But why? What did I actually see here?

I’ve got five reasons for this trade, though I’ll be straight with you: the debt load risk hasn’t gone anywhere. Not yet.

In this article I will present two reasons. In the next one I will present the remaining three.

Table of Contents

1. Petrobras naphtha as a leading indicator

   1. The COVID playbook: tracking upstream data before the market does

   2. Naphtha decoded: what the feedstock actually tells you

   3. The correlation test: does naphtha predict Braskem volumes?

   4. What 88,000 barrels per day actually means

2. Braskem Idesa: from problem to catalyst

   1. Q4 utilization hits an all-time high

   2. Why the Chapter 11 panic is overblown

   3. The spread recovery the market is ignoring

   4. Tracking the ships: what vessel data reveals about Q1 demand

3. Takeaway

1. Petrobras naphtha as a leading indicator

The COVID playbook: tracking upstream data before the market does

Let me give you some context here.

When COVID-19 hit, most investors were in full panic mode. U.S. and Chinese economic growth had stalled, global shipping had cratered. To me, the play was obvious: diagnostic companies. Names like OPKO and LabCorp, market leaders with the capacity to run millions of PCR and antigen tests.

To track how strong the quarters would actually be, I was monitoring completed tests closely. That data was publicly available, state by state, city by city.

You could also get a clean read on OPKO's revenue trajectory just by watching confirmed COVID case counts.

More infections meant more urgency to test, which meant bigger government budgets flowing into diagnostics. Pretty simple logic, but most people weren't paying attention to it.

Naphtha decoded: what the feedstock actually tells you

So, back to Braskem and Petrobras.

How do you actually figure out whether polymer production is growing, along with cumene, benzene, ethylene or butadiene output?

You open Petrobras’s Production and Sales Report. Specifically, you look at domestic naphtha sales in the Brazilian market.

Yes, Naphtha is the core feedstock here, but unlike ethane, it produces a wide spectrum of products with very different economics.

Braskem runs naphtha through steam cracking at 800–900°C, where long hydrocarbon chains break via a radical mechanism into a mix of lighter components: ethylene, propylene, a C4 fraction including butadiene, and heavier byproducts.

Now that we’ve established the connection between naphtha and its chemical derivatives, let’s talk about Braskem’s role here.

Braskem is Petrobras’s largest naphtha customer, which means I can say with reasonable confidence that higher naphtha sales volumes from Petrobras signal stronger demand from Braskem. I’ll verify that assumption further down.

So here’s what caught my attention.

Petrobras was selling 88,000 barrels per day of naphtha, which as you can see in the chart below is the highest volume since the pre-COVID period, when Braskem was generating billions of dollars in quarterly EBITDA. That number is up 41.9% year over year and 63% quarter over quarter.

From there, I went back to stress-test my original assumption: higher naphtha volumes equal higher polymer and “Main Chemicals” production at Braskem.

The correlation test: does naphtha predict Braskem volumes?

A quick clarification here. Most investors think of Braskem purely as South America’s dominant polyethylene, polypropylene and polyvinyl producer. That’s not the full picture. Braskem is also a leading player in the synthesis of the chemical compounds I walked through earlier.

So, in Q4 Braskem sold 647 kton of Main Chemicals [produced in Brazil / South America, sold in the Brazilian market and for export].

For context, Braskem calculates the price per ton of “Main Chemicals” using the following blend:

Ethylene at 20%, Benzene at 20%, Gasoline at 25%, Butadiene at 10%, Propylene at 10%, Cumene at 5%, Paraxylene at 5% and Toluene at 5%.

For example, the price of benzene rose from $855 per ton on February 2 to $1,265 at the end of April in Europe.

Now I want to see whether there is at least a rough correlation between Braskem’s Main Chemicals volumes and Petrobras naphtha sales.

Looking purely at Main Chemicals versus naphtha, the correlation only shows up during large moves. Specifically, when quarterly naphtha sales shift by around 8 thousand barrels per day, Main Chemicals volumes tend to move by roughly 50 kilotons in the same direction.

The relationship might be cleaner if we compare Petrobras naphtha sales against Braskem’s resin volumes instead.

When naphtha growth hits the strong threshold of 8 thousand barrels per day or more, there were 4 such quarters over the period analyzed. In 3 out of 4 cases, or 75%, resin sales also posted strong growth of 50 kilotons or more: Q2 to Q3 2021 at plus 135 kilotons, Q2 to Q3 2023 at plus 190 kilotons, and Q1 to Q2 2025 at plus 58 kilotons.

The one exception was the Q4 2021 to Q1 2022 transition, where naphtha rose 8 thousand barrels per day but resins actually declined 25 kilotons.

So strong naphtha growth is accompanied by comparable resin volume growth in the majority of cases, which points to a moderate positive relationship between the two when moves are large enough to matter.

What 88,000 barrels per day actually means

So what does 88,000 barrels per day actually tell us?

At minimum, it tells us that polymer volumes in the coming quarter are likely to come in strong relative to the 2024–2025 baseline. That’s not a bold prediction, it’s just reading the data.

When Braskem’s largest feedstock supplier is moving naphtha at the highest rate since the pre-COVID boom, you don’t need a complicated model to understand what happens downstream.

75% hit rate on a leading indicator is something most analysts would take seriously, especially when the magnitude of the move, 41.9% year over year, 63% quarter over quarter, is this large.

I'm not guaranteeing a record quarter. But with naphtha running at these levels, I'd be genuinely surprised if resin volumes don't come in strong. The data is pointing in one direction.

Most people will wait for Braskem’s quarterly release to confirm it. By then, the move has already happened.

2. Braskem Idesa: from problem to catalyst

Q4 utilization hits an all-time high

Let me start with the Q4 report.

The average utilization rate of Braskem Idesa’s polyethylene facilities hit what I estimate to be an all-time high of 92%, driven by increased ethane imports through Terminal Química Puerto México.

The result: polyethylene sales volume came in at 221 kton in Q4, up 51.4% quarter over quarter and 13.3% year over year.

Given the closure of the Strait of Hormuz and the resulting sharp drop in polyethylene exports from Asia to Mexico, I expect Braskem Idesa to sell around 225 thousand tons in Q1 2026.

Why the Chapter 11 panic is overblown

Now, as you may recall, in early February rumors surfaced that Braskem Idesa would file for Chapter 11 due to insufficient cash to cover coupon payments on bonds maturing in 2029 and 2032. Then the Israel/U.S. war with Iran changed everything. The risk tied to their total debt of $2.6 billion as of end of 2025 hasn’t gone away.

But I think the retail panic around a potential filing is overblown. Take “Braskem Idesa S.A.P.I. 7.45% 19/29” as an example: that bond has moved from 53 to around 70 as of May 4th.

In my experience studying the 2008 crisis, secured senior bonds were trading in the 50 to 60 range right before companies actually filed for Chapter 11.

There’s more.

On April 28th, ICIS reported that Petrobras CEO Magda Chambriard flew to Mexico to meet with President Claudia Sheinbaum and Pemex executives.

Then on April 30th, Sheinbaum said she expects an agreement between Pemex and Petrobras to materialize, following the Brazilian president’s partnership proposal earlier this year.

In my view, these two developments raise the probability that Braskem Idesa’s creditors, along with billionaire Slim, will help engineer a debt refinancing that keeps Chapter 11 off the table.

The spread recovery the market is ignoring

On top of that, HDPE prices in Brazil and South America have been fluctuating between $1,750 and $1,950 per ton. Meanwhile, ethylene out of Texas, which is Braskem Idesa’s supply source, is running around $750 per ton.

That puts the HDPE spread at a minimum of $1,000 per ton in Q1, compared to $625 per ton in Q4.

Tracking the ships: what vessel data reveals about Q1 demand

Then I had an idea.

I decided to track the locations of two Braskem Idesa vessels: Brilliant Future and Brave Future, using Maritime Optima data.

Starting with Brilliant Future, IMO 9987615. The vessel has been running frequent voyages. Its most recent trip was from Houston to the state of Bahia, where Braskem operates the Camaçari petrochemical complex, which runs on ethane as its primary feedstock.

But the second vessel is where it gets interesting.

