Brazil’s Unigel shuts Camacari fertilizers plant on Petrobras ‘unbearable’ natgas prices

SAO PAULO (ICIS)–Unigel will shut down its Camacari nitrogen fertilizers plant  in the state of Bahia, as high natural gas prices make it unprofitable, the Brazilian petrochemicals and fertilizers producer said.

In a letter to the trade union representing the plant’s workers, dated 1 November, the company said Brazil’s state-owned energy major Petrobras had maintained “unbearable and infinitely superior” prices for natural gas than those in the international markets.

The decision comes as Unigel’s financial woes continue. Last week, it said its bondholders had agreed to extend a grace period for a coupon payment the company missed in October.

Unigel had idled the Camacari plant in June. In July, it said it would produce at the plant 40,000 tonnes of automotive urea – used to reduce emissions from cars’ exhaust gases – but agricultural urea production was never resumed.

According to the trade union Sindiquimica Bahia, the shutdown of Camacari will affect 384 workers, 264 direct employees and 120 indirect employees.

In its letter to the union, Unigel said the Camacari plant had been operating at a loss since the end of 2022 and blamed Petrobras for what it described as an unwillingness to facilitate the continuity of production.

Natural gas is the key feedstock for production of nitrogen fertilizers.

The charged words from Unigel came more than four months after it and Petrobras had signed a “strategic partnership” to explore ways to keep Camacari’s production up and running. Since then, nothing was ever heard about that.

The Camacari plant – as well as that in Laranjeiras, state of Sergipe – was a lease from Petrobras, who in 2019 agreed the 10-year arrangement.

“Throughout this period of losses, Proquigel [subsidiary of Unigel operating Camacari, Laranjeiras] reached out to Petrobras countless times seeking a reduction in the price of natural gas … even if it was a temporary adjustment but, to date, no effort was made by Petrobras, which maintains prices unbearable and infinitely superior to in the international market,” said Unigel.

“In the same spirit, Proquigel also reached out to the Federal Government aiming to achieve some legislative mechanism that could reduce the price of natural gas to a level viable for operations, but unfortunately did not obtain any solution, even if temporary.”

Following the notification to workers on 1 November, a 30-day period opens in which company and union are to negotiate redundancy packages or relocations, according to Brazilian labour regulations.

Meanwhile, Sindiquimica Bahia said it would continue putting pressure “in the political sphere” within Bahia, the federal government, and Petrobras to find a solution allowing Camacari to keep operating.

“Our concern as a union that defends workers’ rights is the preservation of jobs, with an immediate solution that comes from the government of Bahia or the federal government, through Petrobras, which can return to operations [at Camacari, ending the lease],” said Sinquimica Bahia.

“Regardless of the solution found … The board of Sindiquímica Bahia is seeking, together with legal advice and the mobilisation of the political sphere, to demand solutions that can guarantee the maintenance of jobs and the income of these working families.”

Brazil’s chemicals trade group Abiquim has repeatedly said natural gas prices in Brazil are around five times higher than in the US, the other big chemicals and fertilizers producer in the Americas, making Brazilian production uncompetitive globally.

In July, Abiquim also said it had formed a “working group” with Petrobras to jointly tackle chemicals’ “critical situation”. As with Unigel’s “strategic partnership”, nothing has been heard since the formation of the group.

In October, an analyst for petrochemicals in Latin America at credit rating agency Fitch covering Unigel said it could have taken up to 18 months for any of those initiatives to have borne fruit.

“[President] Lula has spoken of making of Brazil a champion fertilizers producer, and there has been recurrent talk of Petrobras entering the segment. Braskem also considered it in the past, but thought it was too volatile. It was Unigel who tried to engage in the sector, but as we can see it didn’t end up being what they expected,” said Marcelo Pappiani in an interview with ICIS.