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Braskem sees higher costs from Alagoas salt mine damage

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Braskem sees higher costs from Alagoas salt mine damage

Highlights

Company expects $622 mil in additional costs

More properties to be relocated

Houston — Petrochemical producer Braskem expects an additional Real 3.3 billion ($622 million) in costs to implement compensation and relocation measures stemming from geological damage from its former salt mining operation in the Brazilian state of Alagoas, the company said Sept. 15 in a notice to investors.

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That amount includes Real 300 million ($56.5 million) for an additional 800 properties to be added "as a cautionary measure" to the Brazilian company's compensation and relocation support program. The Real 3.3 billion also "is in addition to amounts previously provisioned by the company," Braskem said.

The issue stems from fissures, cracks and a mild earthquake in Alagoas' capital city, Maceio, that led Brazil's Geological Survey in May 2019 to issue a report linking Braskem's salt mining operation with the ground movement. That operation provided salt to feed the company's chlor-alkali plant in Maceio.

The company ceased mining and shut the chlor-alkali plant, which has the capacity to produce 400,000 mt/year of chlorine and 460,000 mt/year of caustic soda, as well as a downstream 520,000 mt/year downstream ethylene dichloride plant, the company's sole EDC production in Brazil.

In January, Braskem reached a deal with state and federal prosecutors and public defenders on permanent closure of the salt mine and the relocation of about 17,000 people. In exchange, the prosecutors and public defenders agreed to release about Real 3.7 billion ($697.5 million) to implement the compensation and relocation support program, and another Real 1 billion ($188.5 million) for costs to close certain wells associated with the salt mining operation.

Then in July, Braskem received a letter from state and federal Brazilian authorities noting a wider area than previously identified that had incurred geological damage from the mining operation. The expanded area that state and federal prosecutors and public defenders said required more properties to be vacated would cost an additional Real 850 million ($160 million) in possible payments to those residents.

Braskem also said in July that the company expected an additional Real 750 million ($141 million) in expenses to permanently shut the salt mine.

Braskem hopes to restart shut plants in November

The chlor-alkali and EDC plants in Maceio remain shut, but Braskem aims to restart them in November, using imported salt to feed the chlor-alkali unit. The company will initially use salt imported from Chile, and within a few months use a 50/50 mixture of Chilean salt and other salt moved to Alagoas from the Brazilian state of Rio Grande do Norte, according to company executives.

The closures have left Braskem dependent on imports of caustic soda to supply customers and EDC to maintain normal downstream PVC output. However, a lack of US export EDC volume availability in recent weeks left Braskem scrambling for product, and the company expected to reduce PVC rates in September and October amid that squeeze, according to Fabio Barbosa, the company's head of commercial chlor-alkali.

Braskem began importing occasional US EDC cargoes in 2017 to supplement its own output after expanding its PVC production.

The latest data from the US International Trade Commission showed US EDC exports to Brazil in the first seven months of 2020 were up 64% year on year to 217,015 mt.

Brazil also is the largest export market for US caustic soda. Shipments to Brazil through July this year climbed 2.3% to 1.57 million mt compared with the year-ago period, USITC data showed.