Brave Future, IMO 9987627, was not making the Houston to Brazil or Mexico run. It was heading to China in mid-April.

After Brave Future offloaded in China on April 22nd, it is now heading back to Texas. I think there is a strong probability it turns around and makes another run to the same Chinese customers, who are facing a sharp supply shortage driven by the war.

If that second voyage materializes, this stops being a one-off arbitrage and starts looking like a trade route being built in real time, ethane-based polyethylene from the U.S. Gulf Coast stepping into the void left by Asian suppliers effectively locked out of the Mexican and broader Latin American market.

We won’t have Q1 volume data until Braskem reports. But the vessel activity suggests the demand signal was strong enough to send the ship back for more. That’s not something you see in a soft market.

3. Takeaway

Braskem is priced like the worst case has already happened. The data says otherwise.

Naphtha at post-COVID highs. Braskem Idesa spreads recovering. Bonds stopped falling. Ships heading to China, not in ballast.

I’m not expecting a perfect setup. The debt load is real, and I’m not pretending it isn’t. But the market is pricing the risk, not the opportunity.

That’s where asymmetric trades live.

This is only Part 1. In the second part, I’ll walk through the remaining reasons behind my decision to add, despite the risks.

Publishing mid-week.

Disclaimer

The information provided in this publication is for informational and educational purposes only and should not be construed as financial, investment, legal, or tax advice. The views and opinions expressed are solely those of the author and are based on publicly available information believed to be reliable, but their accuracy and completeness cannot be guaranteed.

Nothing in this publication constitutes a recommendation, solicitation, or offer to buy or sell any securities, commodities, or financial instruments. Readers should conduct their own independent research and consult with a qualified financial advisor before making any investment decisions.

The author may hold positions in companies or assets mentioned in this publication and may change these positions at any time without notice. Past performance and historical trends are not reliable indicators of future results.

By reading this publication, you agree that the author and ALLKA Research shall not be held liable for any direct or indirect losses resulting from the use of the information contained herein.

At 15.3 months median follow-up:

• 100% MRD negativity (10⁻⁶) across all treated patients

• 100% overall response rate

• ~90% complete or stringent complete responses

• No disease progression or deaths observed

• Deep responses achieved after a single infusion, without induction or bridging therapy

Source: Nature

Now contrast this with phase 3 standards built around Darzalex-based regimens:

• ORR: ~90–93% (MAIA, NDMM setting)

• ≥CR: ~30–50% range depending on backbone

• MRD negativity: typically ~10–32% even in best combinations

• Median PFS: ~5 years in optimal populations

• Continuous multi-drug therapy required to maintain disease control

By the way, the Darzalex/Darzalex Faspro generated $3.96 billion in sales for Johnson & Johnson in Q1, up 22.5% year-over-year.

Source: graph was made by Author based on the financial reports of Johnson & Johnson

The key gap is not response rate — it is depth of response at the molecular level.

Darzalex-based regimens control disease over time.
CAR-T in this dataset is showing something different: potential complete molecular eradication in a pre-symptomatic disease window.

This is why the Dana-Farber HR-SMM dataset matters.

It suggests that when multiple myeloma is treated earlier — before full clonal expansion — CAR-T may not just extend progression-free survival, but fundamentally shift the therapeutic endpoint from chronic control to functional cure signals.

But the structural message is clear:

The gap between ~30% MRD negativity (best-in-class anti-CD38 therapy) and 100% MRD negativity (CAR-T in HR-SMM) is no longer incremental.

Fresh data from BusinessAnalytIQ’s regional price indices show Latin America (LATAM) polyethylene and polypropylene prices have climbed all the way back to their 2021 pandemic peaks — the highest levels recorded during the COVID-19 supply shock.

Both PE and PP in LATAM are once again trading at those historic tops, reflecting tight regional availability and strong downstream demand recovery.

The standout move, however, is in Europe’s polyethylene market.

After trading in the $1.4–1.6/kg range through most of 2024, European PE has nearly doubled relative to typical COVID-era pricing levels, surging above $2.65/kg in the latest actual data before the outlook begins to ease.

Source: Business Analytiq

That is one of the sharpest regional spikes seen in the entire 2015–2027 series and leaves Europe trading at a substantial premium to the U.S., China/NEA, and Southeast Asia.

Polypropylene shows parallel tension.

Europe again leads the upside with a pronounced 2025 spike, while LATAM has matched its own 2021 highs. Most other regions — including the U.S., India, and Africa — remain well below those pandemic-era ceilings, underscoring a highly fragmented global market.

Business Analytiq

Forward curves in both charts point to gradual moderation through 2026–2027, yet the near-term surge highlights lingering vulnerabilities: energy costs in Europe, logistical bottlenecks, and shifting trade flows are once again dictating price action.

Bottom line: the plastics complex is flashing the same regional divergences that defined the 2020–2021 volatility.

For producers, converters, and commodity traders, the message is unmistakable — LATAM is back at COVID highs, Europe’s PE is pricing in a new stress premium, and the outlook remains anything but smooth.

The first image (Google Maps) highlights the location of key petrochemical assets, including steam crackers and downstream production units concentrated within the cluster.

Source: Google Maps

The second image, based on NASA’s FIRMS fire detection system, shows multiple active heat signatures. These are not scattered anomalies — they align directly with core production areas identified in the first image, indicating that primary processing infrastructure has been affected.

Source: NASA

The impacted zone includes assets operated by Petrokemya, a wholly owned affiliate of SABIC. The site has an installed capacity of approximately 5.15 million tonnes per year, covering olefins, polyethylene, polystyrene, and PVC/VCM.

Market reaction has been immediate. Prices for Saudi polyethylene have already moved above $2,000 per ton, reflecting expectations of supply disruption from one of the world’s most critical export hubs.

Source: Polymerupdate

Al Jubail plays a central role in global petrochemical flows, particularly into Asia and Europe. Any sustained outage at this scale would materially tighten supply across multiple polymer chains.

At first glance, these periods appear fundamentally different. In reality, they are variations of the same mechanism:

naphtha drives costs, polymers follow with a lag, and spreads determine everything.

Today, however, both management commentary and Braskem stock suggest a level of pessimism that appears disconnected from observable polymer prices—particularly when compared to 2022.

Part 1. The COVID Shock: When Deleveraging Was Not What It Seemed

The onset of the COVID-19 created a highly asymmetric shock across the petrochemical value chain, and Braskem was a clear beneficiary—at least at the EBITDA level.

However, a closer look at 2020 suggests that the company’s rapid deleveraging was driven less by structural balance sheet improvement and more by a temporary dislocation between feedstock costs, product pricing, and working capital dynamics.

In Q1 2020, naphtha prices hovered around $414/ton, reflecting the lagged impact of collapsing oil demand.

By Q2 2020, prices had fallen sharply to approximately $236/ton, implying a ~43% sequential decline.

In the 3rd quarter its price rose to $377/ton as I indicated in the chart below.

Source: graph was made by Author based on the financial reports of Braskem [Brazil]

At the same time, downstream polymer prices remained relatively stable.

I must note that from now on and in this part of the article, I will only discuss the second and third quarters of 2020.

• Polypropylene Asia: ~$806 → $899

• Polyethylene U.S.: ~$703 → $904

• Polyvinyl Asia: ~$693 → $813

Source: graph was made by Author based on the financial reports of Braskem [Brazil]

This divergence led to a rapid expansion in spreads, particularly in polyethylene, which translated almost mechanically into higher profitability.

Source: graph was made by Author based on the financial reports of Braskem [Brazil]

The impact on earnings was immediate. EBITDA in Brazil increased from $219 million in 2Q20 to $529 million in 3Q20 (+148% QoQ), while the United States and Europe segment rose from $45 million to $133 million (+223% QoQ).

Source: Braskem

The recovery was supported by both improved margins and a normalization in operating rates, with Brazilian utilization reaching 87% (+17 p.p. QoQ).

At the headline level, this translated into rapid deleveraging. Net debt remained broadly stable, but the surge in EBITDA drove net debt-to-EBITDA from above 7x to below 5x within a single quarter, creating the impression of a structurally improving balance sheet.

