Braskem SA

BOVESPA:BRKM5

Earnings Call Transcript 2020-Q4

[Operator]

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to Braskem's Fourth Quarter of 2020 Earnings Conference Call. Today, with us we have Roberto Simoes, CEO of Braskem; Pedro Freitas, Vice President of Finance, Procurement and Corporate Affairs; Edison Terra, Vice President of South America olefins and polyolefin; and Rosana Avolio, Investor Relations Director.

We would like to inform you that this event is being recorded. [Operator Instructions] We have a simultaneous webcast that may be accessed through the Braskem IR website at www.braskem/ri.com.br and the MZiQ platform, where the slide presentation is available for download. Please feel free to flip through the slides during the conference call.

There will be a replay facility for this call on the website. We remind you that questions which can -- which will be answered during the Q&A section, may be posted in advance on the website.

Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of Securities Ligation Reform Act of 1996. Forward-looking statements are based on beliefs and assumptions of Braskem management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events, and therefore, depend on circumstances that may or may not occur in the future. Investors should understand the general economic conditions, industry conditions and other operating factors could also affect the future results of Braskem and could cause results to differ materially from those expressed in such forward-looking statements.

Now I will turn the conference over to Rosana Avolio, Investor Relations Director. Ms. Avolio, you may begin your conference.

[Rosana Avolio, executive]

Good morning, all we would like to thank you for joining Braskem's earnings conference call. Today, we will present fourth quarter '20 and 2020 results. Please. Let's move to Slide #3 in which we will talk about Braskem's main achievements in 2020.

First, regarding financial results, the company presented net cash generation of BRL 1.3 billion. Additionally, Braskem maintained a robust cash position in the amount of $2.9 billion with sufficiency and liquidity to cover liabilities coming during the next 84 months.

In relation to leverage, the company continued -- committed to reduce its copper leverage in order to be reassigned as investment-grade company. For that, the company implemented the initiatives in the deleveraging plan contributing to 0.63x reduction in corporate leverage. Furthermore, supported by the company's cash generation and commitment to financial health, corporate leverage measured by the ratio of net debt to recurring operating results was [ 2.94x U.S. dollars ], which represents a sharp reduction compared to 2019 leverage.

Regarding the geologic phenomena in Alagoas, one of the company's priority in 2020, Braskem has secured agreements for the Compensation of Residents, Social and Environmental remediation and reparation for workers. And after the approval of those agreements by the court, the Public-Interest Civil Actions filed against Braskem were terminated.

Another highlight about the geological phenomena Alagoas was the conclusion of the expert and independent technical studies contracted by the company from international recognized entities for the evaluation of potential impact in the surface of the region. In the operational front, the company announced the resumption of Chlor-Alkali Plant in Alagoas, which allows the company to resume production of PVC and caustic soda with an integrated business model.

Moving to ESG positioning and in line with the company focus of sustainable development since its creation in 2002, Braskem decide to expand its effort to achieve the goals associated with combating climate change and eliminating plastic waste. In terms of combating climate change, the company's goal is to reach carbon neutrality by 2050 while also reducing its greenhouse gases emissions by 15% by 2030. Regarding eliminating plastic waste, Braskem will work to expand its I'm Green portfolio to include, by 2025, 300 kt of thermoplastic resins and chemical products with recycling content, and by 2030, 1 million tons of these products.

Moving to the next slide. On Slide #4, we will present the main measures taken by the company in response to COVID. Due to the state of COVID, a series of measures were adopted to minimize the pandemic's impact of the company's value chain in production sales as well as on the safety and health of the team members. With the objective of support and cooperate with the value chain, Braskem made donations in the amount of around BRL 10.6 million, including hospital materials, protective items, tests, hygiene kits and more. Additionally, in order to support its customers, Braskem granted a credit line of BRL 1 billion to support mainly small and midsized companies in the chain.

In the operations and sales front, the company reduced its utilization rates and sales in Brazil and in the U.S. in the second quarter of '20, and then after demand recovered as from third quarter of '20, the company presented record-high sales in Brazil in line with the strategy to prioritize the Brazilian market.

Regarding safety, which is a nonnegotiable value for the company, Braskem adopted the following measures: smaller teams for production and locking in the U.S.; remote work for team members who work in their offices; and medical support for team members with suspected or confirmed COVID cases.

Moving to Slide #5, we will comment about the consolidated fourth quarter '20 and 2020 highlights. In the fourth quarter 2020, the company's recurring operating result was $833 million, 22% higher than third quarter '20 and explained mainly by the better spreads for resins and main chemicals in Brazil, PP in the United States and PE in Mexico in 2020.

Recurring operating results was $2,082 million, 38% higher than 2019 and explained mainly by the better spreads for resins in Brazil, PP in Europe, and PE in Mexico, and also higher resin sales volumes in Brazil.

Moving to the next slide. On Slide #6, we will present the main highlights of Brazil operations. In 2020, the utilization rate was 4 percentage points lower than 2019 mainly due the temporary drop in demand and to the destocking trend in the petrochemical plant production change in 2020 caused by the pandemic. This effect was partially offset by the normalization of initial operations as from third quarter trend in the Brazilian market.

Resin sales increased in relation to 2019 due to the stronger resins remain in Brazil, to the company's strategy to focus on serving the Brazilian market and also to the inventory rebuilding trend in the chain due to deceleration of economic activity. Given that, Brazil's recurring operating result was $1,641 million, 73% higher than 2019, representing 72% of the company's consolidated recurring operating results.

