Braskem SA

BOVESPA:BRKM5

Earnings Call Transcript 2024-Q1

[Operator]

Good morning, and thank you for standing by. Welcome to Braskem's conference call to disclose the results related to the first quarter of 2024. With us here today, we have Mr. Roberto Bischoff, Braskem's CEO; Mr. Pedro Freitas, Braskem's CFO; and Ms. Rosana Avolio, Investor Relations, Strategic Planning and Corporate Market Intelligence Director. We would like to inform you that this event is being recorded. [Operator Instructions]. The audio of this event will be available on the Investor Relations website after it ends. [Operator Instructions]

Before proceeding, we would like to clarify that any statements that may be made during this conference call regarding Braskem's business prospects, projections, operational and financial goals, constitute beliefs and assumptions of the company's management as well as information currently available to Braskem. Future considerations are not a guarantee of performance as they involve risks, uncertainties and assumptions as they refer to future events and therefore depend on circumstances that may or may not occur.

Investors and analysts should understand that general conditions, industry conditions and other operating factors may affect Braskem's future results and may lead to results that differ materially from those expressed in such future conditions.

I would now like to turn the conference over to Rosana Avolio, Investor Relations, Strategic Planning and Corporate Market Intelligence Director to start the presentation. Ms. Avolio, you may begin.

[Rosana Avolio, executive]

Hello, ladies and gentlemen, thank you for participating in Braskem's earnings call. Today, we will present results for the first quarter of 2024.

In Slide #3, the [indiscernible] In the first quarter of 2014, we observed an increase in the majority of the petrochemical spreads in the international market when compared to the fourth quarter of 2023. This increase is made by the [indiscernible] that affected the Gulf Coast of the United States. [indiscernible] impacting the rest of the prices. In this scenario of bearish spreads [indiscernible] resilience and the financial health of the company.

The recurring EBITDA in this quarter of 2024 was $230 million, [ 90% ] higher when compared to the previous quarter, traditionally in line with the depreciation of the Brazilian break against the dollar, typically reported the loss of approximately [indiscernible] while the operating cash generation increased by 189%. [indiscernible] Also during the period, Braskem [indiscernible] its robust liquidity position with $3.8 billion cash. [indiscernible] positioned now to [indiscernible] net maturities over the next [indiscernible]

Additionally, Braskem's debt profile remains very long at an average [indiscernible] with more than 63% of the debt maturing after 2030. Therefore, we the ended the quarter with a leverage of 8.12x [indiscernible] 2023. It's important to highlight that these results were reinforced by Braskem's [indiscernible] commitment to financial resilience and [indiscernible]. In the quarter, we observed a positive impact of about $38 million in EBITDA and about $136 million in cash generation.

Next slide, I will comment on the company's main operational industry [indiscernible]. Regarding operational highlights, the global [indiscernible] increased by 33% when compared to the first quarter with a rate of 0.78% [indiscernible] industry average, reflecting [indiscernible] commitment [indiscernible] operations.

During the first quarter, the utilization rates of [indiscernible] were higher than in previous quarter, and this is all in [ green ] polyethylene [ pigment ] with utilization rate increased by [ 36 percentage points ], reaching 19% of its total capacity after the normalization of the ethanol supply which was affected in the [ previous ] quarter by weather conditions.

In the [ Brazil ] segment, the resumption of operations of the [ Bahia ] petrochemical complex after a scheduled maintenance shutdown in the fourth quarter of 2023 [indiscernible] 8 percentage points in the ethylene utilization rate, which is 74% in the quarter.

In conclusion, while the first quarter of 2024 brings [indiscernible] implementation of its growth agenda. In the traditional ethane, the construction of ethane import terminal [indiscernible] reached the progress of 62%. The project conclusion [indiscernible] expected by the end of 2024, with the start of operations were [indiscernible] 2025.

Regarding decarbonization, Braskem and Veolia announced another agreement to work together on the research and implementation of high-impact solutions for decarbonization for the Triunfo petrochemical complex [indiscernible]. The solution [indiscernible] equivalent of $500 worth of [indiscernible].

In recycling, we have advanced the [ head ] stock diversification agenda with the start of the bioattributed and circular [indiscernible] propylene supply in Europe and United States, really made possible through the partnership with Shell Chemicals.

Lastly, with the partnership with Lummus Technology was signed to develop electrification study [indiscernible] will allow Braskem to use its global footprint in the production of ethylene, propylene and other chemical products. This initiative is part of Braskem's [indiscernible]

Now let's move on to the next slide. Moving on to the last [indiscernible], let me present the operating performance of the company's segments, starting with the Brazil segment [indiscernible]. The utilization rate of [indiscernible] petrochemical plants in the first quarter of 2024 was 72%, [indiscernible] points higher than that of the fourth quarter of 2023, mainly due to the resumption of operations Bahia after a scheduled shutdown.

In the Brazilian market, the volume of resins sales was higher than in the previous quarter by [ 7% ], roughly explained by the higher demand polyethylene and of propylene [indiscernible].

