Nov. 3 (Bloomberg) -- Braskem SA, Latin America’s largest petrochemicals producer, posted a third-quarter profit as domestic demand rebounded and material costs fell.

Net income of 645 million reais ($365 million), or 1.24 reais a share, compared with a net loss of 819 million reais, or 1.56 reais, in the year-earlier period, Sao Paulo-based Braskem said today in a regulatory filing.

Braskem bought naphtha, the raw material used to make resins, for a lower price than a year earlier after it signed a five-year supply accord with Petroleo Brasileiro SA in May. Profit trailed the 695.6 million-real average estimate of four analysts in a Bloomberg News survey, while earnings before interest, taxes, depreciation and amortization, known as Ebitda, at 838 million reais, exceeded analysts’ expectations.

“The Ebitda result was even better than we expected because the company produced at full capacity not only in basic petrochemicals but also in resins,” Auro Rozenbaum, a Sao Paulo-based analyst with Bradesco Corretora, said today in an interview. “Each percentage point increase in capacity usage makes a lot of difference to margins.”

Braskem raised prices for its products as Brazilian demand rose, boosting output to 97 percent of capacity. The company reported record output at its Bahia plant in northeast Brazil.

Rising Production

Production climbed from 70 percent capacity in the second quarter and 50 percent at the beginning of the year, Rozenbaum said. He had forecast net income of 770.4 million reais and Ebitda of 659.5 million reais.

Braskem climbed 65 centavos, or 5.6 percent, to 12.35 reais in Sao Paulo, the most Aug. 18. The stock has more than doubled so far this year, more than the 56 percent gain for the Bovespa index of traded companies.

“The result is a testimony to recovery,” Luiz Broad, a Rio de Janeiro-based analyst with Agora Corretora, said in a telephone interview today. Braskem’s result improved because of lower costs, higher production and a stronger domestic market, said Broad. He forecast profit of 730 million reais on revenue of 4.2 billion reais and Ebitda of 736 million reais.

Braskem benefited from higher domestic sales as prices are 30 percent higher domestically than internationally, Rozenbaum said. The strong recovery in Brazil reduced exports of resins by 16 percent from second-quarter levels, the company said.

Seasonal Sales

“Sales benefited from seasonal factors in Brazil, with higher demand for packaging in the run-up to the end of the year from the toy sector, a recovery in construction and a push forward in agricultural and automotive sectors,” Rozenbaum said. “I think it is sustainable growth.”

Total sales for the quarter fell 21 percent to 4.05 billion reais from the year-earlier period. Braskem reported according to International Financial Reporting Standards.

The petrochemicals industry is struggling with price fluctuations, Braskem said. International prices, which started to rise in June, dipped again in September on seasonal demand factors in Asia and lower naphtha prices, the company said.

“The price scenario is still uncertain for the fourth quarter,” Braskem said. “The start-up of new capacity in Asia and the Middle East, associated with the recent change in raw- material price trends, should put pressure on profitability levels.”

Pursuing Growth

Braskem is pursuing its growth strategy in the Americas, where it aims to become the leading resins producer, Braskem Chief Executive Bernardo Gradin told reporters today on a conference call.

The company has 3.2 billion reais in cash to aid expansion and may announce an acquisition in the U.S. “in the short term,” Gradin said. Financing for a joint venture polypropylene project in Venezuela may be confirmed in first quarter 2010.

“In Brazil, we will start operations at the green polyethylene project in fourth quarter 2010, adding 200,000 tons a year capacity,” Gradin said. Resins demand will grow 6.5 percent in Brazil next year and Braskem aims to have 50 percent of this market, he said.

He said the next two years require caution in international markets, which are the company’s “biggest challenge.”

To contact the reporter on this story: Diana Kinch in Rio de Janeiro at dkinch1@bloomberg.net

Last Updated: November 3, 2009 16:31 EST