In the next slide, we will provide an update on geological event in Alagoas. In this slide, we'll talk about the latest update regarding the National Mining Agency official letter. In February, the company informed the market that the National Mining Agency in Brazil has accepted the reconsideration request made by the company, requesting that the agency reconsider its order directing the implementation of additional measures for the mine closure plan proposed by the company. As disclosed in November, such additional measures would have a cost amount of around BRL 3 billion if implemented.

Additionally, the agency decision maintains in place implementation of the measures complicated in the mine closure plan originally proposed by the company, [ likely ]. considering that the mine closure plan is a dynamic process with complex execution, the agency will continue to oversight the results of the measures that have been taken by the company, and further evaluations, requirements and provisions may be necessary in the future.

Moving to the next slide. In this slide, we'll talk about the financial impact of the geological event in Alagoas. In the chart on the left of this slide, we present a disbursement schedule. Braskem estimates that expenses related to the case of Alagoas will be incurred over the next 5 years in the total amount of BRL 9.2 billion, of which BRL 4.4 billion we expect to be disbursed this year.

And then in the right chart of the slide, we present how the company intends to fund the disbursement amount for 2021. The company has already set aside BRL 1.3 billion in a specific bank account to support the resident program of the company. That is also BRL 1 billion that the company expects this year to monetize related to tax credit of PIS/COFINS in Brazil. And also, we have $300 million related to general liability insurance that the company is currently in talks with insurance companies.

Moving to the next slide. In this slide, we will talk about the return of the chlor-alkali production, Alagoas, and the benefit of prorating the Vinyls business in a new integrated business model. In February, the company announced the researching of chlor-alkali production at its units in Alagoas, which had been shut down since May 2019. To restart that planate, Braskem concluded the project to produce brine as feedstock made from imported salt, which allowed the company to resume production of PVC and caustic soda with an integrated model. In terms of spreads, for 2021, the integrated business model improves the spread by around $200 per ton, impacting in a positive way the profitability of the vinyl segment.

Moving to the next slide. In the United States, the average capacity utilization rate of our PP plants increased in relation to 2019, explained by the normalization of operations as from third quarter '20, which offset the temporary slowdown in the second quarter of '20. In Europe, the capacity utilization rate also increased, explained by the operational adjustments in 2019. PP sales increased 2% from 2019 due to the higher supply of finished products in the United States and also in Europe. Considering that, recurring operating results in the United States and Europe was $352 million, 7% lower than 2019 and representing 15% of the company's consolidated recurring operating results.

In the next slide, we'll talk about the main highlights of Mexico's operation. In Mexico, the average capacity utilization rate of our PE plants decreased 2 percentage points in relation to 2019, explained by the shutdown of the complex in December due to the interruption of natural gas transportation by the Mexican government agency that is responsible for the natural gas pipeline and transportation system in the region.

In 2020, Braskem Idesa imported an average of 6,400 barrels per day of ethane from the United States to complement the supply of ethane from PEMEX, which corresponded to 10% of the capacity utilization rate of PE, which ended the year at 74%. In December 2020, Braskem Idesa completed an expansion of the Fast Track operation, which currently has an expected capacity of 20,000 barrels per day of ethane or about 30% of the total ethane requirement of the petrochemical complex.

Polyethylene sales in Mexico increased by 4% when compared to 2019 due to the higher supply of finished products available for sale. Mexico's recurring operating result was $283 million, 22% lower than 2019 and representing 12% of the company's consolidated segment results.

In the next slide, we will provide an update on Braskem Idesa operation. In this slide, we'll talk about the latest update regarding Braskem's Idesa's operation. In March, the company informed the market that Braskem Idesa has signed with PEMEX and summarized the following documents to enable Braskem Idesa continued operation. A memorandum of an understanding with PEMEX setting out respective understandings for the discussion of potential amendments to the ethane supply agreement and for the development of an ethane import terminal, subject to negotiation, entering into definitive documentation, approvals of Braskem Idesa shareholders and creditors, and with reservations of rights and an agreement for natural gas transportation service with CENEGAS with a term of 15 years, such term condition upon the execution of the definitive documentation that I mentioned before.

With the execution of those documents by Braskem Idesa, Braskem Idesa immediately start to receive the service of natural gas transportation, which had been terminated in December 2020. Additionally, the ethane supply contract between Braskem Idesa and PEMEX remains in full force. At the time, Braskem Idesa cannot predict the outcome of such discussions with PEMEX, its shareholders and creditors.

Moving to the next slide, where we'll talk about free cash flow generation. In 2020, we had a positive free cash flow generation of BRL 1,276 million, mainly explained by the strong operating results of the company, the monetization of PIS/COFINS credit of BRL 1,786 million and the reduction in estimated investment by 23%. Those impacts were partially offset by the impact of working capital on cash flow in the first half of 2020, which are explained by the cash consumption due to the shift in the feedstock profile with lower volumes of naphtha imported.

Moving to the next slide, we will talk about debt profile. In the end of December, the average debt term was around 19 years with around 50% of the total debt due after 2030. Also, considering its cash position, the company has sufficient liquidity to cover that maturities in the next 84 months.