On the other hand, [indiscernible] sales in the Brazilian market reduced [indiscernible] by 8% in the quarter. [indiscernible] in the first quarter of 2024 was $110 million, an increase of 70% compared to the previous quarter and [indiscernible] 66% of the previous [indiscernible] EBITDA in the quarter.

[indiscernible] regarding the Green Ethylene, the utilization rate of Green Ethylene is 36 percentage points higher when compared to the previous quarter, reaching 98%. The normalization of ethanol supply after the impact of the weather conditions in the South [indiscernible] during the last quarter does [indiscernible]. During the period, Green Ethylene sales decreased by 8%, mainly due to lower demand associated with the [ celebrating ] the New Year. This event happened in the segment, given that historically, Asia represents about 4% of sales [indiscernible].

Move on to the next slide. The United States and Europe [indiscernible]. The utilization rate was 76%, [indiscernible] 6 percentage points [indiscernible] fourth quarter of 2023. This increase is mainly made by an unscheduled shutdown of the segment in the United States, lasting about [indiscernible] retention of operations in February. On the other hand, [indiscernible] in this quarter. In this area, in the first quarter of the year, recurring EBITDA was $69 million, [indiscernible] lower than that of the fourth quarter of '23 [indiscernible] consolidated recurring EBITDA in the fourth quarter.

Now I will discuss the Mexico segment. In Mexico, the utilization rate for the quarter was 83%, in line with the last quarter of 2023, but it is hard to say, the volume was higher by 17% [indiscernible] utilization polyethylene inventories in the market and the seasonality observed in the previous quarter. Recurring EBITDA in this period was $37 million, 39% higher than in the month of the fourth quarter of 2023, representing [indiscernible] of the company's consolidated recurring EBITDA in dollar terms in the quarter.

Next, [ starting ] at Slide 11, we'll talk about the company's consolidated [indiscernible]. In the first quarter of 2024, Braskem's recurring EBITDA was $230 million, an increase of 9% as compared to the previous quarter. This result was notably [ impaired ] by the increase of most spreads in the global petrochemical industry. In the polyethylene market, the spread, with respect to NAPHTHA was higher by 26%, while the polyethylene within the U.S. was higher by 20%. Conjunctural factors [indiscernible] weather conditions in the Gulf Coast, and logistical constraints in the Panama Canal and in the Red Sea [ increased ] the increase in the prices of resins and spreads in the international markets.

Sales volume also contributed to the increasing EBITDA [indiscernible] in the Brazil segment, or the main chemicals by 19% and resins by 7%. Mexico, the 17% increase in the sales volume also had a positive impact on the consolidated EBITDA. In addition, the reduction of 6% compared to the quarter [indiscernible] as a result of corporate resilience in the program health. [ Divisional ] initiatives also contributing positively to the company's recurring EBITDA.

[indiscernible] operating cash generation [indiscernible] first quarter of 2021 [indiscernible] compared to the fourth quarter of '23 and [ 189% ], which is mainly explained by the lower disbursements with operational [indiscernible] CapEx by BRL 363 million. By the positive variation of the working capital, higher by BRL 181 million and the increase of BRL 91 million [indiscernible].

Regarding operating cash generation, [indiscernible] to the lower cash consumption by [indiscernible] compared to the fourth quarter 2023, due to higher operating cash generation [indiscernible] and higher interest payment [indiscernible] of the debt securities that were issued in international markets [indiscernible]. Considering this [indiscernible] related to our goals, cash consumption [indiscernible].

Next slide please. Braskem ended the first quarter of 2024, maintaining a very low [ debt profile ] with [indiscernible] 63% of the cash [indiscernible] fiscal 2030. [indiscernible] for the next 6 to 9 months. At the end of the quarter, corporate [indiscernible] average was 8.12x, in line with fourth quarter of 2023.

[indiscernible] approximately $23 million. Regarding the rating agencies [indiscernible], maintain investment rating [indiscernible]. It's important to note that the company maintains its commitment to maintain its rating position, while [indiscernible] and continuing to implement measures to reduce its cost leverage [indiscernible].

[indiscernible] In this way, I will comment on the main topics [indiscernible] socio-urban measures on the next slide. I launched, in 2024, [indiscernible] relocation program reached an execution [indiscernible] 99.7%.

[indiscernible] the total provision within this [indiscernible] BRL 5.8 billion, of which BRL 4.6 billion had already been disbursed and BRL 1.3 billion in balance at the end of first quarter of 2024. Regarding the progress of [indiscernible].

It's important to highlight that the actions of the environmental plan, according to the solutions made are still in progress and still [indiscernible]. Next slide.

Next, we'll present the operational spreads expected for the next quarter. In addition to use of comments [indiscernible]. In the second quarter of 2024, an experimentation for the utilization rate in the Brazil segment [indiscernible] remain in line within prior quarter as well as the same volume in the quarters [indiscernible].

