Executive Summary / Key Takeaways

• Braskem is undergoing a significant strategic transformation, shifting its core feedstock reliance from naphtha to more competitive gas-based inputs and accelerating its "fly up to green" initiative, targeting 1 million tons of bio-product production by 2030.
• Despite a challenging petrochemical downturn and the lingering financial burden of the Alagoas geological event, the company demonstrated a strong operational rebound in Q1 2025, with consolidated recurring EBITDA increasing 121% quarter-over-quarter to $224 million, driven by improved spreads and cost reductions.
• Technological differentiation in bio-based polymers, exemplified by its "I'm green™ Bio-Based" portfolio and expanded green ethylene capacity, provides a crucial competitive moat and resilience against fossil market volatility.
• Strategic investments in logistics autonomy, such as dedicated ethane vessels and the new Mexico terminal, alongside capacity expansions in Brazil, are designed to enhance feedstock flexibility, reduce costs, and secure long-term competitiveness.
• The company's financial health remains a focus, with an elongated debt profile and sufficient liquidity, while management actively pursues initiatives to reduce leverage and achieve neutral cash generation (excluding Alagoas) in 2025, supported by government incentives for the Brazilian chemical industry.

The Petrochemical Crossroads: Braskem's Strategic Pivot

Braskem S.A. ($BAK), a global leader in the chemicals and petrochemicals industry, finds itself at a pivotal juncture. Founded in 1972 as Copene Petroquímica do Nordeste S.A. and rebranded in 2002, Braskem has grown into a multinational force with operations spanning Brazil, the United States, Mexico, Europe, and Asia. The company produces a wide array of products, including polyethylene (PE), polypropylene (PP), PVC, and various basic chemicals, while also supplying essential utilities and industrial services.

The broader petrochemical landscape has been characterized by a prolonged downturn, marked by oversupply, pressured spreads, and volatility driven by geopolitical uncertainties and logistical disruptions like the Red Sea conflict. In this challenging environment, Braskem has embarked on a comprehensive transformation journey, centered on two core pillars: strengthening financial resilience and health, and strategically transforming its asset base. This involves a fundamental "switch to gas" strategy to leverage more competitive feedstocks and an ambitious "fly up to green" initiative to expand its bio-based polymer portfolio.

In the competitive arena, Braskem faces formidable global players such as Dow Inc. (DOW), LyondellBasell Industries (LYB), ExxonMobil Corporation (XOM), and TotalEnergies SE (TTE). While these rivals often boast greater scale and diversification, Braskem carves out its competitive niche through strong regional leadership, particularly in Latin America, and its pioneering role in bio-based polymers. The company's integrated operations in Brazil and Mexico offer a qualitative advantage in localized supply chains, potentially leading to lower operating costs in these regions compared to more globally dispersed competitors. However, rivals like Dow and LyondellBasell may exhibit faster innovation cycles in specialized products or superior cost structures due to sheer scale. Braskem's focus on green innovations, while a differentiator, means it must contend with the robust financial health and pricing power of diversified energy giants like ExxonMobil and TotalEnergies, whose integrated models offer broader supply chain resilience.

Technological Edge: The Green Polymer Frontier

A cornerstone of Braskem's long-term strategy and a significant competitive differentiator is its advanced technology in bio-based polymers. The company is a pioneer and global leader in the production of biopolymers on an industrial scale, notably through its "I'm green™ Bio-Based" portfolio. This technology allows Braskem to produce green ethylene and green polyethylene from renewable sources, primarily sugarcane.

The tangible benefits of this technology are substantial. The bio-based solutions have the inherent property of capturing CO2 from the atmosphere, directly contributing to a lower carbon footprint for its customers' products. This offers a qualitatively superior environmental performance compared to traditional fossil-fuel-derived polymers. In Q1 2025, industrial tests proved that the green ethylene capacity in Triunfo was revised upwards to 270,000 tons per year, an increase of 15,000 tons per year more than initially forecast in the 2023 expansion project. This demonstrates not only the efficiency of the technology but also Braskem's operational expertise in maximizing its output.

Braskem's R&D initiatives are robust, with a clear roadmap for future growth. The company inaugurated a Center for Innovation in Renewables in Lexington, United States, backed by an investment of approximately $20 million. This center expands Braskem's research and development capabilities in biotechnology, catalysis, and process engineering, aiming to accelerate new sustainable solutions. Furthermore, Braskem Siam, a joint venture, signed a FEED agreement with Toyo Engineering Corporation (TOYOY) for the potential construction of a 200,000-ton green ethylene plant in Thailand, with a final investment decision expected in the second half of 2025. Another significant partnership, Sustainea (a JV with Sojitz (SOJTY)), is also slated for development during 2026. These initiatives underscore Braskem's stated goal of expanding its bio-product production to 1 million tons by 2030, a target that would significantly enhance its market position in sustainable materials.

