Petrochemical Industry

The Petrochemical Industry


The Petrochemical Industry is based on raw materials acquired from the energy industries, such as naphtha (derived from crude oil), natural gas liquids (extracted from natural gas) and coal.

Braskem has also developed a process based on ethanol, creating bio-based ethylene and green PE®.

  • The feedstock goes through a steam cracker, where numerous basic petrochemicals are produced
  • These chemicals are either sold to other petrochemical companies or, to create more value, go through a process of polymerization in which they become thermoplastic resins
  • Resins are sold to converters, that transform them into finished products ready to be sold to the market.


The Petrochemical Chain

Ethylene and propylene are the building blocks of the Petrochemical Chain.


Global Ethylene Ranking

The top 10 ethylene producers were responsible for ~50% of the global production.

Most of the Companies are integrated, either on the upstream, on the downstream or both.


Feedstock Breakdown and Co-Products Yield

  • Ethylene's cost to be produced (cash cost) changes depending on the co-products credits obtained when selling these chemicals
  • The Cash Cost also varies depending on the region on which the ethylene is produced


Pricing Mechanisms

  • Naphtha prices follow crude prices, but also changes with gasoline and ethylene demand:

  • Ethane prices are related to natural gas and ethylene demand:


Ethylene Cash Cost Curve

The ethylene price is set by the marginal producer, the one with the highest cash cost: usually smaller, older, naphtha-based plants located in Europe or Asia:

The PE price is set by the cost of ethylene + cost of polymerization + margin


Ethylene Cash Cost - History

The Cash Cost curve dynamics change throughout history:

  • After the Shale Gas revolution, ethane became the favored feedstock
  • When Shale Oil boosted U.S. crude production in the 2014-2015 period, naphtha-based ethylene became competitive once again


Propylene Cash Cost

The Propylene / PP cash cost works in a similiar way:

  • Propylene was mainly a co-product of ethylene production, without its own price setting mechanism
  • With more propylene demand and less co-products in the market, on-purpose propylene production has been increasing rapidly in the last years
  • This new environment shifted propylene price setting from ethylene economics to a marginal producer-based calculation
  • The marginal producer is the one with the highest cost: usually players in Asiao

The PP price is set by the cost of propylene + cost of polymerization + margin


Globa Trade

Price Setting mechanism in Brazil is set by the rule of Import Parity:

Although China is the largest resin importer in the World, other countries from Asia export a significant volume of product, influencing the price in regions such as South America. It is important to keep in mind that the arbitrages are dynamic and can change over time.


Cyclicality of the Industry

Investments in the petrochemical industry do not occur in a linear fashion with demand, which results in significant excesses of capacity at certain moments.

In the beginning of 2018, the Industry begins to enter the period of start-up of new capacities, especially ethane-based projects in the U.S. that were postponed and are now in the commissioning phase. These delays gave time for the demand to catch up with supply, therefore, the next downcycle shall be shorter than expected.

The next wave of new capacities is expected to come only after 2020.