In the United States, the expectation is that utilization rate [indiscernible] the previous quarter. The operation was shut down in the United States, offset by increase in the utilization rate in Europe. This way, the sales volume also remains same [indiscernible].

Lastly, [indiscernible] the expectation is an increase for the next quarter, which is [indiscernible] the reduction in the price of raw material [indiscernible].

Additionally, we captured [ $109 million ] through the [ re-prioritization ] of initiatives, and [ $37 million ] with the optimization of working capital, adding to cash generation. Additionally, we captured $20 million that were used after the [indiscernible].

And during the first quarter of [indiscernible] action showed losses in the quarter without [indiscernible] already disbursed by the end of the quarter referring to the financial provisions of [indiscernible] relation to the priority of resilience in financial health, sales and distribution expense [indiscernible] the third quarter was higher by [indiscernible] to the previous quarter.

On to the next slide. In 2024, Braskem made a commitment to [indiscernible] first quarter 2024, [indiscernible] BRL 50.5 billion, [indiscernible] higher by BRL 181 million, [indiscernible] previous quarter. In the answer to the operation's strategy optimization, the company showed a quick a response from the recurring of the maintenance shutdown in Bahia improved the impact on ethanol supply [indiscernible] in the last quarter and increased the utilization rate in this segment by 3 percentage points and [indiscernible] and in partnership with Lummus Technology as [indiscernible].

In the quarter, we also had [indiscernible] authorization for the use of products dependent from the chemical [indiscernible]. In investments, the company was able to occupy [indiscernible] BRL 363 million on its CapEx compared to the previous quarter as a result of the [indiscernible] strategy, while [indiscernible] operation safety and [indiscernible].

In conclusion, in Mexico, we continue the efforts to complete the construction of Ethane Terminal which is in progress of 62%, [ 12% ] higher than [indiscernible].

Thank you very much for your attention. We will now begin the Q&A session.

[Operator]

[Operator Instructions] Our first question comes from Luiz Carvalho with UBS.

[Luiz Carvalho, analyst]

I'd like to start by asking Pedro. As you mentioned in your presentation, we see a spread scenario where, perhaps, the worst has already been behind us. The levels are used to be quite compressed. But now looking to the future, we are starting to see a scenario with slow recovery in the 18-month horizon.

And next year, as you mentioned, we expect to see the entrance of the Mexican fast track program. This is -- it seems like it will, in some way, contribute to improve the company's outlook. Could you please give us a few words about the dynamics you're seeing in terms of the perspective of results, both in recovering the spreads and in the contribution of the Mexican facility? That would be great, please.

My second question, and of course, we must ask. It's inevitable. We need to ask the -- about the shareholder situation. We had [indiscernible] participating in the process. They have left [indiscernible 00:27:27] also -- in the past, also participated and also gave up. Petrobras made some public comments that it could potentially increase its participation on Braskem to then later on sell them.

Could you please help us to understand what the situation is like in terms of what the management has been doing to contribute to these discussions? And are they in discussions? Any due diligence processes underway? There was [indiscernible 00:27:58] company as well. And also along those lines, if there is a question from Petrobras, with regard to that Novonor state at 5%, would there be a tag along in that case?

[Pedro van Langendonck Teixeira de Freitas, executive]

Good morning, everyone. Thank you, Luiz, for your questions. It's a pleasure to talk to everyone here. We recently presented our yearly results. It hasn't been very long since last time we met, but there have been some updates. Rosana presented the main ones, but to explore some of these topics that you asked, Luiz, specifically with regard to the spreads, what you mentioned is what we see a slow recovery in the supply-and-demand scenario.

This year, polyethylene is looking to have more demand than -- sorry, more supply than demand. And, I think, the scenario is going to reverse next year. So what we have seen is slow recovery in our results. April was a month in which spreads improved compared to March. So we have seen a very gradual, very slow recovery, as you mentioned. But nevertheless, the spreads have been improving over this year, and we expect things to accelerate next year and also with the polypropylene scenario.

And based on that, you asked a more focused question about the Mexico terminal, but I'll expand a little bit. Since the past year, we have been implementing a number of actions and initiatives to improve our results. Some came to maturity last year already, but even those that did have an impact last year, they do end up being reflected in the 12 months of '24. Many of them didn't have an impact on the 12 months of the year. And this year, we forecast that they will have an impact over the 12 months of the year.

So part of the impact that we expect comes from those spreads, but also, some comes from having the full year of the measures in implementation. That's actually one of the slides in our presentation. When we talk about the financial resiliency and rigidity plan. This year, we expect to see additional EBITDA above and beyond last year, approximately $200 million to $250 million, as a result, solely of these measures. And that adds to our strong cash generation as a result.

With regard specifically to the Mexican terminal, we expect that it will be completed by the end of this year in Q1 '25. so of course, we're not going to see an impact on our results for this year. That will come next year, and it will depend heavily on the volume of deliveries that PEMEX makes because logistics is always going to be less expensive when we buy from the local supplier. But we will have a drop in the cost of importing from -- for Braskem Idesa and importing ethane and also an improvement to the operation rate.