For investors, this technological differentiation is paramount. The green resin market operates on a different logic than its fossil counterpart, characterized by growing demand and Braskem currently being a primary supplier. This provides a crucial competitive moat, allowing for potentially higher average selling prices (ASPs) and better margins in eco-focused segments, thereby offering greater resilience during periods of petrochemical down cycles. The "GreenCo" initiative, envisioned to house all future green petrochemical expansions, is expected to attract capital inflows from investors and leverage non-recourse project financing, further de-risking and accelerating this growth avenue.

Operational Resilience and Financial Performance

Braskem's operational performance in Q1 2025 signals a strong rebound from the previous quarter, with all segments achieving higher utilization rates while maintaining robust safety standards. Consolidated recurring EBITDA surged by 121% to $224 million in Q1 2025 compared to Q4 2024, contributing to a net profit attributable to shareholders of $113 million. This improvement was primarily driven by greater spreads for PE and chemicals in the international market and increased sales volumes in key segments.

The Brazil segment, a cornerstone of Braskem's operations, saw its recurring EBITDA jump by 101% to $199 million in Q1 2025. This was largely due to an increased contribution margin from higher international PE and chemical spreads, coupled with effective fixed cost reductions. The segment's average utilization rate increased by 4 percentage points, with inventory management at the Rio de Janeiro gas-based plant in anticipation of a Q3 2025 scheduled shutdown.

In the United States and Europe segment, recurring EBITDA reached $20 million in Q1 2025, benefiting from increased sales volume and revenue generated from logistics wagon sales in the US. The utilization rate in this segment improved by 13 percentage points, reflecting the normalization of European plants after maintenance and production adjustments in the US to meet higher demand. Management acknowledges that European installations face structural challenges due to increased energy costs, making them potentially less competitive in the long run.

The Mexico segment delivered a recurring EBITDA of $37 million in Q1 2025, a 6% increase from Q4 2024. This was positively impacted by higher spreads for ethane-based polyethylene and lower fixed costs, despite a 5% decrease in sales volume due to inventory management ahead of a major maintenance shutdown. A significant operational milestone was the inauguration of the ethane import terminal in Mexico in Q1 2025, a joint venture with Advario. This terminal, with a capacity to receive and store 54,000 tons and transport 80,000 barrels of ethane per day, is crucial for ensuring feedstock supply and enabling future expansions of up to 25% of current capacity. The Mexico cracker is recognized as a first-quartile asset in terms of cash cost, benefiting from its 100% ethane feedstock. Braskem Trading and Shipping (BTNS) further supports this by operating two dedicated ethane transportation vessels, reducing logistics costs and CO2 emissions.

Consolidated EBITDA for the full year 2024 stood at US$1.1 billion, a 46% increase over 2023, reflecting the positive impact of higher international spreads and increased sales volumes across Brazil and Mexico. Operating cash generation in 2024 was approximately R$4.1 billion, supported by a 54% increase in consolidated recurring EBITDA (in reals) and a 31% reduction in operating CapEx.

Financial Health and Capital Structure Optimization

Braskem's financial health is a critical focus, especially given the industry downturn and the substantial costs associated with the Alagoas geological event. The company's debt profile remains elongated, with an average term of approximately nine years and over 68% of corporate debt maturing from 2030. At the end of Q1 2025, Braskem's cash position was $2 billion, sufficient to cover debt maturities for the next 33 months, without considering an additional $1 billion international revolving credit line. Corporate leverage, however, stood at 7.92 times at the end of Q1 2025.

Management is actively pursuing strategies to optimize its capital structure. In October 2024, Braskem issued US$850 million in debt securities maturing in 2034, partially repurchasing its hybrid bond maturing in 2081. The company has retained financial and legal advisors to explore economic-financial alternatives for capital structure optimization. A key lever for funding strategic initiatives is the REIQ Investimentos, a fiscal credit of 1.5% on company revenue, which can be utilized for capacity expansion projects without directly impacting cash flow. Braskem is also seeking external financing, including development lines from BNDES in Brazil and international sources for its green projects, often structured through non-recourse project financing.

The company's CapEx strategy is highly disciplined. While historical maintenance CapEx typically ranges between $500 million and $600 million annually, Braskem has reduced its operational and strategic investments, with 2025 expected to be the lowest CapEx year in its history. This is achieved by selectively prioritizing assets and operating at lower utilization rates (less than 70-75%) when demand is subdued, thereby reducing the need for full preventive maintenance across all assets. The company's target for 2025 is to achieve neutral cash generation, excluding Alagoas disbursements, through a concerted effort to reduce fixed costs by 3% to 4% compared to 2024, optimize inputs, and renegotiate contracts.

