US shale boom hurts petrochemical makers in Brazil

05-Feb-14

A drop in natural gas prices caused by a shale gas boom in the United States is hurting Brazilian petrochemical company profits by reducing pricing power and making them less competitive, Odebrecht CEO Marcelo Odebrech has been quoted by Reuters. Lower costs have boosted U.S. exports and driven down prices worldwide. Braskem SA - in which Odebrecht has a majority stake - and its partner, Brazil's state-controlled oil producer Petróleo Brasileiro SA are discussing a cut in the domestic natural gas price to bring Braskem's costs more in line with those in the United States. Braskem is Latin America's No. 1 petrochemical company. Petrobras is the principal source of domestic and imported natural gas in Brazil. Petrobras charged local distributors US$8.22 per mln British Thermal Units (MBTU) of domestic natural gas in the third quarter. The benchmark U.S. Henry Hub price in the quarter was US$3.55 MBTU, 43% less than in Brazil. While prices have risen to about US$4.91 MBTU in the U.S., they are still 4% below Brazilian levels. Higher prices caused Brazilian exports of styrene, polystyrene and ethylene to fall 7.6% in 2013, while imports jumped 21%. Cheaper Brazilian natural gas would make it easier for Braskem and other producers to cut their prices, helping maintain export levels and make their products more competitive at home.