Source: Braskem

Management Commentary

Despite this apparent improvement, a critical offsetting force was developing beneath the surface—one tied directly to feedstock sourcing.

Historically, Braskem relied heavily on imported naphtha, not only for cost optimization but also for financing flexibility. International suppliers typically offered extended payment terms, allowing the company to delay cash outflows and support working capital. In 2020, this model shifted following a commercial agreement with Petrobras.

As a result, Braskem increased domestic purchases to approximately two-thirds of total naphtha consumption. While the agreement included a meaningful discount of $15–35 per ton, it fundamentally altered cash flow dynamics.

When we import, we are able to have extended payment terms from our suppliers. So we have in working capital a good volume coming from this imported naphtha purchase.

And a lot of that naphtha is being paid or was paid in the 1H of this year. Now this year, it is a reverse. We are buying roughly 2/3 of our naphtha from Petrobras.

And because of that with Petrobras, we do not have the extended payment terms. So in the end, looking at cash flow, we are paying naphtha from last year and we are also paying naphtha for this year from the purchases from Petrobras.

The timing of this transition amplified its impact. During the first half of 2020, the company was simultaneously settling deferred payments related to imported naphtha while also paying for current Petrobras volumes on a much shorter cycle. This created a double cash outflow, which offset much of the EBITDA-driven improvement.

That is why you will see the draw on cash from working capital. Moving forward, and looking at the 2H20, we will continue prioritizing the purchases of naphtha according to market dynamics.

Because the naphtha price is holding up in the 2H20, I would think that the usual situation is that we would increase import a little bit.”

Interim conclusion

The key takeaway is not the strength of the recovery itself, but its composition. Braskem’s deleveraging during this period was driven primarily by a denominator effect—EBITDA expansion—rather than a fundamental improvement in cash generation.

This created a temporary disconnect between profitability and liquidity, where margins improved sharply but cash flow lagged due to adverse working capital dynamics.

Part 2. 2022: Geopolitics, Cost Inflation, and the Limits of Resilience

The first quarter of 2022 marked a turning point for the petrochemical cycle. While headline polymer prices remained elevated—at levels comparable to those seen in late 2025 in China—the underlying economics for Braskem deteriorated materially.

Source: graph was made by Author based on the financial reports of Braskem [Brazil]

The key difference from 2020 was not pricing, but cost pressure.

Naphtha prices surged to approximately $884/ton in 1Q22, more than 3x from the trough levels observed in 2Q20. At the same time, polymer prices remained relatively strong:

• Polypropylene Asia: ~$806 → $899

• Polyethylene U.S.: ~$703 → $904

• Polyvinyl Asia: ~$693 → $813

Source: graph was made by Author based on the financial reports of Braskem [Brazil]

At first glance, this pricing environment appeared supportive. However, unlike the COVID dislocation—where falling feedstock costs expanded margins—2022 was defined by input cost inflation outpacing downstream pricing, resulting in a sharp compression of spreads.

This shift was directly reflected in financial performance. Braskem reported Recurring EBITDA of $920 million in 1Q22, down 19% sequentially and 27% year-over-year, despite still-elevated polymer prices. The decline was primarily driven by the normalization—and in many cases compression—of spreads across key products and regions.

Source: Braskem

Spread Compression Across the Portfolio

The deterioration was broad-based and structurally different from the demand-driven weakness seen in 2020:

• PE spreads in Brazil declined 28% QoQ, as rising naphtha prices offset stable demand

• PP spreads contracted 26% QoQ, reflecting higher feedstock costs and weaker Asian demand

• PVC spreads fell 21% QoQ, driven by lower prices and rising input costs

In the U.S. and Europe, the pattern was similar. Even where demand remained relatively healthy, margin pressure emerged due to cost inflation and normalization of supply conditions following earlier disruptions such as Winter Storm Uri.

Management Commentary (1Q22 Call)

“The beginning of 2022 was marked by geopolitical tensions, which brought a lot of volatility to the petrochemical scenario.”

“the expectation of external consultants for the PE naphtha spreads for 2022 is already at a level above the pre-war Russia and Ukraine.”

“for the remaining quarters of this year, PE naphtha spreads are expected to remain at healthy levels and above the recent historical average”

Despite this relatively constructive forward-looking tone, the actual quarterly data suggests that “healthy” spreads were already under pressure in real time, particularly when compared to the extraordinary levels seen in 2021.

Interim conclusion

If 2020 demonstrated how quickly EBITDA can expand when feedstock costs collapse, 2022 showed the opposite: how rapidly profitability can erode when costs rise faster than prices.

Braskem entered 2022 with a more diversified and theoretically resilient operating model. However, the quarter made clear that diversification can mitigate—but not eliminate—exposure to global commodity cycles.

The key distinction relative to 2020 is critical:

• 2020: Falling costs → expanding spreads → EBITDA-driven deleveraging

• 2022: Rising costs → compressing spreads → EBITDA contraction despite high prices

This shift underscores a recurring theme in Braskem’s financial profile:
headline pricing is a poor proxy for profitability.

Part 3. 2026: Geopolitics, Structural Pressure, and a Mispriced Cycle

The first quarter of 2026 once again places Braskem at the intersection of geopolitics and petrochemical cycles. However, unlike both 2020 and 2022, the current environment combines elements of both phases—rising feedstock costs and tightening supply—while the equity market reflects a far more pessimistic view.

Naphtha prices averaged around $760/ton in 1Q26, rising to approximately $850+/ton by the end of March, driven by escalating tensions in the Middle East.

Source: TRADING ECONOMICS

At the same time, polymer prices in China [largest chemicals manufacturer in the world] have been moving higher, albeit with a lag:

• Polypropylene (PP): ~8,100 → 9,184 CNY/t ($1,157 → $1,312)

• Polyethylene (PE): ~8,000 → 8,693 CNY/t ($1,142 → $1,241)

TRADING ECONOMICS

This lagged transmission mechanism—where feedstock costs adjust first and polymer prices follow—remains a defining feature of the petrochemical cycle. In the short term, it compresses margins; only later does pricing catch up, partially restoring spreads.

Geopolitical Shock: Supply Risk, Not Demand Collapse

The current volatility is being driven not by demand destruction, but by supply-side risks linked to the Middle East.

Management Commentary (4Q25 Call)

“we have observed an escalation of tensions in the Middle East involving the United States Israel and Iran… reflected in greater volatility in commodity prices, especially Brent crude oil and naphtha”

“Naphtha has followed this volatility given its direct link to oil, which can impact the costs of the petrochemical chain”

“lower availability of feedstock imported from the Middle East… could lead to shutdowns and production reductions”

“a scenario of lower global supply could lead to an increase in operating rates to meet the shortage of resins”

A key risk factor remains the potential disruption of the Strait of Hormuz, which is critical for global petrochemical flows. Management estimates that a severe restriction scenario could reduce global polyethylene supply by 6–19 million tons (4–11%) and polypropylene by 7–10 million tons (4–5%).

This introduces a dynamic not seen in 2020 or 2022:
simultaneous cost inflation and potential supply tightening, which could eventually support prices—but only after an initial margin squeeze.

Industry Backdrop: Weak Utilization, Fragile Demand

Despite rising prices, the industry enters this phase from a position of structural weakness.

Cycle Pressure (Key Quote)

“the prolonged petrochemical downcycle has resulted in lowest industry operating rates in decades… 79% for polyethylene and 74% for polypropylene”

Global demand for polyethylene and polypropylene declined by approximately 3 million tons, reflecting weaker consumption across key regions. This means that, unlike 2020, higher prices are not being driven by strong demand, but rather by cost push and supply constraints.

Feedstock Strategy: Reduced Risk, Not Eliminated Exposure

One of the most important structural changes since 2020 is Braskem’s gradual reduction in naphtha dependency.

