Outlook for Braskem

Outlook for Braskem

TIn April, the International Monetary Fund (IMF) released the latest version of its World Economic Outlook. According to the organization, the baseline projection for global growth in 2016 is a modest 3.2%, reaching 3.5% in 2017. 

Emerging countries should still represent the highest share of global growth in 2016, with projected growth of 4.1% this year, which is still 2 p.p. below the average of the last decade. The growth forecast reflects a combination of the following factors: (i) weak economic growth in oil-exporting countries; (ii) a moderate slowdown in China, from growth of 6.9% in 2015 to 6.5% in 2016; and (iii) a still-weak outlook for exporters of non-oil commodities, including in Latin America, following further price decline.

For developed countries, the IMF projects growth of 1.9% this year. In the United States, growth is projected to continue at a moderate pace, at 2.4% for 2016, supported by strengthening balance sheets and an improving housing market.

The euro zone should continue its modest recovery this year, with growth projected at 1.5%. The weakening external demand should be outweighed by the favorable effects of lower energy prices. According to the IMF, growth potential is expected to remain weak as a result of: (i) high private and public debt, (ii) low investment, and (iii) high unemployment. 

In Brazil, the expectation for 2016 is for the economy to perform as poorly as in 2015, with another year of negative GDP growth, of 3.8%. According to the IMF, recession continues to take its toll on employment and real incomes, while domestic uncertainties continue to constrain the government's ability to formulate and execute policies. Furthermore, the IMF believes GDP will turn positive at some point during 2017, supported by a stronger Brazilian real, though with GDP ending the year with zero growth.

In the petrochemical industry, the expectation is for spreads to remain at healthy levels in 2016. Some volatility is possible, especially in the Asian market, with the new PP capacities coming online in China, which is counterbalanced by a more positive scenario in the U.S. PP market. This scenario becomes more challenging after 2017, when a more relevant volume of gas-based PE capacities will come online in the United States.

In this context, Braskem's strategy continues to be based on (i) diversifying its feedstock and geographic profile; (ii) strengthening its relations with Clients; (iii) developing Brazil's petrochemical and plastics chain; (iv) capturing operating efficiency gains; (v) while maintaining the company's financial health and cost discipline.

Another important highlight was the commissioning of the Mexico Project, which incorporates important feedstock and geographic diversification into the Company's asset portfolio. Braskem has already reached an important milestone by producing the first lot of PE at the Mexico Petrochemical Complex. The milestone is part of the gradual ramp-up in the plant's commissioning that began in December 2015 with the startup of the utilities area, which was followed by the startup of the cracker in March this year. The complex's operations should ramp up gradually over the course of the year and more markedly in the second half of 2016.

In line with its strategy to cut expenses, Braskem will continue to implement its cost-cutting program, with potential recurring annual savings of R$400 million, whose benefits should be fully attained in 2017.

Lastly, Braskem maintains its commitment to sustainable growth and development and will continue to act proactively to pursue the best opportunities for creating value for its Clients, Shareholders and Society and for increasing competitiveness throughout the entire petrochemical and plastics production chain, while maintaining its focus on financial discipline.