Braskem SA, Latin America’s largest petrochemicals maker, is poised to be the industry’s biggest earnings disappointment in the Americas this year as analysts slash estimates amid slowing growth and stiffer competition.
Estimated full-year earnings before interest, taxes, depreciation and amortization, or Ebitda, were cut by 17 percent in the past three months to 3.4 billion reais ($1.7 billion), according to data compiled by Bloomberg. Vancouver-based Methanex Corp.’s 9.2 percent cut was the second-largest among chemicals companies with a market value of at least $2 billion.
Slowing growth in Brazil, the world’s second-largest emerging market, is paring demand for resins used to make plastic for packaging and auto parts. Braskem, which uses oil- derived naphtha to make its resins, is also facing rising competition as U.S. rivals cut costs by using cheaper shale gas as their main raw material, Braskem (BRKM5) Chief Financial Officer Marcela Drehmer said.
“Most analysts were too aggressive on their Ebitda estimates because they were more optimistic about economic growth in Brazil,” Drehmer said in a July 11 telephone interview from the company’s headquarters in Sao Paulo, adding that Braskem aims to cut its dependence on naphtha in coming years. “Shale gas is a game changer,” she said.
Braskem rose 2.7 percent to 12.24 reais at 11:55 a.m. in Sao Paulo trading, the most intraday since July 4. Shares have dropped 5.4 percent this year. DuPont Co., the largest chemicals producer in the Americas by market value, has gained 3.4 percent this year.
The U.S. chemical industry is building factories to take advantage of low-cost natural gas, KPMG LLC said June 27. Dow Chemical Co. (DOW:US) and other producers may spend $25 billion on new and expanded factories that convert ethane and other natural gas liquids into chemical building blocks and plastics, KPMG said.
Brazil’s central bank has lowered borrowing costs by 4.5 percentage points since August to revive an economy that expanded an annualized 0.8 percent in the first quarter, less than half the pace of the U.S., as global demand for its raw- material slows.
Economists surveyed by Brazil’s central bank have cut their forecast for the country’s economic growth this year for nine weeks running to 2 percent.
Brazil’s real tumbled 9.1 percent in the second quarter, the biggest drop among emerging-market currencies after the Russian ruble’s 9.5 percent drop. The country’s benchmark stock index slumped 16 percent in the same three-month period.
Braskem shares have lost 3.9 percent since April 27, 2010, when the company bought Quattor Participacoes SA, Brazil’s second-biggest petrochemical maker at the time. In the same period the MSCI World Chemicals Index rose 13 percent.
“The stock is under pressure in the short term but there are good fundamentals,” Nataniel Cezimbra, an analyst with Banco do Brasil SA, said by telephone July 11 from Sao Paulo. “Braskem has decided to invest outside Brazil and I see them reaping profits in the future as synergy gains will mount.”
The company plans to build a $2.5 billion complex in Mexico with Grupo Idesa SA and wants to develop a $3 billion plant in Peru in a venture with Petroperu SA. In September 2011, Braskem paid $323 million for Dow’s polypropylene assets in the U.S. and Germany after buying plants from Philadelphia-based Sunoco Inc. for $350 million. Braskem will decide whether to build a plant in the U.S. before the end of this year, Chief Executive Officer Carlos Fadigas said June 19.
Brent oil for August settlement climbed 0.8 percent to end the session yesterday at $101.07 a barrel on the London-based ICE Futures Europe exchange. It was the highest settle since May 31 and reduced this year’s decline to 5.9 percent.
Oil rose 13 percent last year amid the so-called Arab Spring, which saw uprisings topple leaders in Egypt, Tunisia, Libya and Yemen and an armed conflict in Syria.
“The petrochemicals are very dependent on economic growth,” Luiz Otavio Broad, an analyst with Agora Corretora, said in a July 11 telephone interview from Rio de Janeiro. “Brazil is set to have weak growth for this year. Despite the more recent decline, oil prices remain historically high, squeezing margins for Braskem.”
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