This last quarter, we had something close to 85%. And this next quarter, we expect to be closer to 95% or 98%, at least, if not 100%. With the terminal, we will have improvements to fixed cost and a significant improvement in Mexico. So, it's not just about spreads and volume. We also have the result recovery initiatives that we've been implementing.

On the sale process effort, you asked a question that I'll answer first, which is Braskem's contribution to discussion. Well, our contribution is in the due diligence processes. We do not take part in discussions. When we have obligations involved with shareholders, they do notify about critical landmarks and events that are occurring.

But what the law has forged is that if any development persist within an NDA process and there is no leak to the press, then the company is not required to disclose it, not least of which because any such disclosure could have a negative impact on the negotiation. So our shareholders are not required to notify us of everything that's happening.

Now if there is some kind of a leak or some kind of a press release, then they do need to notify us so that we can keep the whole market up-to-date. But what I can tell you is that we were notified on Sunday about the ADNOC decision. We received mails from Novonor, and we immediately reproduced it to the market, the ADNOC decision to not proceed with the process.

Novonor also says it remains engaged in the sale process. And what I can tell you is that where Braskem is involved is there is an ongoing due diligence, so there's an ongoing process involving the exchange of information or actually the provision of information. It's not really an exchange. And Braskem is providing information. It's making it available for potential interested parties. And if any other interested parties arise, we will continue to support shareholders in their demand for this process.

Now with regard to the question of Petrobras, we don't know what their decision is. What we do know, what is public information is that they have a due diligence process which was, I would say, practically, materially, included a while ago, but there's always some kind of an update. It's a process we consider to still be open or pending. The second open process.

And every now and then, sporadically, they ask us for some additional information. But Petrobras makes it very clear that their goal with this process, with the process they are evaluating is with the goal in the defense of making a decision that they will need to make in the future about the rights that they have, both tagalong rights and the first -- the preference for purchase, the right of first refusal. So with regard to anything else, we don't have any additional information.

Now with your other question, if Petrobras does make a purchase, I must say that our tagalong clause is defined by our articles of incorporation, which do not consider -- which exclude acquisition by Petrobras, as it would for Novonor. So these situations do not encompass the 100% tagalong.

So Petrobras made a purchase. The SA law in Brazil spells that tagalong only exists for ordinary shareholders of the -- sorry, it's not the SA law. It's Level 1 in B3, the Brazilian B3 Exchange, and that will occur only for the [ ON ] debenture holders. So there is no tagalong that as defined by the articles in the case of Petrobras buying. Then we do have tagalong from the exchange program, which for us, for our governance, is 80% of the price for ordinary shares. And I'd also like to take the opportunity to say that if Petrobras makes a purchase, this does not encompass a change of control in the bonds and the capital market participations where we are. I think Rosana has something else to add.

[Rosana Avolio, executive]

Let me turn on my camera just a moment. It's one aspect in relation to the first question about spreads. We are talking about global petrochemical and we have been observing this in the past 18 months with the spreads of low cycle when compared to the normal cycles and even lower levels. It's important to understand the cash cost curve fundamentals.

So we expect a rationalization in the industry as we have seen a [ softer way ] last year or maybe in the beginning of this year. And we saw major capacities, especially in Europe by major players. So we expect rationalization as we had seen in previous moments in the industry or in other moments of crisis when we see this rationalization of industry.

And when we see how consulting firms see this, they have a more conservative way of looking at it with less capacity. But when we look at the basic, the fundamentals about the spreads that we have been seeing, we do not see an important level of rationalization that the industry sees when we consider the marginal producers, the West which have higher cost of production, especially in Asia. So we are likely to see a stronger movement in this direction that would provide support to major spreads than what we see by the consultants in general.

[Operator]

Our next question comes from Gabriel Barra with Citi.

[Gabriel Coelho Barra, analyst]

I'd like to ask for 2 follow-ups. With regard to the first point and also based on what Rosana mentioned, I'd like to understand how quickly we can forecast to see the return of spreads. For the past year, we've been expecting the return to normal. We had a very difficult year last year and the start of this year seems to be improving.

When we look at companies abroad, they're all returning, performing much better than what we saw last year. So my question is how quickly this could happen for us? And what are some potential triggers we should pay attention to in the short term to try to see this return coming back and improving the company's results?

Two quick follow-ups. One, could you please give us an update about the PI and what the potential impacts are for the company? And how the time line is for the negotiation for the CPI inquest process. And lastly, a quick question. Could you just please talk about Triunfo and the Rio Grande do Sul and the whole catastrophe that's happening in Rio Grande do Sul and how that has impacted the company in that region where you have operations there in Rio Grande do Sul?