Let's move to the next slide, which we will talk about corporate leverage and deleveraging plan. Corporate leverage measured by the ratio of net debt to recurring operating results in U.S. dollars, it stood at 2.94x in the end of 2020. This ratio represents a significant reduction in the company's corporate leverage, which had ended 2019 at 4.71x. During 2020, Braskem implemented measures to reduce corporate leverage in order to be reassigned as an investment-grade company. Since the end of the second quarter of 2020, the company has reduced significantly its corporate leverage, going from 7.11x to the end the year at 2.94x.

In 2020, the company made progress on the initiatives of it's -- the leverage plan and ended of the year with the following achievements: Issue of Hybrid Bond in July 2020 in the amount of $600 million, treated as 50% equity by Standard & Poor's and Fitch Ratings; Reductions of investments from $721 million to around $555 million in 2020, below the target of $600 million; reduction of around 9% in fixed costs from 2019 near the target of ending 2020 with a reduction of 10%; and then monetization of around BRL 1.8 billion in PIS/COFINS credits in the year.

Moving to the next slide. We started talking about our ESG highlights. In alignment with its strategy to expand the use of clean energy in its industrial operations, Braskem has signed an agreement to purchase renewable energy from Casa dos Ventos, one of Brazil's pioneers and largest investors in the development of projects in this industry.

The agreement contributes to the feasibility of the construction of a new wind farm by Casa dos Ventos in Rio Grande do Norte state, which will ensure the supply of energy to Braskem for the next 20 years. In addition to energy purchase, Braskem will have the option to acquire an equity interest in the wind farm, which would enable a self-production model by the company. Regarding our carbon neutrality goal, this new agreement with Casa dos Ventos will help the company to reduce CO2 emissions.

Let's move to the next slide where we talk about the expansion of our bipolymer business. In February, the company formed the market that is launching the project at the Triunfo petrochemical complex in Rio Grande do Sul state to expand its current production CapEx of green ethylene using feedstock made from sugarcane to produce green polyethylene, which have a negative carbon footprint with an estimated investment of $61 million, expectation is to add 60 kta per year of green ethylene production by the end of 2022. Regarding how carbon neutrality go, this project could help Braskem offset its CO2 emissions.

Let's move to the next slide. Braskem and Danish-based company announced in late 2020 the first production of MEG on a demonstration scale. This unit started up in 2019 to demonstrate the break-through technology that transforms sugar into renewable MEG. MEG is a raw material for making PET, which has several applications and is an essential input in sectors such as packaging, especially beverage bottles. Regarding our carbon neutrality goal, similar to the green ethylene, this project helps Braskem to offset its CO2 emissions.

In the next slide, we'll present an important partnership between Braskem and the University of Illinois, Chicago. Braskem joined forces with the University of Illinois, Chicago to research a route for developing ethylene using a technology that captures and use CO2. The project is in the initial development stage, and Braskem will contribute with its know-how in market feedstock and producing polymers to scale the technology. This is up to technology of the university in partnership with Braskem has global potential for industrial applications by connecting the production of polymers to capture and convert of CO2. Regarding our carbon-neutrality goal, this project is related to capture and use of CO2.

In the next slide, we will talk about petrochemical scenario in 2021. According to the most recent projections by external consulting firms, the expectation is for healthy polyethylene and PVC spreads in 2021. In the case of PE, in 2021, it is expected the spreads of PE to be better since 2017, reaching upcycle levels mainly due to strong demand globally. In the case of PVC, after the return of chlor-alkali plant, this spread better reflects the profitability of vinyl, which is higher than the nonintegrated model spread as mentioned before in this presentation.

Let's move to the next slide, which will talk about the scenario for PP. Similar to PE and PVC, external consulting firms are also projecting healthy PP spread in 2021. In the case of PP, the main highlight is regarding spreads in the United States, where projections point for a sharp increase in PP, propylene, spreads compared to recent years due to the strong demand and lack of new capacity in 2021. In addition, PP spreads for company business in Europe and Brazil also have a positive trend in 2021.

Moving to the next slide. In this slide, we will present the short-term outlook, focusing on the dynamics in the first quarter of '21 compared to fourth quarter 2020. In the case of Brazil, ethylene production should be similar despite a pit stop at the [indiscernible] complex and a scheduled shutdown of the Sao Paulo complex in the quarter. Regarding sales, total resin sales should be in line with fourth quarter '20, and the company expects to continue the strategy to prioritize sales to Brazilian market. Additionally, it is expected healthy spreads for all resins due to the resilient global demand.

In the United States, because of the impact from severe winter weather in February on the U.S. Gulf Coast, utilization rate in sales volumes could be lower than fourth quarter '20. However, it is expected healthy PP, propylene, spreads in the U.S. that will offset this impact on production and sales.

Finally, for Braskem Idesa, polyethylene production should be similar compared to last quarter with the partial restarting operations in January with an experimental model and with the return of the natural gas transportation service in March. However, sales could be lower due to the lower availability of product in inventory. Regarding spreads, in line with what we presented for the other regions, the spread for polyethylene based on ethane in the U.S. to be healthier due to the continued strong demand and also the impact from the winter storms on the PE supply.

Let's move to the next slide, where we'll present the outlook for 2021. In Brazil, after a strong economic downturn in 2020, the Brazil economy is expected to return to growth in 2021, impacting in a positive way the demand for thermoplastic resins and, as a consequence, the company sales volume in Brazil.

