry at Itaborai, Complexo Petroquimico do Rio de Janeiro. The complex will have capacities of 800,000tpa of polyethylene (PE), 850,000tpa of polypropylene (PP) and 600,000tpa polyethylene terephthalate (PET).

Braskem is confident that its expansion into Venezuela will be successful, despite ExxonMobil's decision to quit the country due to Venezuela's nationalisation drive and high taxes. The US$3.52bn Complexo Petroquimico de Jose petrochemicals complex, includes a PP facility with a projected production capacity of 450,000tpa due to come online by end-2010 and an ethane cracker with production capacities of 1.3mn tpa of ethylene and 1.1mn tpa of PE, due to be operational by mid-2012. Venezuela has supplies of cheap, high-quality naphtha and abundant gas reserves, making it an ideal location for world-class petrochemicals operations that are capable of competing against Middle Eastern producers in the North American and European markets. The Venezuelan venture will be Braskem's first project outside Brazil and part of an international expansion for the largest petrochemicals company in Latin America.

Braskem expects the Brazilian market for thermoplastic resins to grow 8-10% in 2008, driven by demand from the construction, automobile and agribusiness sectors. Over the forecast period, BMI expects domestic demand growth to decline, although this will be offset by export growth. BMI believes polymer demand in Brazil should be 5.6mn tonnes in 2012.

Petrochemicals companies in Brazil will need to raise product prices to avoid adverse effects of rising feedstock on margins. The appreciation of the real against the US dollar is making imports cheaper, which will increase competition in the domestic petrochemicals market. Braskem and Suzano Petroquimica increased petrochemical product prices by 5-10% in 2007.