[Rosana Avolio, executive]

I'm going to answer your question related to spreads. And then I'll turn it to Pedro for the other answers. Your question is very good. And this is a question that has been asked recurrently. This return of the cycle, considering that the spreads had important improvements as we have announced. We saw 20% spreads in a better situation for polyethylene or maybe 1 product or the other. We don't see a very important recovery. I'm going to talk about supply and demand at the global level, and this is associated with the rationalization that I mentioned.

First, talking about the global supply and demand. We consider a growing demand. The world continues growing at a slower pace, maybe, from what we saw in the past 18 months, but we see a growing demand. So when we see that we -- the PE and PP will grow by 3.5% a year. And then we look at the offer, which is more predictable, considering that those complexes have their own time for construction.

When we look at the supply, we see less supply coming in. When we look at polyethylene when compared to last year, we see that in 2023, we saw some higher capacity, which was very competitive on ethane base, but when we look at this year, we see Asia coming in with more capacity and with a higher cost of production.

So we see a better balance when we look at polyethylene. And as to polypropylene, we see that there is -- has held sufficiency estimates by China, but only propylene is more generalized since I'm talking about the impact on sales volume for the company.

In terms of supply and demand, we see a very positive trend and a trend of balance. And then I'll talk about rationalization. If we look only at supply and demand, we see that spreads are improving gradually, as Pedro said, quarter-by-quarter. And for the future, we see a direction of normalization of spreads which is very positive.

And then we talk about rationalization. We see external consulting firms talking more about this and quantifying the spreads. But today, we believe that we should see a rationalization that would be more accelerated, considering the assets of Braskem and their qualities, the cash cost quality and the position at the global level and the results we have been posting.

You said that you saw the recovery of petrochemicals, that is right. The EBITDA of the company has started recovering as well. But both Braskem and the global petrochemical industries shows EBITDAs which are lower than the cycle average in the United States or in Europe, wherever. But we still see the spreads with more impact in the short, medium and long terms.

[Pedro van Langendonck Teixeira de Freitas, executive]

All right, Gabriel. And moving on with the other topics you asked. There was 1 about the CPI inquest in the time line and the impact. Braskem has been collaborating with the CPI. We've been providing all information that is requested of us. And we remain available to the authorities, to the senator to answer with transparency about all our activities in material. We do not control the CPI's timing.

We are not aware of the content of the report they're going to produce. Our forecast is based on what was published by the voting process on the 22nd, but that is not a process where we have any control. We cannot define what will happen. This is public information. It was published by the Senate. And the expectation is that on May 22, they're going to vote on the report.

So typically, the report is going to be published a few days earlier for it to be read and then voted on May 22. But we should see some new development over the coming 2 to 3 weeks. But again, this is not a schedule that we have any control over or, really, any capacity to make any statements with any kind of certainty.

With regard to Rio Grande do Sul, I'd like to emphasize a few points that are critical for us. Firstly, the safety of our operations. Over the weekend, we found that as a result of some logistics conditions, the continued operation would become inviable. Actually, it was not just logistics, also the supply of water and the treatment of wastewater at the site. Broadly speaking, the conditions for the operation were all pointing to halting the operation. We performed a safe halt, which takes 1 to 2 days, but we did that over the weekend, so that was the first major focus.

The second focus that we have now that's already been happening for a couple of days is supporting our employees and staff who were impacted by the tragedy and also the third-party workers as well as all residents in the vicinity of our operations. So we've been working by donating hygiene kits, mattresses to all of these people and communities.

We've also been trying, and we created an internal counter here at Braskem. We have a very strong tradition of volunteer work and our volunteers really want to support in whatever they can, the region in Rio Grande do Sul. So we have an internal donation program, where we donate funds to support people there and a number of other actions too. We can go into further detail if you're interested. But I would say that the major focus at the current time is to bring stability to the lives of everyone there, to bring them safety, to bring them -- to allow them to at least protect their lives, first and foremost. And we want to make their safety very clear and support their safety.

Next, the next step will be cleaning. We're already working in that front with our partners and clients. To give you an example, we have a partner that manufactures plastic buckets. But we are donating resins for them to produce plastic buckets to be used in the cleaning efforts. So firstly, physical safety; second, cleaning; third, reconstruction; and then in the future, we'll see what is needed and how Braskem can support efforts in those fronts.

But Braskem has been supporting everyone, as we always do in these types of situations, as we always support the population in Rio Grande do Sul, especially those in the cities that are located in the vicinity of our operations. I could go on. There are a number of other initiatives we've been working on to support the population. But let me go back to the crux of your question which is the impact on our operations.

So when we halt our operations, we have approximately 30% of our production capacity, the Brazilian production capacity. Not the global, but the Brazilian. 30% of that is in Rio Grande do Sul, so of course, that 30% has been halted. The situation has been developing favorably. I think the first point I can make here is that our assets are 100% protected. Our assets were not directly hit, the industrial plant, our site, they were not hit. So they're in good condition there.