In relation to petrochemical spreads, according to the projection of external consultant, the expectation is for healthy spreads for all resins in Brazil. Demand for petrochemical products has been shown to be quite resilient, impacting in a positive way the spreads in the region. In the United States business, the company will operate the new PP plant throughout the year in 2021, and the company should increase the volumes of sales in the United States business.

In addition, PP, propylene, spreads in the U.S. are expected to remain healthy in 2021 as new addition on PP capacity in the region and planned only for 2022 and on. And the demand for petrochemical products has proved to be quite resilient. Regarding the company's business in Europe, sales volumes should remain in line with 2020 in a scenario on maintaining the same production capacity in the region but with healthy PP, propylene, European spreads.

In the Mexico business, in early 2021, Braskem Idesa partially returned the polyethylene production based on an experimental business model and following safety protocols. Additionally, at the beginning of March, the natural gas transportation service that had been interrupted in December 2020 was reestablished. In relation to spreads, according to the projection of its external consulting, the expectations for healthy spreads of PE ethane in 2021. Considering that scenario in the region and the production for CapEx, interest and income tax, the company is confident we have 2021 cash generation.

Moving to the next slide. To conclude the presentation, we will talk about the main objectives of the company for 2021. For this year, the company developed 6 main objectives in its strategy: Continue with the advance related to the geological phenomenon in Alagoas; find constructive ways to solve the ethane shortage in Mexico; ensure the company's continued financial health, risk management and discipline in capital allocation; strengthen Braskem's image and recognition with team members, clients, suppliers, investors and society; increased effectiveness in innovation and speed up digital transformation; and lastly, advance in the implementation of our ESG commitments and goals.

Lastly, but not least, safety in our operations is a perpetual and nonnegotiable value in our strategy. That concludes today's presentation. Thank you for your attention. Let's move to the question-answer session. Thank you.

[Operator]

[Operator Instructions] Mr. Ricardo Nasser Filho, JPMorgan would like to make a question.

[Ricardo Nasser de Rezende Filho, analyst]

Ricardo Nasser. A couple of questions on my side. The first one on your press release yesterday, you mentioned that you should see some sort of a deceleration on spreads in the second half of this year. But then, I guess the major question that we have is, when you look at the first half of the year, how to think about the spreads because, I guess, we and most investors were looking for big earnings in the first quarter, but it looks like that, with the winter storm in the U.S. and with the spreads, we might see the peak earnings in the second quarter. So just curious to see how do you think about the first half of the year?

And then on -- my second question is about Mexico. How should we think about the utilization for 2021? Because the first thing that the government has pointed to a potential new agreement of 30,000 barrels per day of ethane supply from PEMEX. And then you just mentioned on your capacity to import about 20,000 barrels. So would that be the cap on the short term when you think about utilization in Mexico?

[Pedro van Langendonck Teixeira de Freitas, executive]

Ricardo, thank you for the question. This is Pedro and good morning to everyone. Thank you for joining our call. I'm going to address the question around deceleration first and then the question about Mexico, okay?

So we do see the deceleration in the second half. Actually, what we see is a lot of uncertainty. We have, let's say, a conservative planning process. We tend to be more conservative in the way we do our forecast. But even if we look at industry consultants, they are seeing a peak in spreads between March and April and then spreads coming down. So we believe that we are going to see a very strong first half of the year. That's the current outlook based on the spreads that we see that the spreads that are forecasted by the industry. And then a lot of uncertainty in the second half. So I would say our view of a deceleration into the second half is following the industry trend, but also, I would say, some conservativeness around the uncertainty by the end of the year.

In Mexico, what we have as a reference for projection rate is roughly 50% of the contract volume from payments. The contract is 66,000 barrels per day. We're getting somewhere around 30,000 barrels. So a little bit less than 50%. And then we have to operate at around 80% on [indiscernible] mentioned in April. So how do you get to 80%? About 50% from PEMEX, another 30% from the current Fast Track. And from April onwards, with the expansion in Fast Track, we believe that we could reach about 90% utilization rate. That Fast Track could reach somewhere around 28,000 barrels per day. So that's another, let's say, around 40% of our needs.

And then we have a few -- for the future to develop the import terminal. And with that, then I think we could be more sustainably running above 90%, but that's going to take a couple of years for us to implement to,

[Operator]

Bruno Montanari from Morgan Stanley would like to make a question.

[Bruno Montanari, analyst]

Thanks for taking my questions. The first one is about Mexico as well. I appreciate how difficult the situation is. Could be a lot of asymmetry in information coming out of Mexico, right, with the government talking about the terms of the agreement, but this could be very biased, and we understand all of the confidentiality agreements in place.

At the same time, it makes it very difficult for the market to understand and try to forecast the margins in the future. So the question is, will the company at some point be able to talk about the details and the terms of the agreement, like the discount, the volumes and all of the KPIs.

The second question is about the U.S. So how long would it take to go back to full capacity now after the issues with the freeze in Texas? Could the company capture those big spreads perhaps with the inventory from other regions by any chance?

And if I may, a third quick one. We saw a strong domestic mix in Brazil in the fourth quarter. Was this result of restocking of third-generation players? Is this sustainable going forward as well?

