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Braskem Quarterly Profit Slumps on Costs, Weaker Currency

Braskem SA, Latin America’s largest petrochemicals maker, said first-quarter profit fell 50 percent after costs soared and a weaker local currency boosted the value of its dollar-denominated debt.

Net income dropped to 152 million reais ($77.3 million), or 19 centavos a share, from 305 million reais, or 38 centavos a year earlier, Sao Paulo-based Braskem said in a regulatory filing today.

The cost of goods sold jumped 19 percent in the quarter to 7.6 billion reais. Increased costs compressed margins, Braskem said. Earnings before interest, taxes, depreciation and amortization, or Ebitda, fell to 9.6 percent of net sales, from 12.4 percent a year earlier.

Braskem had a first-quarter financial loss of 104 million reais, almost double the 57 million reais loss a year earlier as the Brazilian real declined 11 percent in the 12 months through the end of the quarter.

The real was the worst performing currency among seven Latin American currencies tracked by Bloomberg in the period. Under Brazilian accounting rules, an increase in foreign debt stemming from a currency slump is booked as a loss.

Braskem received $130 million in the quarter after one of its propylene suppliers in the U.S. broke a long-term contract to supply the raw material to its plant in Pennsylvania, Chief Executive Officer Carlos Fadigas told reporters today in Sao Paulo. If it weren’t for the one-time item, Braskem’s Ebitda margin would have dropped to about 7 percent, he said.

New U.S. Plant

Braskem is considering building a plant to produce propylene in the U.S. and “likely” it will be in Texas, he said. Braskem uses propylene to produce polypropylene, a resin used in packing and in car components. Braskem is the U.S.’s largest polypropylene producer.

“Shale gas has turned the U.S. into a very, very competitive player in the petrochemicals sector,” Fadigas said. “It makes sense for us to invest in propylene, as we are the U.S.’s largest buyer of this raw material.”

Braskem may make a decision on the investment this year, he said, declining to say how much it would invest or how much propylene it would produce. Braskem consumes about 1.5 million tons of the raw material in the U.S., Fadigas said.

Net sales climbed 11 percent to 8.23 billion reais in the first quarter, Braskem said.

Braskem slumped 2.3 percent to 12.85 reais at 1:29 p.m. in Sao Paulo. Brazil’s benchmark Bovespa stock index advanced 0.9 percent.

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