The operations for the supply of water, our local water supplier has resumed operations. The site does have access to the power grid, so that's not a concern either. The question that still remains today, and that question that needs to resume is logistics. So in the field of logistics, I would say we have 3 topics. One is the logistics of people, the access of buses to bring people to the site.

In the halt process, there were shift changes that needed to be done. And so we use some helicopter operations, but that is not sustainable to keep our operations ongoing for a long period of time. So we must have highway and roadway access cleared for access to the pipe. And that also means the logistics of trucks. So broadly speaking, the highways and roadways. So when the level of water drops and the roadway access is minimally resumed, then we can start thinking about operations. And first, we need for the water level to drop.

And there's another aspect of the logistics, which is the Santa Clara terminal. Part of our production is exported through Lagoa dos Patos and today, the Santa Clara shipping terminal is currently flooded. So again, we need for the flood to subside, so that we can see if the terminal is still operational. But today, I would say that all of that falls under logistics. So we need to wait for the water level to drop and see if there have been any material impacts or is it just a matter of cleaning everything and going back to operations.

As everyone knows, it's difficult to foresee when that will happen. If we look at historical data, it could take a few days or even longer, as we know, it's now raining again in the South, but we don't have any way of forecasting when that will improve. So those are the primary impacts versus in that. There is something else that I think is important, too. We treat Brazil as an integrated platform, so when Rio Grande do Sul stops producing, part of that production is assigned to our other sites.

So we do have some optimization, some recoveries of our sales and production. And this is slightly improving our operation rate, both in Sao Paulo and in Rio and in Bahia. So it's not a full compensation, but it is a partial compensation of this, let's say, this drop in production in the South. And a reminder, also, that we have a client base on the South, so some of our clients are requesting products, and they're asking for us to deliver products and we are studying the best logistics to do that.

And some of our clients are offline too. We don't yet know the specific numbers quantitatively. We don't know what the balance is of demand in Rio Grande do Sul, we haven't produced that data yet. But certainly, our countrywide optimization, which we do have implemented, is a point of value that we have been able to successfully mitigate part of the loss of volume, thanks to our countrywide integration.

[Operator]

Our next question comes from Rodrigo Reis de Almeida with Santander.

[Rodrigo Reis de Almeida, analyst]

I have a few questions here on my side, mostly trying to understand what we can see in terms of results, not spreads, but results for Braskem moving forward. I think let's start with Brazil. And we had this whole effect of importing resin over the past few quarters. And now we've got some discussions moving forward. Imports are back up now for several products.

So I'd like to understand how we can start thinking. I know that there's nothing really defined in terms of ABIQUIM, but what about the health of Braskem? How can we work with our prices and market share, especially given the lower optimization of the industry? I'd like to understand that. And also, how the rise in share can be materialized for the price balance and market share to the rise in rates?

Also, looking at Mexico, I'd like to -- I'd also like to get some idea on the volume we have there, combining volume and spread. I think a great deal of the spreads that we track and that you also publish on the release, they are only going to be captured in the second quarter. Maybe a little bit further into the future given the level. So I'd like to understand how we can have this effect where we combine stronger effect with high utilization, and how we can interpret that given that this effect can be a little difficult to calculate for our budget.

And lastly, talking about the United States, I'd like to get your take on what you think about the raw material market in the U.S. Do you have any competitive advantage in the face of other PP producers? I think those are my main questions really to understand Braskem's results in this context much more so than spreads.

[Unknown Executive]

[Interpreted] All right. Rodrigo, thank you for your questions. I'll begin in the order that you asked. So I'll start with Brazil. In fact, we do see a global dynamic in terms of foreign trade that is strongly impacted by the drop in domestic youth in China. So China has been targeting its sales to export, its production to export. And in our analysis, they are selling under cost, at a loss to some countries. And so some of the vendors who sell to those countries in Asia are now aiming their sales toward Brazil or Latin America as a new market, which are traditionally not traditional market for those producers.

And, I think, when ABIQUIM analyzes this scenario, they brought that question. That's not happening just to our products. This is happening broadly to many products in the chemical industry. And by studying the scenario, we found that we do have a scenario where it's not exactly an illegal or unfair competition, but it is being caused by market dynamics.

So since this product that's coming into Brazil is not necessarily being sold below cost, so antidumping does apply in some cases. We do have some cases where it is happening, but it's a technical discussion that has gone into with the government. But the effect that is occurring is an indirect effect. And the way we can deal with that situation, at the end of the day, it's through the import rates. So we do have that discussion, that request made with the federal government, but it's a decision that is up to the federal government.

ABIQUIM is working hard. They're trying to show the government the scope of that impact, and the fact that, that is bringing a drop in production rates of Brazilian producers. And it's not based solely on the competitivity that we have here in Brazil. It's actually owed largely to actions from producers located in other countries that do not follow market rules located elsewhere.

So the question is what impact does this have on us. Well, we have seen that we have lost some market share as a result. If you see our market share, it did drop. And that also brings down the utilization rate. So part of the positive impact that Brazil might have seen through the increase in imports is also owed to the increase in local production, because you establish a more balanced competition and competitive rate in the market.