Strategic Direction (Key Quotes)

“today, we are 80% naphtha-based… and our plan is, by 2030, to reach 60% naphtha and 40% ethanol and gas”

“we’re also importing ethane from the U.S… as a way of sidestepping the increasing cost of feedstocks”

This diversification is already visible across regions:

• Brazil: partial shift toward ethane and propane

• U.S.: structurally advantaged gas-based operations

• Mexico (Braskem Idesa):

  • predominantly ethane-based

  • minimal direct exposure to naphtha

Operational data confirms this shift. In 4Q25, Braskem Idesa increased ethane supply to ~29.4 kb/d (imports), alongside 15.9 kb/d from Pemex and additional Fast Track volumes. This supported higher utilization rates and reinforces the structural advantage of gas-based production.

Sourcing Advantage: Relative, Not Absolute

Unlike Asian competitors, Braskem’s feedstock supply is not structurally constrained.

Sourcing Commentary

“our main supplier of naphtha is the U.S… the U.S. has a surplus of naphtha supply”

“with regard to our naphtha supply… it is not impacted by any of these conflicts”

“of course, there is an impact in higher prices”

This creates a relative advantage versus Asian producers dependent on Middle Eastern supply, some of whom are already reducing operating rates. However, the benefit is price-based rather than cost-based—Braskem still pays higher global prices, even if supply is secure.

Pricing Actions: Cost Pass-Through Under Constraints

Recent commercial actions highlight the current environment. In Brazil, Braskem implemented a R$6,500/ton increase in polyethylene prices, combined with strict volume caps (initially ~35% of demand).

Valuation Disconnect: 2022 vs 2026

Perhaps the most striking feature of the current setup is the divergence between fundamentals and equity pricing.

• 1Q22:

  • Polymer prices: ~$1,350–1,380/t

  • Naphtha: ~$950/t

  • Stock: ~$18

• 1Q26:

  • Polymer prices: ~$1,200–1,350/t (now rising above 2022 levels)

  • Naphtha: ~$760–850/t

  • Stock: ~$3.5

Despite a broadly similar pricing environment—and in some cases higher polymer prices—the stock trades at a fraction of its 2022 level.

Conclusion: A Cycle Misread

Across all three periods, one principle holds:

Today, the market appears to be extrapolating short-term cost pressure while ignoring:

• stabilization in naphtha (~$820–850)

• continued recovery in polymer prices

• lagged margin expansion potential

• structural diversification away from naphtha

At the same time, management commentary remains heavily focused on downside risks—geopolitics, logistics, and volatility—despite a setup that is fundamentally less severe than 2022.

The result is a rare alignment:

• cycle improving (with lag)

• management cautious

• equity deeply discounted

In this context, Braskem is not simply a leveraged petrochemical company under pressure.

It is a case where:

Disclaimer

The information provided in this publication is for informational and educational purposes only and should not be construed as financial, investment, legal, or tax advice. The views and opinions expressed are solely those of the author and are based on publicly available information believed to be reliable, but their accuracy and completeness cannot be guaranteed.

Nothing in this publication constitutes a recommendation, solicitation, or offer to buy or sell any securities, commodities, or financial instruments. Readers should conduct their own independent research and consult with a qualified financial advisor before making any investment decisions.

The author may hold positions in companies or assets mentioned in this publication and may change these positions at any time without notice. Past performance and historical trends are not reliable indicators of future results.

By reading this publication, you agree that the author and ALLKA Research shall not be held liable for any direct or indirect losses resulting from the use of the information contained herein.

Market attention has rightly focused on cyclical spreads and utilization rates, but the potential transfer of control from troubled investor Novonor to private equity firm IG4 Capital [with the implicit support of Petrobras] represents a rare opportunity to reset Braskem’s capital structure and governance framework.

Regulatory Structure Still in Play

Now with regard to the change in the company's shareholder situation and controlling structure, the Brazilian CADE has approved. And now in the U.S., the -- their organization still needs to investigate and approve.

My thoughts and implications for Braskem:

From my perspective, while U.S. regulatory approval is still pending, this is a standard step in cross-border M&A. I view it as a manageable hurdle rather than a risk.

Braskem’s compliance and transparency with authorities give me confidence that approval is likely, and once it’s secured, it removes uncertainty around Novonor’s stake, paving the way for potential strategic improvements and faster debt restructuring. This is a step toward stabilizing the company’s shareholder base.

Company Not a Direct Negotiating Party

I'd just like to highlight that Braskem is not party to these discussions or to these negotiations. And when -- and if Braskem is notified, then we will, in turn, notify the market immediately.

My thoughts and implications for Braskem:

I interpret this as a way for Braskem to maintain operational focus while the deal progresses.

This detachment reduces distraction, meaning the company can stay disciplined in its day-to-day operations. At the same time, a successful transaction could bring in a shareholder aligned with growth and stability, enhancing Braskem’s long-term strategic flexibility.

Shareholder Change Could Accelerate Debt Restructuring

Now with Novonor and the Shining (sic) [ Shine I ] credit funds, including with any related topics will all be announced to the market if and when they arise.

My thoughts and implications for Braskem:

I see the potential exit of Novonor as a major positive. Removing a problematic investor opens the door for more aggressive and efficient debt restructuring, particularly with Petrobras.

Shareholder Discussions and Regulatory Review

As we've mentioned at the beginning of the call, there was public information that was published by the CADE and was materialized by the U.S. in the beginning of March with regard to the antitrust and final negotiations with the shareholders.

So this is a topic that for us, there is our due diligence, the analysis that's done by potential investors.

This remains ongoing here at the company, and we continue to respond to these requests in a timely manner. So -- and to send them to the market so that the market remains apprised in a timely manner as well.

My thoughts and implications for Braskem:

In my opinion, even though Braskem is not directly involved in these shareholder discussions or negotiations, I am encouraged by how the company is actively monitoring the situation and prepared to notify the market promptly once informed.

By staying responsive to inquiries and keeping the market updated, I believe Braskem is positioning itself to advance its strategic and financial plans more smoothly once these external steps are resolved.

Petrobras as a Catalyst — Not a Roadblock

So Petrobras is notified in a very timely manner of everything happening at Braskem. In addition, the Petrobras Board has direct access to the Braskem Board. And we talk every week, multiple times a week.

So Petrobras is fully aware of the Braskem situation and the extremely negative petrochemical cycle. They are also enormously interested in the stake that they hold here at the company and the interest they have at the company.

My thoughts and implications for Braskem:

Crucially, Petrobras’ receptiveness to IG4’s proposal (as reported by Reuters) reinforces the viability of the transaction and suggests alignment among major stakeholders.

For Braskem, a supportive Petrobras reduces the likelihood of drawn‑out shareholder conflict and increases the odds of a smoother transition — potentially unlocking better financing terms, given Petrobras’ own strategic interest in the viability of its largest petrochemical partner.

IG4 Momentum Continues

Rosana Avolio said the following.

Could there be any type of support from Petrobras to Braskem considering that the transaction with IG4 has been approved and the new shareholders' agreement is likely to be signed briefly.

Felipe Montoro Jens answered.

And with regard to the relevance between Petrobras and Braskem, we continue to work to develop future improvements and commercial conditions. Of course, respecting both parties so that both parties can reach an agreement that is fruitful for both companies.

I believe that these discussions remain ongoing in parallel. They've always remained ongoing regardless of the -- any potential shareholder situation.

My thoughts and implications for Braskem:

I interpret this as a possible signal that, even without formal commitments, management may be hinting at a supportive stance from Petrobras over time.

I also find it notable how the question itself was framed-highlighting that the IG4 transaction has been approved and that a new shareholders’ agreement is “likely to be signed briefly.”

To me, this implicitly points to a near-term timeline for the deal, and management’s willingness to engage with the question may indicate that progress is indeed advancing toward completion.

Conclusion

In my view, the potential transition of control to IG4 Capital represents a meaningful turning point for Braskem. Beyond the operational challenges highlighted in the call, this transaction could mark the beginning of a structural shift — away from the overhang of Novonor and toward a more flexible and investment-driven ownership structure.

What reinforces my constructive view is the broader regulatory backdrop. The European Commission’s filing — C/2026/1839 (Case M.12316 – IG4 Group / Petrobras / Braskem) — has been classified as a candidate for simplified procedure, which typically implies limited competition concerns and a more streamlined review process.

Source: EUR-Lex: EU law

Importantly, the notification has already been submitted, and the review timeline is progressing toward its deadline, suggesting that regulatory clarity may arrive in the near term.

