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Braskem Earnings Show Signs Of Brazil Recovery

Posted on September 12th, 2016 by in Chemical R&D

Brazil recovery_1

Braskem’s second-quarter domestic resin sales show signs that the nation’s economy is beginning to recover from its worst recession in decades. 

The country’s GDP began shrinking in the second quarter of 2014, when it contracted by 0.8% year on year. GDP has been falling ever since, with the latest figures showing a 5.4% decline in the first quarter.

Brazil GDP


Quarter on quarter, however, GDP shank by just 0.3%, the smallest amount among five consecutive quarter-on-quarter declines.

Other signs also point to improvement. Brazil’s major stock index, the Ibovespa, closed on 4 August at a 52-week high of nearly 57,600. At the end of January, it was below 38,000. The Brazilian real has also strengthened to reais (R)3.21 to the dollar. It was at R4.16 at the start of the year.

Braskem itself said that first-quarter consumer and business confidence was better than expected. These indicators have likely bottomed out.

Braskem’s second-quarter earnings indicate that the momentum has continued. Domestic sales for all three of its resins rose both year on year and quarter on quarter.

For polyethylene (PE), domestic sales rose 11.5% quarter on quarter and 9% year on year. Polypropylene (PP) was up 2.6% quarter on quarter and 1.9% year on year. Polyvinyl chloride (PVC) was up 11.0% quarter on quarter and 9.4% year on year.

While seasonality played a role in the quarter-on-quarter growth in domestic PE and PP sales, the year-on-year growth reflected increased demand in Brazil, Braskem said.

For PVC, domestic sales rose because Braskem increased its efforts to market the material domestically, the company said.

The following chart shows Braskem’s domestic sales for the three polymers over the past several quarters.

Braskem Domestic Resins Sales


The company is still exporting large amounts of PE and PP – the real is still weak, making exports extremely attractive. However, Braskem’s exports of PVC have fallen sharply quarter on quarter, by nearly 21%.

This is telling because Braskem has only recently started exporting PVC in large quantities. For years, Braskem exported little – if any – PVC because domestic demand was sufficient to absorb the company’s production.

That began to change in the second quarter of 2015, in response to the decline in domestic demand. That quarter, PVC exports reached 3,187 tonnes. In Q3 205, they jumped to 48,738 tonnes.

The following chart shows Braskem’s PVC exports.

Braskem PVC Exports


Part of Brazil’s improvement reflects the recovery in commodity prices. It also reflects the optimism that greeted the impeachment proceedings against President Dilma Rousseff. During her presidency, she had been criticised for arbitrarily meddling in the economy without addressing the long-standing structural problems that have held back GDP growth.

Rousseff has been suspended from the presidency since mid-May, following a vote by the Senate. Until her impeachment trial takes place, likely this month, her vice president, Michel Temer, has acted as the temporary head of state.

With Rousseff out of the picture, markets expected the Temer administration to push through reforms needed to turn around the economy – especially getting government spending under control.

None of this means the Brazilian economy is about to boom. Economists expect it will shrink by 3.24% this year. Growth in 2017 should be only 1.10%.

Braskem itself said conditions in Brazil remain challenging, despite what it said were better-than-expected economic statistics. Since GDP is still expected to contract this year, that will cause declines in investment, private consumption, the availability of credit, employment and income.

Braskem’s earnings came a day before the start of the Olympics in Rio de Janeiro. While few of the games’ spectators are likely to take notice of the quarterly earnings of a polyolefins producer, the results have provided some optimism for a country in a deep recession. It still has a long way to go.

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All opinions shared in this post are the author’s own.

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