[Pedro van Langendonck Teixeira de Freitas, executive]

So thank you, Bruno. So on Mexico, I think it's important to say that the MOU that was signed have conditions around [ big incents ], to negotiate a series of topics over the next few months. Those topics include volumes, prices, penalties, the historical liquidated damages hold by PEMEX, the terminal -- the term itself of the contract. So all of this is subject to negotiations. So we will dispose that whenever we have a final agreement with them. So that's our view. We're not trying to disclose any additional information, which is still subject to negotiation.

Regarding the U.S. and kind of your question about taking advantage of the peak spreads. We have, in the U.S., roughly 40 -- 35% to 40% of our production capacity outside of the Gulf Coast. So those facilities in the Northeast of the country have been operating. They were not subject to the cold freezing there in Texas. So the volumes coming out of those facilities have been -- I mean, we have kept producing them, and we are benefiting from that. We have 3 site inspectors, one in La Porte, one in Oyster Creek and one in Seadrift. The 2 larger ones in Seadrift -- sorry, in Oyster Creek and La Porte have resumed operations already. And the only one that's still scheduled to come back over the next few days is Seadrift.

So at this point, we keep running, I would say, our operations. We have been able to come back with operations in the large majority of our production. I would say, maybe 10% to 15% is what's still off-line at this point. But that should come back. I mean unless we find some issue, but it should come back in the coming days.

I think another point that is important to emphasize is that the effect that we have on spreads is more, let's say, more valuable or has a better impact than the loss in volumes. So we believe that -- I mean, looking at the short term, I'd say, first quarter, January, February, March, the overall impact is positive for the company given the situation and also our ability to come back with volumes in the way that we have been able to do.

Final point on that, it's important also to mention that, that situation is specific to the U.S. We don't see the same kind of effect in Europe or in Brazil. So if you're looking at the positive effect it's fully localized in the U.S.

And then for your final question around the Brazilian market and the inventories in the value chain, I'm going to invite Edison Terra, who's our Vice President in charge of South America. He's here regarding our operation to answer that.

[Edison Terra Filho, executive]

Great. Thank you, Pedro. Thank you. Good morning, everyone. Thank you for the question. What I would say, we saw an increase in the overall market -- present market in the fourth quarter that is around 11% compared to the previous quarter. And at the same time, you know this by our operating rates that we had an operating rate in the fourth quarter that was 2 points below the third quarter mainly because of unexpected industrial issues on the cracker in Sao Paulo in ABC.

We don't see -- most of our customers building inventories. In fact, demand is quite, quite high during the second -- the complete second half of the year, so we're not able to [ build the pyramid ] they wanted. Then what we noticed there was an increase in imports, mainly in November and December. So maybe on this -- all so important product to Brazil, and they have been, I would say, a recovery on those new inventory levels, but I don't see that as part of our initiatives from our customers.

[Operator]

Ben Isaacson, Scotiabank, would like to make a question.

[Unknown Analyst]

This is [indiscernible] on for Ben. Congratulations on a strong quarter. Just a few questions here for you. First, some headlines are pointing to an increasingly difficult macro situation in Brazil with the COVID situation, some FX volatility and some uncertainty in just the economic outlook. Can you talk a bit about the potential risks to your operations if these materialize, if the country were to go into shutdown or quarantine and maybe what kind of measures you have in place to kind of address those concerns?

And then separately, can we talk a little bit about your capital allocation leverage and how it's improved materially over the last few quarters. Free cash flow generation is positive and looks to be positive if those spreads maintain over the course of the next half, at least so just maybe some guidance on where your capital allocation priorities lie today.

[Pedro van Langendonck Teixeira de Freitas, executive]

Ben, I'll ask Edison Terra to address your first question around the Brazilian market and uncertainties, and then I'll take the second one.

[Edison Terra Filho, executive]

[ Ben ], thank you for the question. Basically, what I see -- what we're seeing in the market is that we are working with an increase in the market I would say a little bit higher than the Brazilian GDP for this year mainly to the situation on new habits and what we're seeing from our customers. So I would say that our resins should be between 5% and 6% -- represent a 5% to 6% growth during the year.

I would say that there may be an effect of a potential increase on the effects of the pandemic. However, we have seen that our people -- our customers are much more prepared to face those situations. You have to consider that our business and most of our customers' business aren't considered as essential on operational -- essential operations to fulfill and to fight the pandemic. So I would say we don't see a major decrease as an effect of a potential increase on the measures to protect from the pandemic.

[Pedro van Langendonck Teixeira de Freitas, executive]

Just to add to that, I mean, one question that you may have is also around the uncertainty around FX. So I think one point that we have is we are a naturally hedged business. So we do have an exposure to cost in reais, and we have a currency hedging program to address that. And the risk that we face is actually an old valuation of the real. The real is more devalued because of volatility. That's actually good for the results of the company. So just to emphasize that point.

[Edison Terra Filho, executive]

Maybe what [indiscernible] just complemented is that we also have, I would say, Brazil is our target market from our assets in Brazil. But we also have a regular business in South America, which is very relevant, and we also can complement the offer of our -- of regular exports for the region as well.

