Braskem Pushes Ahead with U.S. Polypropylene Plant Project, Boosts CAPEX

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Researched by Industrial Info Resources (Sugar Land, Texas)--Brazilian petrochemicals giant Braskem SA (NYSE:BAK) (Sao Paulo) has increased its planned capital expenditures (CAPEX) for 2018 as it continues construction of a 450,000-ton-per-year polypropylene (PP) production line in La Porte, Texas.

Braskem announced last week plans to invest R$2.872 billion (US$864.07 million) this year, up from R$2.3 billion (US$690 million) in 2017. Most of the amount will be used for maintenance investments and improvements for its Brazilian facilities, along with operational improvements in the U.S. and Europe, but R$885 million (US$265 million) is earmarked for strategic growth projects, such as the La Porte project, Braskem executives said in an earnings conference call.

Industrial Info is tracking 16 active Braskem capital projects worth US$1.16 billion, including six U.S. projects worth US$738.5 million.

Braskem approved the PP production project at its 200-acre site in La Porte last year. For more information, see June 23, 2017, article - Braskem Advances Polypropylene Project Growth Strategy in U.S.

By the end of 2017, Braskem said it had already spent US$172 million on the US$675 million La Porte PP unit. Braskem executives said this year's investments will amount to 40% of the project's total investment.

W.R. Grace and Company (NYSE:GRA) (Columbia, Maryland) is the technology provider for the project, and Linde Engineering North America Incorporated (Houston, Texas) is performing the engineering, procurement and construction (EPC). Construction kicked off in fourth-quarter 2017 and is expected to be completed in the first half of 2020. For more information, see Industrial Info's project report.

Besides the La Porte project, a number of smaller U.S. projects are in planning or engineering. Braskem is evaluating the economics of a debottleneck at its 275,000-metric-ton-per-year Freeport facility in Texas, which is currently operating at 60% capacity. If the project moves forward, construction is tentatively expected to kick off in early 2019, with completion in mid-2019. For more information, see Industrial Info's project report.

During last week's earnings conference call, Chief Executive Officer Fernando Musa noted last year's completion of its ethane flexibility project at its Bahia cracker unit in Brazil, which allows up half the facility's feedstock to be ethane instead of naphtha.

The advent of less expensive shale-derived ethane feedstock in the U.S. has led to a petrochemical building boom in parts of the U.S., but Musa said new chemical projects in the U.S. have become more expensive in recent years. If the U.S. project cost trend continues, petrochemical producers may resort to building less expensive crackers in other countries, he said.

"So we already start to hear news of ethane crackers being built in China with imported ethane, and the capital intensity in China is significantly lower than what you see in the U.S. Gulf Coast," Musa said. "So either the CAPEX cost in the U.S. will go back to a more reasonable level and the projects will be built in the U.S., or even [more] projects will be built in China, India or other places where capital intensity is slower and the feedstock will flow as the industry masters the ability to move ethane around the world."

For 2017, Braskem reported earnings before interest, taxes, depreciation and amortization (EBITDA) of US$3.8 billion, up 17% from 2016.

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