Outlook, Guidance, and Strategic Initiatives

Braskem's outlook for Q2 2025 anticipates a mixed operating scenario. Brazil's petrochemical plants are expected to see greater utilization ahead of the Rio de Janeiro maintenance shutdown in Q3. The US and Europe segments are projected to remain stable, balancing increased US production with lower European output due to feedstock constraints. Mexico, however, will undergo a 45-day general maintenance shutdown in Q2 2025, which will impact sales in the region, though other segments expect increased sales volumes.

International spreads are forecasted to remain challenging throughout Q2 2025 and the full year 2025, with external consultants predicting levels in line with 2024. While lower naphtha prices could positively influence resin spreads in Brazil, rising ethane prices might negatively impact gas-based polyethylene spreads. The polypropylene market is expected to remain challenging. Despite these headwinds, Braskem aims to generate $600 million in EBITDA growth by 2030 through its transformation priorities.

The company's strategic direction is clear:

• Optimization of Naphtha-based Assets: Maximizing utilization of competitive lines while evaluating the hibernation of less competitive ones.
• Expansion of Gas-based Assets: This includes the Board-approved project to increase the capacity of the Rio de Janeiro petrochemical plant by 220,000 tons of ethane per year, supported by a long-term ethane supply contract with Petrobras (PBR) and REIQ investments. The Mexico terminal's surplus storage capacity also enables future expansions.
• Migration to Green Production: Progressing towards the 1 million tons bio-product target by 2030, with key investment decisions for the Thailand green ethylene plant expected in H2 2025 and the Sustainea JV in 2026.

Management emphasizes that its geographic diversification and leadership in biopolymers are crucial competitive advantages, providing resilience during down cycles. The company is actively supporting institutional initiatives to defend the Brazilian chemical industry, including advocating for the maintenance of import taxes and the expansion of special tax regimes like REIQ, which are vital for reducing the competitive gap against global players.

Risks and Challenges

Despite its strategic initiatives, Braskem faces several significant risks. The Alagoas geological event remains a substantial liability, with a total provision of BRL 17.6 billion in Q1 2025, of which BRL 5.1 billion remains undisbursed. The definitive closure actions for the salt cavities, if needed, are scheduled to begin in 2027 and could extend for decades, representing a long-term financial commitment. As former CEO Roberto Ramos noted, "Braskem, had a fact, an extraordinary geological event that caught us right at a downward cycle, and I'm referring to the costs pertaining to stabilizing the salt, cavities in Maceo. And when we compare Braskem and our competitors, they didn't have a $3 billion bill to pay, which we're paying. And in terms of our bottom line, this is a liability that does not yet have a corresponding asset, and that's also something we're studying."

The prolonged downturn in the petrochemical industry, characterized by oversupply and intense competition, continues to pressure margins. Geopolitical uncertainties contribute to feedstock cost volatility, impacting profitability. The Brazilian chemical industry, in particular, has faced challenges, with average utilization rates reaching an 18-year low of 63% in Q1 2024. While the temporary increase in import tariffs for PE, PP, and PVC to 20% is a positive step, its long-term impact on competitiveness and potential for capacity rationalization in Brazil remains a key watch point. The significant cost disparity in natural gas, with US prices at $2 per Btu compared to Brazil's $14 per Btu, highlights a structural competitive disadvantage for Brazilian operations that the company is actively addressing through advocacy for regulatory changes and increased ethane availability.

Conclusion

Braskem S.A. is navigating a complex and challenging petrochemical landscape with a clear and decisive strategic transformation. The company's pivot towards gas-based feedstocks and its accelerated "fly up to green" initiative are not merely tactical adjustments but fundamental shifts designed to build a more resilient and competitive enterprise. The strong Q1 2025 performance, driven by operational efficiencies and market improvements, underscores the initial success of these efforts.

The company's technological leadership in bio-based polymers, coupled with strategic investments in logistics and capacity expansion, positions it favorably for long-term growth in a world increasingly demanding sustainable solutions. While the lingering financial obligations from the Alagoas event and the broader industry downturn present headwinds, Braskem's disciplined financial management, focus on cost reduction, and proactive engagement with government policies aim to mitigate these risks. Investors should recognize Braskem's commitment to transforming its asset base and leveraging its differentiated technology as key drivers for future value creation, even as the company works to reduce its leverage and enhance its financial flexibility in a dynamic global market.