[Pedro van Langendonck Teixeira de Freitas, executive]

So -- and then to address the point or the question around capital allocation and free cash flow. So last year, as you saw in the presentation, we had a total CapEx of around BRL 2.7 billion, BRL 2.8 billion. Including investments, I mean, our operational CapEx of BRL 1.7 billion was worth around $250 million. So that's much less than the normal for the company. The normal CapEx for the company is between $500 million and $600 million. So we do have, for this year, a catch-up in operational CapEx. The operational CapEx for this year should be around $700 million, as we showed in the presentation. I mean, $667 million from Braskem itself and then another $34 million in Braskem Idesa, plus another $100 million in strategic CapEx. So the overall CapEx for the company this year, we are forecasting at close to $800 million. And a part of that, around more than $100 million of that is catch-up from maintenance and sustaining CapEx that we did not do in 2020. So if you take a look at the last slide in the presentation or the next -- Slide #23, you can see there a lot of -- I mean, all of this information.

If the scenario that you pointed out is true, we may end up with significant cash flow generation from operations in the year, and what we are intending to do and what we're doing is actually retiring some debt, prepaying debt. We have a start to do that. We ended the year with a very high cash balance, and we have now paid the perpetual bond. We are aiming at recovering our investment grade by the end of the year, if not sooner. That's the challenge that we have to convince the rating agency that, by the end of the first quarter of the year, we would be ready for that. Given the trend that we see in reducing average materially and also -- I mean, the strong cash position, the long term and maturity in our debt, so I think we have a lot of elements there to be able to fight for that investment grade back through the course of the year.

[Operator]

Luiz Carvalho from UBS would like to make a question.

[Luiz Carvalho, analyst]

First of all, congratulations on derisking the Alagoas and Mexico, I would say, [indiscernible], I think it's pretty much an advancement to the main issues. If I may ask the first question coming back to the capital allocation strategy. Looking to the spreads now on the FX rate and what you just pointed out to 2021. We've seen an EBITDA close to $3 billion, a CapEx of, as you said, the $800 million and then add interest of around $500 million, right? So that's probably going to lead you to a cash generation or free cash flow, sorry, of around $1.7 billion to $2 billion by this year. So just would like to understand if these numbers make sense. And second, if this cash generation will be primarily used to debt prepayments in order to reduce the leverage. So that's your main priority right now.

And the second question is, as you made significant advancements in terms of the Alagoas accident and also on the Mexico, I would say, contract now that you have an MOU with PEMEX, did you guys receive any request from the controlling shareholders, Odebrecht and Petrobras, with regards any information about the company for potential divestments from the controlling shareholders. These are the questions.

[Pedro van Langendonck Teixeira de Freitas, executive]

Luiz, thank you for the question. So on your first question around cash flow and capital allocation, I mean, the EBITDA number is yours, right? We still see a lot of uncertainty in the second half of the year. So I would say that this number is possible, but different numbers are also possible. So we'll have to see how the year goes, especially in the first half. I think by June, July, we'll have more clarity around that number. I do see where you're getting that. If you look at the spread that industry consultants are using or forecasting, you would get to somewhere around that number. But then I refer back to my -- the first question that I answered today in Ricardo's question around the uncertainty in the back end of the year.

Your numbers, I mean, $800 million in CapEx is what we disclosed, the $500 million in interest is roughly what we have. Income tax, I mean, if we have the results that we are forecasting, we should be paying more income tax as in the [ last 23 ] of this presentation. So we're in the range of $200 million to $300 million at least as kind of our forecast.

It's also important to mention that, as part of the Alagoas settlement, we are putting BRL 1 billion, so a bit less than $200 million. That's the $170 million, $180 million in the Alagoas account, through the year, so that's another use. And depending on the insurance discussions, I mean, if we don't get the insurance payout by the end of the year, there may be another $200 million to go to Alagoas as well. So we do have those other, I would say, cash uses going forward.

And then with the balance of that is really what we're seeing is we don't have any major CapEx or projects on the work. I think the more relevant one that we have is the expansion on green Polyethylene that we announced a few weeks ago. That's a very significant move by the company towards our goals to reduce our carbon footprint and also, I mean, serve our clients with this polymer, which is -- I mean, we had record sales last year, and we see strong demand for green polymers in the market continuing going forward. But for this year, I mean, it's a $60 million -- I mean, the $60 million investment is not even this year, right? Part of it is this year. Another part is next year.

So again, we don't have any major CapEx in the works. We don't have a major M&A also on the works. We will keep looking always at opportunities, but we don't have anything going on. So really, what we're seeing is prepaying debt is the main news that we have. Again, as I said, we do have a clear target and ambition to get back our investment grade this year. So paying back debt -- paying down debt, actually gives one way of us to emphasizing that and trying to achieve that goal.

And then on the second question about controlling shareholders. What we have -- I mean, it's what we disclosed to the market somewhere in the middle of last year. We have a request from Novonor to support them with the sale of their controlling stake in the company.

As far as we know, the official process has not started yet. We have been collaborating with them and sharing information that would allow them to open a process -- a sales process of their stake in the company. But as far as we know, that same process has not been initiated yet. I would expect it to start sometime soon, but we are not a part of that process. We are not, I would say, in the driving seat in this situation.

And regarding Petrobras, we know from just news articles that they are willing to sell their stake. But we don't have any direction from them on how they want to do it or when. All of that, I think, it's still being defined by Petrobras themselves.

[Luiz Carvalho, analyst]

Okay. If I may just do a follow-up on the first question related to the insurance payment. What's the real discussion that you're having with these guys? And what is the likelihood that you can have any -- I would say, any reimbursement from the insurance companies?

