Braskem, the largest thermoplastic resins producer in the Americas and the world's leading biopolymer producer, posted recurring EBITDA of R$1.6 billion (US$ 375 million) in the second quarter of 2019, which was
12% higher than in the previous quarter
, but nearly 60% lower than in the year-ago period. Including non-recurring effects, EBITDA was US$412 million. The Company also posted free cash generation of R$2.3 billion, growing R$ 2.1 billion from the first quarter of 2019. Compared to the second quarter of 2018, free cash generation decreased 31%.
"We are facing a challenging petrochemical scenario, especially for Polyethylene, due to still-lackluster economic growth and the uncertain effects from the trade war between the United States and China. At moments like this, we must be even more diligent and focused on managing costs while continuing to create value for the company. Our commitment to financial discipline and health remains unchanged," said Braskem's CEO, Fernando Musa.
The positive variation of EBITDA compared to the first quarter of the year is mainly due to the better operating result of the Polypropylene (PP) plants in the United States, the higher sales volume of chemicals in the Brazilian domestic market and wider international spreads for chemicals and consistently high PP spreads in the United States. In the second quarter, Braskem's net income was R$129 million, down 91% and 76% from 1Q19 and 2Q18, respectively. Financial leverage measured by the ratio of net debt to EBITDA in U.S. dollar stood at 2.16x.
Results by region
Demand in the Brazilian market for resins (PE, PP and PVC) was 1.3 million tons, down 7% from the prior quarter, influenced by the inventory rebuilding trend in the converters chain. Compared to the second quarter of last year, resin demand rose 1%, since that period was affected by logistics constraints caused by the truck drivers' strike.
The crackers in Brazil operated at a capacity utilization rate of 89%, up 1 p.p. from the first quarter of 2019, which is explained by the increased supply of feedstock to the cracker in Rio de Janeiro, which offset the lower utilization rate of the cracker in Bahia. Compared to the second quarter of 2018, the capacity utilization fell by 1 p.p.
In the second quarter of 2019, resin exports amounted to 356 kton, in line with the first quarter of 2019. In relation to the second quarter of 2018, resin exports increased 11%, since exports in that period were affected by the lower supply of products for export due to the truck drivers' strike. Exports of key chemicals amounted to 146 kton, down 25% from 1Q19, mainly due to the strategy to prioritize supply to the Brazilian market. Compared to the second quarter of 2018, exports advanced 62%, which benefitted also from the higher supply of ethylene. In the quarter, the units in Brazil and exports posted recurring EBITDA of US$154 million (R$604 million), with the segment accounting for 44% of the Company's consolidated EBITDA.
In the United States, PP demand increased compared to the first quarter of 2019 and to the second quarter of 2018, driven by lower resin prices. In Europe, the weaker demand is mainly explained by the economic slowdown and by summer, when demand is seasonally weaker.
The plants operated at a capacity utilization rate of 92%, increasing 2 p.p. and 8 p.p. from 1Q19 and 2Q18, respectively, mainly supported by the good performance of the U.S. units. In Europe, given the operational problems affecting propylene suppliers and the consequent shortage of feedstock to supply the Schkopau Unit, the scheduled maintenance shutdown was brought forward to 2Q19, which adversely affected the capacity utilization rate of Europe's plants in the quarter. In the quarter, the units in the United States and Europe posted EBITDA of US$107 million (R$414 million), with the segment accounting for 30% of Braskem's consolidated EBITDA.
Mexican demand for PE stood at 510 kton, up 1% from 1Q19. Compared to 2Q18, demand contracted 19%, explained by the slowdown of the Mexican economy, which is suffering from weaker investor confidence due to the threat of new import tariffs in the United States, high interest rates and slowing industrial production. The PE plants operated at a capacity utilization rate of 72%, down 7 p.p. from 1Q19, reflecting the low supply of ethane, and stable in relation to 2Q18. In the quarter, the Mexico unit posted EBITDA of US$88 million (R$343 million), with the segment accounting for 25% of the Company's consolidated EBITDA.
Braskem's construction of its sixth polypropylene (PP) plant in the United States continues to advance at an accelerated pace. At the end of the second quarter, construction reached 65.5% completion, with total investment to date of R$485 million. The PP unit, the first to be built in the U.S. market since 2005, is slated to start operations in the first half of 2020.
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