So that's one aspect. I can't really give you any forecast about whether or not the government is going to adopt any of these measures. And I also can't really say what impact this might have on volume. We believe the impact would be a growth in sales in the domestic market, but today, we can't do that math.

It really, really depends on the effective actions that the government will make. We know that they will have, if they do, a positive impact, not I guess, on Braskem, but all over Brazil, given the scope of the impact that has been occurring as a result of this attack that we've been suffering. The Brazilian competition has been suffering this effect.

With regard to Mexico, we do have spreads recovering, as you mentioned, in Q2. We have the implementation of the terminal now. Starting this year, but more so in early '25, we do expect to see operation rates improving. Today, they're at 85%. This will be closer to 100%, 95% or 98% or maybe even 100%.

So if we have an increase in volume, approximately 130,000, 150,000 tons of additional product that we will have in Mexico with a fixed cost that has already been paid without any CapEx. In other words, only additional contribution margin and with a drop in the import cost of raw material in the order of $100 per tonne. So in Mexico, our forecast is to reduce import costs and increase the operation rate, so this can bring us more favorable results in Mexico.

And, I think, on the other hand, we also see Mexico with a very challenging capital scenario. They also have a significant short-term [ challenge ]. But with the perspective of that terminal, it should help to change that game, that status of situation a little bit.

And finally, thinking about the United States, I think, we've mentioned in past calls already, but we have raw materials in the U.S. And you can consider 2 major hubs, 1 in Texas and 1 in the American Northwest. In the Northwest, we buy propene from many different refineries. And over there, pricing is done at the local level.

And since that propene, it is refinery grade, so it's still -- it has a substantial participation of other products that -- propene or propylene. So we purchase that material, and we bring it from refinery grade to polymer grade. It's a very pure propylene that we need in order to use. And we do that in the Northwest United States. And that makes our propylene purchase price more competitive. And this remains if market still exists.

Now as for the Texas hub, we have over 15 suppliers of propylene. And over there, our dynamics are different. We don't set prices, but we have many suppliers with many contracts, many pricing methods across these contracts. So within that portfolio, we can strive for optimization. It's important to mention that today, the first quarter saw a number of unscheduled stops in the production sites on the propylene on purpose, the PDHs in the Gulf in Texas.

But those sites have resumed operations. So now the propylene price has dropped by approximately 15%. It had gone up by 18% and now dropped by 15%. So it more or less pretty much at the level that it was at before. And so this also brings us more interesting competitivity in U.S. PP. So that's the summary for each region.

[Rodrigo Reis de Almeida, analyst]

Could you please go back to Mexico a little bit and give us a medium- to long-term outlook. As you are now moving into a more interesting operations level with the upper -- with the seaport and the terminal? And what about the spreads? Do you have any opinion with what's happening in Mexico with regard to volume? I know you have a market share, but how can we start thinking about the fact that the growing Mexican market will have an impact and looking into a 10-year window perhaps. Do you have any ideas already about that?

[Pedro van Langendonck Teixeira de Freitas, executive]

Well, Rodrigo, we do see near-shoring occurring. For the time being, we don't yet have any very material impact. Of course, we stand again because the market will grow more. But right now, thinking about polyethylene, which we have there, we don't yet have a very significantly material impact right now. We sell roughly half of the volume we buy in Mexico. We sell it on the domestic market. So the situation can change a little bit, but I would not say that there's an impact right now.

If I look at the longer scenario, longer horizon, as you say, 10 years, then we are going to have a material impact. We start seeing more space on the market, and so we do have that scenario in that long-term. What else we can say about Mexico in the long-term scenario is the perspective for expanding the site. Today, we have -- the site is prepared to be expanded.

It is extremely low CapEx because the site was built with a project that was already prepared for expansion right from the design phase, so we can improve capacity by 15% to 20% with a very low CapEx. And as soon as the terminal starts operation, we will have raw material. That's going to be the bottleneck, raw material.

So we will have the raw material for expansion, so we have the perspective for a high-value investment and an investment with high return with low CapEx with the shipping logistics already defined. I would say that it's a very obvious investment for us to make in the long term.

[Operator]

[Operator Instructions] We will start reading the questions that came from the Q&A.

[Unknown Executive]

I'm going to read the question and I would like to thank all the questions asked via chat. I'm going to mix some of the questions. And this is from an individual. The person asks us to make comments about the plant maintenance seen during the cash consumption. And the person also asks about the future demand.

[Pedro van Langendonck Teixeira de Freitas, executive]

Well, with regard to plant maintenance, this year, as a result of the low cycle, we engaged in a very in-depth exercise in prioritizing investment. So we do have a drop in CapEx now for 2024. And this occurs as a result of 2 factors. The first one, which is relevant is a program Braskem began many years ago, almost 10 years ago, which is a program to extend the downtime cycle.