[Pedro van Langendonck Teixeira de Freitas, executive]

Yes, Luiz. So regarding that, the insurance companies, I mean, it's a $300 million policy, right? So the discussions with them are underway, so there's a lot of back-and-forth discussions and also submission of information. Of course, nobody is going to make a $300 million check without having technical analysis, detailed, in-depth evaluations. So we've been providing the insurance companies and their expert support with these technical documents. So they are going to, I would say, a great depth. It's a very complex geological situation. So that technical assessment by the insurance companies need to be completed. And then after that, is when we would expect to see any, I would say, sales [indiscernible] company. Our advisers tell us that we do have a strong claim on that. So we are now just going through the process, which I think is natural in the case of this magnitude.

[Operator]

Ms. Barbara from JPMorgan would like to make a question.

[Barbara Virginia Halberstadt, analyst]

I just actually wanted to make a follow-up question on the rating agencies and the [ DIG ] goal for this year. In your discussions with them, what they are expecting to see from the company before they make a decision on an upgrade, the downgrade was based not only in the high leverage that the company was experienced at the time but also weaker market fundamentals in the sector. So just wanted to understand in the conversations with them what they are expecting to see. And is there any target leverage that was specified? If you could provide a little bit more color on that, it would be great.

[Rosana Avolio, executive]

Barbara, it's Rosana. Thanks for your question. So about the reasons why we wasn't graded light here, first, it was a movement that we did that the agency did with petrochemical company. So it was not Braskem in specific. It was more in the context of the pandemic's impact in volume [ that was emailed ]. And then since then, as we disclosure of the leverage plan, and that helped the company to deleverage as well. And as we improve the results in the second half, we are showing the agencies that there is fast movement of deleveraging of the company. So internally, in our talk to with agencies, kind of the goal that we have is to be around 2.5x net debt to EBITDA without Braskem Idesa. We do think we are confident for this year as we made in the presentation, as Pedro mentioned as well, we are comfortable with spreads. And then with the cash generation of the company, again, being conservative in the second half of the year, but we are working hard. We are starting with the agencies. We are delivering not only the initiatives that I mentioned before. And we do think that we can first get the outlook -- the positive outlook and mainly by the end of the year, an upgrade of our money moving to [ IG ].

[Barbara Virginia Halberstadt, analyst]

Okay. Great. And then with the timing for the discussions as I understand here is ongoing, your target at the end of the year. That I understood correct, right?

[Rosana Avolio, executive]

Yes. This is kind of internal target. But you know the agenda, right, it depends on agencies' committee, their analysis, what we are showing them. It's of the leverage of the company every month, and we share the monthly results of the agencies, but in the end, it depends on the analysis and discussions of the committee. Our work we are doing, we are delivering. As I mentioned, we presented -- remember in the end of second quarter last year, we present a level of 7.1x. And then in the end of last year, our leverage went down to below 3x. So it's a very fast process that we showed agencies, so we are confident with that agenda for this year.

[Operator]

Lilyanna Yang from HSBC would like to make a question. [Operator Instructions] Lilyanna Yang from HSBC would like to make a question.

[Lilyanna Yang, analyst]

I actually have 3 questions here. The first one is on Mexico, right? But if you can give us overall numbers about the cost of imports of ethane versus getting ethane from PEMEX, what you see the cost differential there? And also on that slide, do you need a waiver for Braskem Idesa bondholders for the potential amendments in the ethane contract with PEMEX?

The other question is, if you could talk a little bit -- I know you indicated you're more cautious on the second half 2021 spreads, but can you give us indication of where you see the experts in terms of spread for 2022, overall big ballpark numbers. Is it going to be showing like a reduction of 20% over '21 or something on the front? Any color that would be welcome.

And the third question is I wonder if you could compare the economics of your green polyethylene project with the convention PE project, if you expect to get an economic profit with these green PE plant? And what kind of return differentials between the green and non-green PE projects? Just big-picture numbers here would be great.

[Pedro van Langendonck Teixeira de Freitas, executive]

Lilyanna, thank you for the questions. On the cost to import ethane, it's between $180 to $200 per ton currently. And it should go down with higher import volumes. So as I mentioned earlier, starting from April, we expect to expand the Fast Track solutions to 28,000 barrels per day, and with that, that would be around 40% of the needs of Braskem Idesa. And with that, the number of $180 to $200 per ton should be reduced, right? Because you have economies of scale as you increase the volume?

On the bondholders, I would say in the approvals, any approvals, discussions are still in early stages. So we will evaluate that through the period. But right now, we don't have that perspective yet.

Then following up on the next question on the expectations for 2022. In broad lines, what the industry experts are saying is a return to the spread of 2020. So that's the overall, I would say, on average, the expectation that we have for 2022.

And finally, on the green polyethylene, what we have first, for Braskem to approve any investment, we do a return calculation, right? So there is a positive return on these investments. So you asked in terms of economic profit, it has a positive economic profit. So we do have that as kind of the groundwork has been done on the project for, I would say, a profitable project for the company.

Regarding margins and comparison to regular polyethylene, what I would say -- I mean, I will say 2 things there. One is more conceptual. The nature of the spread is different, right? So you have in regular polyethylene or fossil polyethylene, you have 2 spreads that you can consider in our case. One is spread to the ethane price and the other is a spread to naphtha, right? And the spread in the green PEs is mostly spread of the green PE price to ethanol. And we have several types of contracts of green PE. Some of them are even linked to the ethanol reference.

