Petrobras sees rise in naphtha demand from Braskem in Q1

Sao Paulo — Brazilian petrochemical producer Braskem increased its naphtha consumption from Petrobras in the first quarter, according to the state-owned oil company.

Petrobras released its production report this week, with its figures showing a 65.7% ramp up in production from the same period last year and a 49.5% increase in sales. Petrobras said the upward movement in both production and sales was caused by an increase in naphtha demand from Braskem.

Braskem declined to comment on it, saying it was a subject linked to its shareholders.

Braskem and Petrobras have a naphtha supply contract due December this year.

On Braskem's Q4 earnings call early April, CFO Pedro van Langendonck told analysts that the company will focus on the renewal of the contract and, at the same time, celebrated the company's rise in consumption of imported naphtha in 2019.

According to Braskem's most recent 20-F report, Petrobras has historically supplied up to 70% of the naphtha consumed by its chemicals unit.

Naphtha is Braskem's main feedstock in its operations in Brazil, and its price swings usually follow oil. When the supply contract was signed with Petrobras, prices were agreed at 102.1% of the Amsterdam-Rotterdam-Antwerp (ARA) price.

Naphtha ARA prices reached historically low levels with oil's recent collapse, which lead to wide naphtha-based ethylene spreads at levels considered unsustainable by market players.

"There is so much naphtha out there that it would probably be better to import. If Braskem can find significant storage, it may be wise to keep some," a source with a South African chemical company said.

"What industry players could get if oil prices remain lower is a positive working capital impact, because they would be taking working capital out of the system", van Langendonck said early April.

On the other hand, demand for olefins is reportedly lower, but van Langendonck said he does not think demand destruction will go forward. "I mean, people are still going back to buying cars or building homes or buying refrigerators," he said.