Taken together, I see a setup where multiple pieces are gradually aligning: regulatory approvals advancing, due diligence ongoing, and continued engagement with Petrobras.

If the process concludes as expected, Braskem could emerge with improved governance, stronger strategic alignment, and a clearer path toward addressing its balance sheet — all of which have the potential to unlock a re-rating over time.

Disclaimer

The information provided in this publication is for informational and educational purposes only and should not be construed as financial, investment, legal, or tax advice. The views and opinions expressed are solely those of the author and are based on publicly available information believed to be reliable, but their accuracy and completeness cannot be guaranteed.

Nothing in this publication constitutes a recommendation, solicitation, or offer to buy or sell any securities, commodities, or financial instruments. Readers should conduct their own independent research and consult with a qualified financial advisor before making any investment decisions.

The author may hold positions in companies or assets mentioned in this publication and may change these positions at any time without notice. Past performance and historical trends are not reliable indicators of future results.

By reading this publication, you agree that the author and ALLKA Research shall not be held liable for any direct or indirect losses resulting from the use of the information contained herein.

In this article, I take a detailed look at historical trends in provisions, examine the efficiency of settlements, and assess the implications for Braskem’s financial health and strategic flexibility.

My goal is to provide investors with a clear picture of risk normalization, operational improvements, and when the company might reach a point of maximum financial efficiency.

Historical Trends and Provisions Dynamics

Analyzing Braskem’s Alagoas operations over the past three years, I observe a clear trajectory in the Balance of Provisions that signals how the company manages operational risk and potential liabilities.

From Q1 2023 to Q4 2025, the provision balance decreased from R$6.1 billion to R$3.5 billion, albeit with a notable spike at R$5.6 billion in Q4 2024.

At the same time, the number of proposals presented increased modestly, from 18,933 to 19,201, while paid proposals steadily approached the total, indicating more predictable and efficient settlements.

Source: table was made by ALLKA Research

The Q4 2024 spike is particularly noteworthy.

Based on the company’s operational context, this temporary increase reflects a new recommendation from the specialized technical consultancy hired to conduct studies on the definitive closure of the salt cavities.

Specifically:

• An increase was recorded in the provision for filling 11 pressurized cavities with solid material, currently belonging to the Plugging and Pressurization group.

• This action follows the evolution of knowledge about the long-term stabilization of the cavities, based on monitoring data collected to date and the need to define the definitive closure of the Mine, as mandated by mining legislation.

• The estimated additional provision is approximately R$1.2 billion, related to measures for filling the pressurized cavities, which, if necessary, will begin in 2027 and be executed over several years or decades.

On the Q4 2024 earnings call, Rosana Avolio had this to say.

On the salt cavity closure front, a new recommendation from the technical consultancy hired by the company considers that once the current filling plan has been completed, it is recommended to fill the cavities that are currently pressurized.

To this end, the company increased its provision by R$1.3 billion, of which R$1.2 billion was earmarked for measures to fill in the eleven salt cavities that are currently part of the tamponing and pressurization group with solid material.

In this way, provision is made for actions to ensure that the 35 cavities reach a maintenance-free state in the long term. These actions for definitive closure, in case they be necessary, are scheduled to begin in 2027, with execution over several years or even decades.

This historical view demonstrates that Braskem is not only reactive but also increasingly proactive in managing operational and financial uncertainties.

Efficiency in Settlements and Operational Improvements

From Q1 2025 onward, the trend shifts toward a consistent decline in provisions, reaching a low of R$3.5 billion by Q4 2025, even as proposals presented slightly grow.

Source: table was made by ALLKA Research

This clearly indicates improved efficiency in claims management: paid proposals nearly match total proposals, signaling that Braskem is resolving obligations in a more predictable and structured manner.

I interpret this trend as evidence of several strategic improvements:

• Faster claims resolution: Reduced need for precautionary provisions and more accurate liability forecasting.

• Enhanced operational processes: Adjustments in Alagoas plants seem to have mitigated recurring incidents that previously contributed to higher provisions.

• Optimized cash allocation: Lower and more predictable provisions free up capital, enabling more targeted investments or debt management.

On the Q4 2025 earnings call, management confirmed the progress.

Now with regard to the Alagoas' geological event, we signed an agreement with the state valued at BRL 1.2 billion in payment, of which the vast majority has already been paid.

And so considering the total provisioned amount of BRL 18 billion and the payments that company has already disbursed by the end of 2025, we have a remaining provisioned amount of BRL 3.5 billion to be paid over the coming years, which demonstrates the company's strong commitment and healthy advances in improving the situation after the Alagoas event.

Looking ahead, I see a clear opportunity: if the Balance of Provisions stabilizes below R$4 billion consistently, Braskem will enter a new phase of financial robustness. At this point, the company could redirect resources toward growth initiatives, operational expansion, and efficiency programs without compromising risk coverage.

When Will the Situation Improve Significantly?

Based on the trend, I expect that by mid-2026, Braskem could consistently maintain provisions below R$2.5–2.8 billion, paid proposals would fully track total proposals, and operational efficiencies would be fully reflected in cash flow and working capital.

At that stage, the company will enjoy maximum flexibility to execute strategic plans while minimizing unexpected financial risks.

Conclusion

From my analysis, Braskem’s Alagoas operations are steadily normalizing in terms of risk exposure and operational efficiency. While Q4 2024 highlighted a temporary pressure point due to the salt cavity closure provision, subsequent quarters clearly reflect proactive management and stronger claims handling.

For investors, I focus on three leading indicators:

1. Balance of Provisions consistently below R$3 billion

2. Paid proposals closely tracking proposals presented

3. Management commentary confirming operational and regulatory improvements

If these trends continue, Braskem will likely unlock enhanced cash flow, greater operational predictability, and a solid foundation for sustained growth, ultimately improving investor confidence and strategic flexibility.

Disclaimer

The information provided in this publication is for informational and educational purposes only and should not be construed as financial, investment, legal, or tax advice. The views and opinions expressed are solely those of the author and are based on publicly available information believed to be reliable, but their accuracy and completeness cannot be guaranteed.

Nothing in this publication constitutes a recommendation, solicitation, or offer to buy or sell any securities, commodities, or financial instruments. Readers should conduct their own independent research and consult with a qualified financial advisor before making any investment decisions.

The author may hold positions in companies or assets mentioned in this publication and may change these positions at any time without notice. Past performance and historical trends are not reliable indicators of future results.

By reading this publication, you agree that the author and ALLKA Research shall not be held liable for any direct or indirect losses resulting from the use of the information contained herein.

Origins of the Alagoas Crisis: Before the Damage

Before the crisis, Braskem operated a long-established rock salt extraction business in Maceió, the capital of Alagoas.

The company used solution mining, injecting water into underground salt layers, dissolving them, and extracting brine for chlor-alkali production. This operation dates back to the 1970s and supplied key inputs like chlorine and caustic soda.

A critical risk, however, was structural:

🟥 extraction was conducted directly beneath dense urban districts such as Pinheiro, Mutange, and Bebedouro.

For decades, no large-scale surface damage was formally identified.

What the Area Looked Like Before the Crisis

The image below shows a densely populated urban grid in Maceió, with fully developed residential neighborhoods, schools, and infrastructure located directly above Braskem’s mining areas.

Source: Google Earth

🟥 This is essential context: the crisis did not begin in a remote or industrial zone, but in a fully functioning city environment.

And now.

Source: Google Maps

The Trigger: 2018 Seismic Event

In March 2018, a low-magnitude earthquake (~2.5–2.7) marked the turning point.

Residents soon reported:

• cracks in buildings

• uneven floors

• ground subsidence

• road deformation

Investigations by CPRM linked the damage to instability in underground salt caverns created by Braskem.

Escalation and Attribution (2019–2020)

By 2019, the issue became a full-scale urban crisis.

CPRM confirmed that:

• subsidence

• structural damage

• collapse risk

were directly tied to mining activity.

More than 14,500 properties were affected, forcing authorities to begin large-scale evacuations and pushing Braskem into negotiations.