So in the end, you have kind of a fixed margin on that production. So it's a different type. I would say green PE tends to be a bit less volatile because of that hedge that we have in the commercial contract, and so it's a different kind of perspective, right? The other aspect that I would mention is, so it's hard to do this comparison because, I mean, we're comparing to a spread of tapping to the PE and also an asset to PE spread so very different things. Those are more cyclical in nature. The green PE [indiscernible] tends to be less cyclical going forward. And the other aspect is, of course, this is still a specialty in the polymer world. So it tends to have, let's say, a higher margin overall. But again, depending on moments in cycle, for example, the spread that you see today on PE to ethane is above $1,500 per ton. Then I would say that is a very attractive spread today, right? So overall, those are the perspectives that I could share with you on green PE.

[Lilyanna Yang, analyst]

That's helpful. And congrats on the strong results, mainly in Brazil.

[Operator]

[indiscernible] would like to make a question.

[Unknown Analyst]

Two questions. The first one is, as you're suggesting the focus now in the second half or for the remainder of the year is going to be capital allocation and deleveraging, trying to get back to investment-grade rating, so can you just tell us what's a minimum cash level that you're comfortable holding. We recently saw you doing a liability management exercise or tendering for perpetual bonds. So again, can you just tell us what's the kind of cash balance target towards the end of the year? That's one question.

And the second question, I think it was asked, but I apologies -- I apologize for repetition. What's your expectation on the timing for the roughly $300 million of the insurance on Alagoas? Do you think that could happen this year?

[Pedro van Langendonck Teixeira de Freitas, executive]

[ Matthew ], nice talking to you. On capital allocation and cash balance by the end of the year. So our -- we have a financial policy that is, by nature, conservative. It was designed after the financial crisis of 2008/2009. And so it requires the company to carry a substantial amount of cash above our, I would say, operational needs, right? And usually, that number of minimum cash that we need to carry by the financial policy is around $1.5 billion. It fluctuates. It tends to fluctuate between $1 billion and $1.5 billion. What I have in mind is $1.5 billion. So that's kind of the cash balance that I think that sustainably brought [ ocean carry ] going forward. Plus the revolving credit facility, that's a large question there. The financial policy does not require us to have the revolving credit facility. But it's -- I would say it's another layer of, I would say, cash availability in case of need. So I have this $1.5 billion in mind, and we'll see through the course of the year, right?

Today, we are -- I mean, we closed the year at EUR 3 billion. We paid down the perpetual bond of the staff. So that's $500 million. So the remaining is at around $2.5 billion. So you can see that we still have, I would say, excess cash in our hand. So the objective is to pay down debt going forward. But we will always consider the uncertainties through the course of the year, right, so depending on how Mexico goes going forward, the lingering and residual uncertainties around Alagoas, how those are resolved through the course of the year, the insurance, the question that you asked as well. So all of those are events that, through the course of the year, we will have more clarity around and also around the cycle. I think the cycle is the most important one of them by far. So as we have more clarity through the course of the year, then we'll see I mean how deep we can go in this liability management. But right now, I mean, we have this yield of $1.5 billion in cash by the end of the year, maybe a little bit more depending on lingering uncertainties that [ goes be ] at that point.

On the insurance and the timing, it's a process that is not in our hands. So it's a process that is depending on the technical analysis by the consultants that insurance companies have hired. I think that process is still going to take many months. To me, it's a bit uncertain by now. I was more bullish in the beginning of the year. But by now, I think there is an uncertainty whether we'll be able to receive, I would say, all of that amount by the end of the year or will only receive a part of it or even if it's going to be a discussion that goes into 2022. So I'm afraid we still have a lot of uncertainty around that timing at this point.

[Operator]

I will turn over to the company for closing remarks.

[Unknown Executive]

Hi, everyone. It's a pleasure to be here together with you. I'd like to thank -- for join us for this call. And I want to end with a couple of remarks. Firstly, although the year of 2020 was impacted by uncertainties and volatility, such as the COVID pandemic and the weaker global demand for fuels, which affected, for sure, international oil price, we maintained the ability to observe rates very efficiently even in disruptive moment with our customers and keep discipline in our capital allocation.

Given that, we closed the year with a positive cash flow generation and a leverage of 2.94x, an important reduction from last quarter levels. This reduction reinforces our commitment to our financial liquidity and to be reassigned as investment rate company by the investment-rated agents.

Second, the trend for 2021 has been positive so far, not only because of the strong petrochemical scenario with healthier spread for all of the products, but also because we already announced the 2 important value creation -- creative initiatives of the company, the resumption of our chlor-alkali operation in Alagoas, which allows Braskem to produce PVC and caustic soda on an integrated basis and, secondly, a new investment to expand our production capacity of green ethylene in Triunfo, reinforcing our position as a global leader in biopolymers production.

For 2021, our main objectives are continuing with the advances related to the geologic phenomenon in Alagoas; find constructive ways to solve the ethane shortage in Mexico; ensure the company's continued financial health, risk management and discipline in capital allocation; strengthen Braskem imaging and recognition with the team members, clients, suppliers, investors and society; increase effectiveness in innovation and speed up digital transformation; and finally, advancing the implementation of ESG commitment. Thank you very much for your participation and looking forward to talking to you when we release the first quarter of 2021 results.

[Operator]

Thank you. This concludes today's Braskem earnings conference call. You may disconnect your line at this time.