Mexico’s Braskem Idesa prospects improve on terminal funding but weak market to persist – Fitch

SAO PAULO (ICIS)–Mexico’s polyolefins producer Braskem Idesa’s financial horizon improved after securing financing to build its import terminal although it will continue to be hit by a weak market outlook, US credit rating agency Fitch said on Friday.

Earlier in 2023, Fitch had placed Braskem Idesa’s debt commitments under a so-called rating watch negative (RWN), arguing the unsettled financing for the terminal and a poor outlook for polyethylene (PE) could make the producer’s finances weaker. The RWN has now been removed.

However, Braskem Idesa said in November it had secured $408m in financing to finish the construction of its import terminal, which is key to the company because it will enable it to import 80,000 bbl/day of ethane, a PE feedstock, and operate at 100% of its capacity at its integrated polyethylene (PE) Ethylene XXI complex in Coatzacoalcos, Mexico.

Fitch said that after the financing was sorted out, the start-up date for the terminal could be Q1 2025, earlier than the previously expected Q3 2025.

Fitch’s credit rating on Braskem Idesa’s debt commitments was kept at B+, however, considering the polymers global market outlook. A BB raging is still of ‘speculative’ grade, also known as junk category. See Fitch’s ratings scale here.

“The B+ rating reflects a weak outlook for PE and a slower-than-expected market recovery path. Over the past several months, PE demand in North America has experienced a 10% decline, while new supply has been ramping up globally,” Fitch said.

The credit rating agency does not expect a meaningful recovery in PE prices and producers’ spreads until 2025 at the earliest.

PE price, spreads forecasts

In $/tonne	2023	2024F	2025F
Price	1,018	1,057	1,258
Spreads	709	754	907
Ethane purchase costs	309	304	351
Source: Fitch

These spreads would be significantly than those forecast by Fitch earlier in 2023.

“Braskem Idesa is vulnerable to PE price swings, spikes in raw material costs, as well as dependence on a single product and single site operations. The company is exposed to operational risk from Pemex, which has an agreement to supply a minimum volume of 30,000 bbl/day of ethane until the earlier of February 2025, or the start-up of the ethane import terminal,” Fitch said.

“The recent expansion of the Fast Track increased capacity to 35,000 bbl/day, or 53% of capacity. The Fast Track expansion helps secure ethane supply until the terminal is built. Fitch assumes operating rates [for the terminal] of 76% in 2023, 88% in 2024, and 87% in 2025.”

According to figures by Fitch, Braskem Idesa’s production stands at 1.05m tonnes/year of mostly PE grades high density PE (HDPE) and low density PE (LDPE).