If you look at petrochemical sites and installations in Brazil, we had a dynamic where we had downtime every 6 years. And roughly 10 years ago, we started changing the planning for the maintenance and how Braskem handles maintenance down time. And we were able to extend that up to 7, 8 or in some cases, 9 years between downtime for the different centers. So if we see what's happening in 2024 is that we do not have any centers being downtime-ed this year. And those can be valued at $60 million to even $90 million. So this year, we do not have that CapEx for a significant downtime in a petrochemical center. This is a factor that led us to reduce CapEx.

Another factor that reduced our CapEx is that in this prioritization of our investments that I mentioned, we ended up significantly limiting our investment on strategic and growth projects. This year, we are devoted to studying engineering projects. For instance, the Thailand project and perhaps some polypropylene projects in the U.S. or [ Green MAG ] we've also got ongoing engineering projects, but we don't have CapEx for building a new plant. So that's another reduction process.

And again, in this process of being more selective about our investments, we kept those investments that pertain to the safety of our operations. And we also capped investments that pertain to plant reliability. So your question is whether that's impacting the plant, well, we maintain those investments.

What can potentially happen is the following: We have some investments we make, which are investments into plant availability. Now in a high cycle, you want your plant to be running 100% of time all of the time. And so you employ additional CapEx to keep that ongoing. This investment to make assets available is part of our priorities.

We don't need the plant to be available 100% of the time right now, so we have kept part of the prioritization involved reducing plants because we don't need them at 100% operations all the time. We're not in that market. So part of our CapEx optimization come from that [ story ].

With regard to your other question, which is about how demand can have an impact. I would say that -- and also the outlook, whether the demand and prices will improve. We've talked a little bit about prices and spreads and the slow recovery. Demand really depends on the Brazilian GDP. For this year, our projection is that demand will grow, demand for polymers will grow by 8% in the Brazilian market. So it is significant growth. PP is a little bit lower at 5%, approximately; PE at 10%; PVC, 8%.

So if I were to highlight any of these segments, and say which one had greater demand. I would say the public health has kind of taken those tubes, connections, both polyethylene and PVC. So in those fields, we do see growth in demand of these segments. That would be measured at approximately 8% in Brazil this year. So it's a quite interesting growth.

[Unknown Executive]

We end the Q&A session now. I would like to turn the floor over to the company to Mr. Roberto Bischoff for his final remarks.

[Roberto Bischoff, executive]

Hello. Good morning, everyone. I'd like to thank everyone for taking part in our earnings call this time. And I'd like to make some final remarks before I once again talk about Rio Grande do Sul, which is very important.

As we presented today, we had a quarter with improved results considering improved spreads in the petrochemical scenario. But also, as Pedro mentioned, also considering efforts already implemented by the company in the search for and implementation of initiatives seeking financial resiliency and preservation, some of these were already began in 2023 and whose results are now materializing over the course of 2024.

I think it's important to highlight that this will always be our commitment to all of you. Our discipline in allocating capital and never forgetting and also continuing to advance in implementations very selectively, very selective implementation of our growth strategy. So this is something we've been balancing at the current time.

I'd also like to take this time to talk about the situation in the South. This was mentioned quite often, but I'd like to mention once again the situation in the Brazilian south, which everyone knows, has been suffering heavily due to climate events.

Firstly, due to our operation, as Pedro mentioned, we completed our safe halt. This began on Friday, we made the decision to halt. It has occurred over the course of the weekend. So we concluded the halt process safely. It was a scheduled halt of all plants located in the state of Rio Grande do Sul. That includes the [ cracker ], the second generation plants. This represents roughly 30% of our production capacity for ethane in Brazil.

As was mentioned, part of that can be reassigned to other centers that are currently operating at lower capacity, and others for, specific characteristics, cannot be replaced immediately. From the perspective of assets, our assets, we don't have a major concern because they were halted in a planned manner, and they were not significantly impacted directly by the rain.

So our forecast for resuming operations more clearly depends on, as Pedro mentioned, the more general infrastructure context and logistics context throughout the state. But we have not yet had the chance to perform a more complete assessment, so we are monitoring our -- the impact there, and we will keep everyone up to date particularly if there are any relevant developments in that sense.

Secondly, and without a doubt, even more importantly, I'd like to share with all of you that we all feel for and care for all the victims of this terrible situation. And we'd like to highlight that everyone is important in making a difference here.

And so I would like to highlight our engagement in, firstly, the safety and also the implementation of initiatives to support them, support not just our employees and friends, but also the residents of all the nearby communities and the Brazilian South as a whole, particularly on Rio Grande do Sul. Braskem as a company is engaged in supporting and we'll remain engaged in supporting not just to face this present emergency, but also the reconstruction process, which will follow.

To conclude, I would like to thank all of you once again for the trust you invest in us and for taking part in this call. And I hope to see you all in August when we publish our results for the second quarter. Have a great day, everyone.

[Operator]

[Interpreted] That concludes Braskem's earnings conference for today. We would like to thank you for your participation, and have a nice day.