Source: Braskem

Compensation Framework: How Braskem Structured Payments

Rather than prolonged litigation, Braskem moved relatively quickly toward a comprehensive settlement model, which became one of the largest urban compensation programs in Brazil.

2019 Initial Agreement (Public Prosecutors + Authorities)

Braskem signed agreements with:

• Ministério Público Federal

• Ministério Público do Estado de Alagoas

This established the foundation for:

• financial compensation

• relocation programs

• social mitigation measures

Source: Braskem

Scale of Execution (Q3 2025 Update)

By the end of September 30, 2025, Braskem had effectively moved the Alagoas crisis into its final execution phase, with most operational and financial fronts largely completed.

Compensation & Relocation

The Financial Compensation and Relocation Support Program (PCF) is essentially complete:

• 99.9% (19,197) of proposals submitted

• ~99.5% already paid

🟥 This indicates that nearly all affected residents have been compensated and relocated, removing the largest source of uncertainty.

Cavern Closure Progress

The company continues to execute the technical closure of 35 salt caverns:

• 6 caverns fully filled with solid material

• 2 reached technical filling limits

• 5 currently in filling process

• 5 in preparation phase

• 6 caverns naturally filled (confirmed by ANM)

• 11 caverns remain pressurized for long-term closure strategy

🟥 Importantly, the process is now engineering-driven rather than crisis-driven, with a clear path toward a maintenance-free final state.

Financial Liabilities & Accounting Shift

At the end of Q3 2025:

• Provision balance declined to R$ 3.8 billion (-19% QoQ)

However, this reduction is primarily accounting-driven, due to:

• reclassification of obligations into “Other Payables”

• reflecting execution (payments) rather than risk reduction

🟥 In other words, liabilities are being paid and scheduled, not expanding.

Source: Braskem

State Agreement: A Key Turning Point

On November 10, 2025, Braskem signed a landmark agreement with the State of Alagoas:

• Total value: R$ 1.2 billion

• R$ 139 million already paid

• Remaining balance: 10 variable annual installments, mostly post-2030

Crucially:

🟥 The agreement provides full discharge from state-level damages, including:

• property

• non-property claims

and includes the termination of the state’s indemnification lawsuit (subject to judicial approval).

Current situation

This is Marcelo Braskem. This was 4 months ago, but now everything has been covered with sand and the road has been completed.

Source: PJM DRONE - IMAGENS AÉREAS EM 4K

And now.

Source: PJM DRONE - IMAGENS AÉREAS EM 4K

Another angle.

4 months ago.

Source: PJM DRONE - IMAGENS AÉREAS EM 4K

And now.

Source: PJM DRONE - IMAGENS AÉREAS EM 4K

Infrastructure Expansion in Bebedouro, Maceió

Significant earthworks are now underway near Braskem’s Bebedouro facilities, reflecting major stabilization of previously affected terrain.

But 4 months ago the situation was like this.

Source: PJM DRONE - IMAGENS AÉREAS EM 4K

Continue.

Heavy machinery is leveling ground, building embankments, and creating drainage channels, preparing the area for a new road interchange. The reinforced mounds and barriers protect infrastructure and isolate previously risky zones, while channels manage water to prevent further subsidence.

Source: PJM DRONE - IMAGENS AÉREAS EM 4K

These works are part of Braskem’s plan to permanently close the salt wells in Maceió. Rock salt extraction halted in May 2019, and the company has been implementing measures approved by the Brazilian National Mining Agency (ANM). Completion of the closure and associated stabilization is scheduled for mid-2026.

The active construction shows that the most critical phase of geological instability is behind, allowing Braskem to safely advance long-term infrastructure and regional development.

Takeaway

I genuinely believe the Braskem crisis in Alagoas is finally turning a corner. The complete halt of rock salt extraction in May 2019 and a structured, ANM‑approved plan to permanently close the 35 wells — with work due to finish by mid‑2026 — have been pivotal.

Most compensation claims have been worked through, and settlements have eased social and legal pressures. With soil stabilization and community agreements advancing, the acute phase of this crisis is winding down and debt and reputational risks are declining.

Disclaimer

The information provided in this publication is for informational and educational purposes only and should not be construed as financial, investment, legal, or tax advice. The views and opinions expressed are solely those of the author and are based on publicly available information believed to be reliable, but their accuracy and completeness cannot be guaranteed.

Nothing in this publication constitutes a recommendation, solicitation, or offer to buy or sell any securities, commodities, or financial instruments. Readers should conduct their own independent research and consult with a qualified financial advisor before making any investment decisions.

The author may hold positions in companies or assets mentioned in this publication and may change these positions at any time without notice. Past performance and historical trends are not reliable indicators of future results.

By reading this publication, you agree that the author and ALLKA Research shall not be held liable for any direct or indirect losses resulting from the use of the information contained herein.

So, I stumbled upon these hooligans spreading lies about raw material supplies to Braskem.

So, a closer look at Braskem’s latest Form 20-F clearly shows that these concerns are largely misplaced.

Petrobras Remains the Core Supplier

Braskem’s operations in Brazil are still heavily anchored to Petrobras.

• Petrobras has historically supplied up to 70% of the naphtha consumed by Braskem’s Brazil segment.

• It is also the primary supplier of ethane, propane, propylene, and refinery streams.

• Additionally, Petrobras accounts for roughly 40% of Braskem’s propylene supply under long-term contracts.

This makes Petrobras, not Middle Eastern exporters, the dominant and structurally embedded supplier within Braskem’s core operations.

Source: Braskem

Naphtha Exposure: Diversified and Global

Naphtha is indeed Braskem’s most important feedstock, accounting for 32% of total cost of goods sold in 2024.

But the key point is geographic diversification.

According to the company’s own disclosures, naphtha and condensate sourcing for the Brazil segment is distributed as follows:

Source: Braskem

No Structural Reliance on the Middle East

Braskem explicitly states that it:

• Purchases naphtha under annual contracts with international suppliers

• Supplements supply via spot purchases from regions including Africa, Europe, North America, and Latin America

There is no indication of reliance on suppliers from the Persian Gulf.

Importantly, Braskem’s African supply is not concentrated in geopolitically sensitive Middle Eastern-linked routes. Instead, it primarily comes from North African producers such as Algeria, Morocco, and Libya.

Takeaway

Braskem is not operationally dependent on naphtha supplies from the Middle East.

• Its feedstock base is anchored by Petrobras

• Its imports are diversified across multiple regions

• Its exposure to Middle East tensions is primarily price-related, not supply-driven

As a result, current geopolitical risks involving Iran and Gulf countries are unlikely to disrupt Braskem’s production, though they may still influence input costs through global pricing dynamics.

Source: Congresso Nacional

Mechanics of the Bill

At its core, PLP 14/2026 is a stopgap mechanism designed to prevent a sharp deterioration in industry economics during 2026, following the discontinuation of the previous REIQ tax regime.

The legislation reduces PIS/COFINS taxes on key petrochemical feedstocks.

Effective rates drop from 8.52% during January 2025 through February 2026 to 3.45% from March through December 2026, implying a 507 basis point reduction on critical inputs, including natural gas, naphtha derivatives, and core intermediates such as phenol, acetone, and purified terephthalic acid.

Source: Congresso Nacional

Feedstock costs typically represent 60%–70% of Braskem’s cost of goods sold, meaning this relief could significantly compress cash costs per ton of ethylene and polyethylene.

Source: Braskem

Potential Financial Impact

A back-of-the-envelope sensitivity analysis, assuming $8 billion–$10 billion of annual feedstock exposure, suggests that a 5% reduction in costs could theoretically boost EBITDA by $320 million–$400 million.

This aligns with the widely cited $300 million–$380 million range. However, the bill’s hard fiscal cap limits total sector relief to R$2 billion (≈$400 million) in 2026, which tempers the headline potential.

Source: Congresso Nacional

Considering Braskem’s share of domestic production and feedstock usage, I estimate the company could realistically capture 30%–50% of the total pool.

This translates into an actionable EBITDA uplift of $120 million–$200 million, representing a 25%–40% increase relative to the current run-rate, depending on macro and cycle conditions.

Conclusion: A Capped Fiscal Bridge

PLP 14/2026 effectively lowers feedstock taxation by over 500 basis points but imposes a sector-wide limit of R$2 billion.

For Braskem, this results in a tangible and executable EBITDA boost of $120 million–$200 million. While sufficient to stabilize margins and mitigate downside risk, it does not constitute a structural re-rating catalyst.

The trajectory of policy support beyond 2026 will be crucial for shaping Braskem’s longer-term investment case.

In parallel to global economic developments, geopolitical tensions in the Middle East have sharply escalated. Israel reportedly conducted a significant strike on Iran’s critical South Pars gas field — the world’s largest — leading to explosions and disruptions in Iranian energy infrastructure, and Tehran has since launched retaliatory missile strikes that caused damage to energy facilities in neighboring Qatar.

Gulf states have condemned the attacks, heightening regional uncertainty and driving volatility in global energy markets.

Disclaimer

The information provided in this publication is for informational and educational purposes only and should not be construed as financial, investment, legal, or tax advice. The views and opinions expressed are solely those of the author and are based on publicly available information believed to be reliable, but their accuracy and completeness cannot be guaranteed.

Nothing in this publication constitutes a recommendation, solicitation, or offer to buy or sell any securities, commodities, or financial instruments. Readers should conduct their own independent research and consult with a qualified financial advisor before making any investment decisions.

The author may hold positions in companies or assets mentioned in this publication and may change these positions at any time without notice. Past performance and historical trends are not reliable indicators of future results.

By reading this publication, you agree that the author and ALLKA Research shall not be held liable for any direct or indirect losses resulting from the use of the information contained herein.

Comments from LyondellBasell highlight how constraints in the Strait of Hormuz are not only limiting exports from the Middle East but also amplifying already low inventory levels and accelerating price increases across polyethylene and polypropylene markets.

Source: LyondellBasell

At the same time, years of capacity rationalization and resilient demand—particularly in the U.S.—suggest that the industry was already approaching an inflection point. The current disruption may now be acting as a catalyst, pushing the sector into the early stages of a new upcycle.

Strait of Hormuz disruption

Comment (call):

My take:
I see this as a major supply shock. For LyondellBasell, this directly supports margins and pricing power. For Braskem, this is even more bullish given its sensitivity to spreads. For the petrochemical industry, this is the kind of disruption that can kickstart a new cycle.

Low PE inventories supporting price increases

Comment (call):

My take:
I view this as real pricing power, not just expectations. For LyondellBasell, this translates into immediate EBITDA upside. For Braskem, this is critical given its exposure to polyethylene spreads. For the industry, this confirms that we’ve moved out of oversupply conditions.

Structural capacity rationalization

Comment (call):

Source: LyondellBasell

My take:
I see this as a structural bull case. For LyondellBasell, this improves long-term utilization and margins. For Braskem, this strengthens its positioning in a tighter global market. For the industry, this marks a shift toward supply discipline.

Demand remains resilient

Comment (call):

My take:
I see demand holding up better than expected. For LyondellBasell, this supports high operating rates. For Braskem, this amplifies the impact of tighter supply. For the industry, this suggests the upcycle is supported by both demand and supply dynamics.

Strong operating leverage to PE pricing

Comment (call):

Source: LyondellBasell

My take:
I see extreme operating leverage here. For LyondellBasell, even small price increases drive significant earnings growth. For Braskem, the upside is even more pronounced due to historically low margins. For the industry, this explains why equities can react sharply to pricing.

Logistics disruption + PP upside

Comment (call):

My take:
I see this as a powerful regional dislocation. For LyondellBasell, North America becomes a key export winner. For Braskem, tighter global trade flows improve pricing dynamics. For the petrochemical industry, this fragmentation is highly supportive for margins.

Bottom line

I see this call as confirmation that the cycle was already improving, and the conflict is accelerating it significantly. Pricing power is back, inventories are low, and supply is tightening.

For me, this looks like the early stage of a new upcycle — with LyondellBasell and Braskem as key beneficiaries.

On March 16, 2026, polypropylene in China rose to 8,755 CNY/T, while polyethylene reached 8,570 CNY/T.

Source: TRADING ECONOMICS

Over the past month alone, polypropylene prices have surged 30.6%, and polyethylene has climbed 26.3%, marking one of the fastest short-term increases since the post-COVID commodity cycle.

Source: TRADING ECONOMICS

At the same time, polyvinyl chloride (PVC) rose to 5,914 CNY/T, reflecting tightening supply across the vinyl chain as producers begin to react to rising feedstock costs.

Source: TRADING ECONOMICS

The key catalyst behind this move is the growing disruption across global petrochemical logistics. Escalating tensions around the Strait of Hormuz and the wider Middle East conflict have already forced shipping companies to reroute vessels, apply war-risk premiums, and reconsider cargo movements.

Several Asian petrochemical producers have declared force majeure, while others have reduced operating rates due to uncertainty around feedstock availability and freight costs.

Source: table was made by Author

According to the International Energy Agency, the Gulf region plays a disproportionately large role in global petrochemical supply due to its massive production of feedstocks and downstream chemical products.

A significant share of these volumes is exported through the Strait of Hormuz via oil tankers, LPG carriers, and container vessels transporting petrochemical derivatives. In 2025, total shipments from the Gulf exceeded 4 million barrels per day of oil products and petrochemical feedstock equivalents, representing around one-quarter of the global petrochemicals market.

Because such a large share of supply is concentrated in this region, any prolonged disruption to flows through the Strait of Hormuz could have significant consequences for polymer markets worldwide.

Source: IEA

The impact would likely be felt most strongly in Asia, where petrochemical producers and manufacturing industries are deeply integrated with Gulf feedstock suppliers.

A decline in polymer exports from the Middle East could also force Chinese steam crackers to increase naphtha utilization in order to maintain sufficient domestic polymer supply for the country’s manufacturing sector.

Source: IEA

In short, the polymer market may be entering the first stage of a new petrochemical upcycle — driven not by demand alone, but by geopolitical disruption and supply constraints across the global energy and chemical system.

If tensions in the Middle East persist and force majeure declarations continue to spread, the current rally in polymer prices may only be the beginning.

Disclaimer

The information provided in this publication is for informational and educational purposes only and should not be construed as financial, investment, legal, or tax advice. The views and opinions expressed are solely those of the author and are based on publicly available information believed to be reliable, but their accuracy and completeness cannot be guaranteed.

Nothing in this publication constitutes a recommendation, solicitation, or offer to buy or sell any securities, commodities, or financial instruments. Readers should conduct their own independent research and consult with a qualified financial advisor before making any investment decisions.

The author may hold positions in companies or assets mentioned in this publication and may change these positions at any time without notice. Past performance and historical trends are not reliable indicators of future results.

By reading this publication, you agree that the author and ALLKA Research shall not be held liable for any direct or indirect losses resulting from the use of the information contained herein.

During the first quarter of 2022, global naphtha prices traded roughly between $800 and $1,070 per ton. This was one of the most volatile periods for feedstocks in the last decade, driven by supply disruptions, strong energy markets, and post-pandemic demand recovery.

Source: TRADING ECONOMICS

What makes this period particularly relevant today is that polypropylene prices were not dramatically higher than current levels. In China, polypropylene traded around 8,500–8,800 CNY per ton, which is remarkably close to the ~8,550 CNY/T levels observed today.

Source: TRADING ECONOMICS

Despite the significantly higher feedstock costs at that time, Braskem generated strong profitability. In the first quarter of 2022, the company reported net income of $748 million.

Source: Braskem

This historical comparison highlights an important structural point about Braskem’s business model.

Although the company is still partially exposed to naphtha-based production, its dependence on this feedstock has been steadily declining for more than a decade.

Since 2009, Braskem has been quietly executing a structural shift in its feedstock mix. At that time, roughly 80% of its production capacity relied on naphtha. Over the years, the company invested heavily in diversification, including ethane-based production in North America and gas-based assets in Brazil.

As a result, naphtha exposure has been reduced to roughly the mid-30% range today.

Source: Braskem

In other words, today’s polymer prices are already comparable to levels seen during a period when feedstock costs were significantly higher — and when Braskem was generating hundreds of millions of dollars in quarterly profit.

The dominant narrative still frames the company as a naphtha-heavy petrochemical producer — effectively tethered to oil prices and structurally disadvantaged versus gas-based competitors. That view might have been accurate 15 years ago. Today, it looks increasingly disconnected from reality.

Since 2009, Braskem has been quietly executing a structural shift in its feedstock mix. Back then, roughly 80% of its production capacity relied on naphtha. Over time, that exposure has been steadily reduced to the mid-30% range. The gap has been filled by propane, gas-based inputs, ethanol and flexible feedstocks.

Source: Braskem

In other words, the company many investors still view as an oil-linked petrochemical player has been systematically moving toward gas.

That distinction matters more than ever in the current commodity cycle. Natural gas prices — particularly across the Americas — remain significantly cheaper than oil-derived naphtha. For petrochemical producers, feedstock costs are often the single most important determinant of margins. When gas trades at a structural discount to oil, gas-based producers enjoy a meaningful cost advantage.

Source: Braskem

Braskem’s repositioning effectively brings its economics closer to those of North American chemical producers, whose global competitiveness has long been driven by abundant and relatively cheap gas feedstock.

The strategic backdrop is further strengthened by Braskem’s relationship with Petrobras. The industrial partnership provides access to domestic hydrocarbons and integrated infrastructure, creating supply stability and feedstock flexibility that many international competitors operating in Brazil lack.

Source: Braskem

That integration becomes particularly valuable when feedstock price spreads widen — exactly the environment the industry is experiencing today.

For most of the past two years, polymer markets have been weighed down by global overcapacity and weak demand, making this move notable. The latest spike appears to be driven less by demand and more by supply disruptions across the petrochemical chain.

Recent geopolitical tensions in the Middle East have raised risks around shipping through the Strait of Hormuz, a key corridor for petrochemical feedstocks moving toward Asia. Any disruption to flows of naphtha, LPG, or ethane can quickly ripple through the system because Asian steam crackers depend heavily on imported feedstock.

Source: TRADING ECONOMICS

When cracker utilization drops, the impact propagates quickly:

Less ethylene → less polyethylene → higher polymer prices.

For investors, this is particularly relevant for companies like Braskem (BAK), one of the world’s largest polyethylene producers.

Historically, Braskem has returned meaningful cash to shareholders during stronger petrochemical cycles. The company paid $2.63 per share in December 2021, followed by a $0.67 special dividend in April 2022, after distributing $0.41 in 2019.

Source: Seeking Alpha

Since then, the dividend has disappeared alongside the downturn in petrochemical margins.

If polyethylene prices remain at these levels, I believe it would not only allow Braskem to continue reducing its debt, but potentially resume paying modest dividends to shareholders as the petrochemical cycle stabilizes.

The Brazilian producer is advancing several strategic initiatives aimed at reducing feedstock costs, increasing operational flexibility, and improving profitability across its integrated petrochemical system.

One of the most notable developments is the completion of a study under the Transforma Sul initiative evaluating the import of LPG from Argentina to supply the company’s petrochemical complex in southern Brazil.

LPG imports could materially improve margins

Management confirmed that the study assessed the feasibility of importing LPG produced in Argentina’s prolific Vaca Muerta formation and using it as feedstock at the company’s petrochemical complex in Rio Grande do Sul.

According to Braskem, the Rio Grande do Sul cracker is already the most competitive naphtha-based petrochemical plant in South America and sits among the lowest-cost producers globally on the ethylene cash cost curve.

The LPG import initiative is designed to leverage the plant’s existing gas-processing flexibility, allowing it to partially substitute naphtha with LPG feedstock.

If implemented, the strategy could generate incremental profitability of approximately $110 per ton compared with the continued use of naphtha.

Source: Braskem

The economics are driven by several structural advantages:

• Lower feedstock costs from Argentina’s rapidly growing shale production
• Improved logistical efficiency due to geographic proximity
• Higher olefin yields typically associated with lighter feedstocks such as LPG

Argentina’s Vaca Muerta shale play has emerged as one of the fastest-growing unconventional hydrocarbon developments globally, producing increasing volumes of propane and butane that are seeking export markets across South America.

By tapping this supply, Braskem could reduce its exposure to volatile global naphtha prices, which are closely tied to crude oil benchmarks.

Management described the initiative as part of a broader effort to “modify operations to ensure efficiency, flexibility, and long-term sustainability.”

A broader feedstock transition strategy

The LPG import study forms part of a wider transformation program that includes the Transforma Rio project.

Under this initiative, Braskem’s board approved the expansion of its petrochemical complex in Rio de Janeiro in October 2025.

The project will add:

• 220 thousand tons per year of ethylene capacity
• A corresponding expansion in polyethylene production
• A larger share of gas-based feedstocks in the company’s raw material mix

Total investment is estimated at R$4.2 billion, with completion targeted for late 2028.

Source: Braskem

The expansion reflects a structural shift underway across the global petrochemical industry, where producers are increasingly seeking to move away from oil-derived feedstocks toward natural gas liquids and LPG, which offer significantly lower production costs.

Polymer markets show signs of recovery

The timing of Braskem’s strategic repositioning coincides with a notable recovery in polymer prices in China, the world’s largest plastics market.

China accounts for roughly 30% of global plastics production, making its domestic pricing trends a critical indicator for the entire petrochemical value chain.

Recent market data show a sharp rebound in several key polymers:

• Polyvinyl chloride: 5,749 CNY per ton ($836.95)
• Polyethylene: 8,391 CNY per ton ($1,221.58)
• Polypropylene: 8,505 CNY per ton ($1,238.17)

Source:

Polyethylene prices have risen more than 23% over the past month, suggesting that the prolonged oversupply cycle that weighed on the global polymer industry through 2023–2025 may be starting to ease.

Supply disruptions tightening the market

Another factor supporting the recent recovery in polymer prices is a growing number of cracker shutdowns across the Middle East and Asia.

Several petrochemical facilities in these regions have reduced operating rates or temporarily halted production amid weak margins and high feedstock costs earlier in the cycle.

Because petrochemical crackers require complex restart procedures—including catalyst replacement and system stabilization—many plants cannot immediately return to full capacity even if market conditions improve.

This dynamic can tighten global polymer supply more rapidly than expected once demand begins to recover.

Source: table was made by Author

In addition, logistical disruptions linked to geopolitical tensions in the Middle East have complicated feedstock flows and delayed shipments of petrochemical derivatives to Asian markets.

For global producers such as Braskem, these supply constraints could accelerate the normalization of industry margins.

Strategic implications

Taken together, the feedstock transition initiatives and the improving polymer price environment could significantly strengthen Braskem’s earnings trajectory.

A potential $110 per ton margin improvement from LPG substitution alone would represent a meaningful boost to profitability across the company’s olefins and polyolefins chain.

If polymer prices continue to recover while global operating rates remain constrained, the combination of lower feedstock costs and stronger product prices could create a powerful margin expansion cycle for the Brazilian producer.

For investors and industry observers, Braskem’s strategy illustrates a broader trend across the petrochemical sector: companies are increasingly focused on feedstock flexibility, logistics optimization, and structural cost advantages as they prepare for the next upcycle in global polymer demand.

Takeaway

I continue to increase my position in Braskem, as the Alagoas situation is expected to conclude in 2026, clearing a key operational uncertainty.

Source: Braskem

Petrobras has signaled potential financial support, contingent on the completion of the IG4 transaction, which adds another layer of security for Braskem’s balance sheet.

Polymer prices are trending higher, providing a tailwind for margins, while closures in Asian and Middle Eastern plants suggest potential supply tightness and likely catalyst replacements, further supporting global pricing.

Oversupply in the market is steadily declining, reinforcing the positive demand-supply dynamics. Additionally, the imminent signing of Projeto de Lei Complementar Nº 14/2026 by President Lula should unlock further regulatory clarity and strategic flexibility for the company.

Source: Congresso Nacional

Taken together, these factors point to an improving operating environment and a clearer path toward profitability.

Braskem appears well-positioned to benefit from tightening supply, supportive policy measures, and rising polymer prices, making it an attractive buy in the current cycle.

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