Braskem S.A. (BRKM5) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to Braskem's Delta Conference Call. Today with us, we have Roberto Simoes, CEO of Braskem; Pedro Freitas, CFO; Mark Nikolich, Vice President of North America Olefins and Polyolefins; and Rosana Avolio, Investor Relations Director. We would like to inform you that this event is being recorded. [Operator Instructions] We have simultaneous webcast that may be accessed through Braskem's IR website at http://www.braskem-ri.com.br/ and the MZiQ platform where the slide presentation is available for download. Please feel free to flip through the slides during the conference call. There will be a replay facility for this call on the website. We remind you that the questions which will be answered during the Q&A session may be posted in advance on the website. Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Braskem management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and, therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Braskem and could cause results to differ materially from those expressed in such forward-looking statements. Now I'll turn the conference over to Roberto Simoes, CEO of Braskem. Mr. Simoes, you may begin your conference.

Thank you. First of all, I would like to thank you, everyone, for listening to the video conference. Last week, we proudly communicated to the market the start of production of our newest PP plant located in La Porte, Texas. Our Delta project team worked diligently over the last 3 years on the construction, commissioning and start-up of the new PP plant and this achievement was only possible because of their strong effort and dedication. Before Mark gives us -- you all more color on Delta and North America PP market, I would like to highlight some topics about our business in the United States. 10 years ago, we started our internalization process with the acquisition of Sunoco Chemical's PP assets in the United States. Since then, Braskem America continued to invest in growing its business. We proceeded with Dow's PP assets, expanding our operations in Marcus Hook plant, built a new UTEC production facility, and the staff of Delta and Braskem American latest achievement is the strength our PP leadership position in North America. In the next slides, we will talk about Braskem America business model. In the U.S., we personally brought in for supply to produce PP, a second-generation thermoplastic resin. To purchase the required feedstock, several propylene sources such as PDHs, refineries and crackers are available for us. Braskem America has a critical role in the value chain as the PP is the feedstock for a variety of products in several different segments, such as automotive, packing and also medical applications, and our product is being crucial in the fighting against COVID, for example. In this sense, we are committed to meet the needs of our customers and continue to be a PP supplier today and in the future. Moving to the next slide. Since 2011, when we acquired PP assets from Dow in the U.S., we are the largest producer of PP in the United States. Now with Delta, we have 6 PP plants: 4 in Texas; 1 in Pennsylvania; and 1 in West Virginia. With our new plants, our production capacity grows from 1.6 million tons per year to 2.1 million tons per year. Besides our PP operation, we also have 1 UTEC in La Porte, Texas. UTEC is a engineered polymer with excellent mechanical properties such as high abrasion resistance, impact strength and low coefficient of friction with applications in various markets. For us, innovation is the path to our growth so we can have one modern innovation and technology center in Pittsburgh, which plays a critical role in our ability to deliver our clients' needs. In the next slide, I would like to highlight how Delta is fully aligned with the company's strategy. Moving to this slide about the strategy, Braskem based its decision in 5 player-defined strategic objectives. With the start-up of Delta, we made significant progress on feedstock and geographic diversification pillars. Delta support us to progress towards a more balanced feedstock profile between gas and oil business sources as our new PP plants in the U.S. is propylene-based and surpassing the relevance of the naphtha. Additionally, we expand our global footprint outside Brazil and we are now even a more global company. Now I would like to take the opportunity to invite Mark, our Vice President from Olefins and Polyolefins North America. He will take about -- talk about Delta and the North American PP market. Thank you. Mark?

Great. Thanks, Roberto. So if we move to Slide 10, I'll dig a little deeper into Delta. So a couple of things to note, as Roberto said, the team has been working very hard for the last 3-plus years on this project. The vision actually started over 4 years ago in looking at the markets and coming up with a strategy to continue to progress our leadership in North America as well as the Americas and globally. And that idea manifested itself in this new plant, which we call Delta. So what is Delta? Delta is a very large PP line, right, 450kta plus. And what we mean by that is that it's designed to run a minimum of 450kta, okay? So it's a very large line. It's the largest propylene line in the Americas, and we're really proud of that. Total investment, $750 million. The location site is La Porte, Texas. We chose La Porte, Texas, for a variety of reasons. One, it is our largest facility in the U.S., and we had land, so we had space to build this new plant. Secondarily, the feedstock of propylene, which we're the largest buyer of propylene in North America, the feedstock of propylene predominantly comes from the Gulf Coast. And our connectivity from the La Porte site into the feedstock suppliers in the Gulf Coast is excellent. We have 5 going on fixed pipelines into the asset, and that gives us a lot of redundancy in supply and access to all the major propylene producers. In addition to that, we took the opportunity with this project to upgrade our utilities and support systems at this site. The site also has another PP line on it as well as the aforementioned UTEC line that Roberto talked about. So in addition to building this new Delta 450kta line, we also upgraded steam. We have upgraded high-voltage electricity. We upgraded the cooling water system, and we upgraded the entire feedstock pipeline and measurement system coming into the plant. So we spent over $25 million on what I'll call infrastructure and utilities that both support Delta as well as the existing plants on that site. This leads us to a very competitive operating base on that site, not just with Delta, but with the other plants. And the Delta plant itself has the ability to produce the full portfolio of polypropylene that we supply to the market. Not to get too detailed, but there's 3 product families, homopolymer, random copolymer and impact copolymer that are supplied to the polypropylene industry. And we'll be able to make all 3 product families on this new line. The technology that we used is UNIPOL technology from Grace. This is a proven technology with a lot of operating lines all over the world. In addition to that and, more importantly, Braskem itself has a lot of experience in UNIPOL PP technology. We have a plant in Germany. We have 2 lines in Marcus Hook, Pennsylvania. We have a plant in Seadrift, Texas, that's UNIPOL technology and now obviously, Delta. In addition to that, when we acquired the Dow polypropylene franchise back in 2011, many of the engineers and team members that came with that acquisition had been supporting the UNIPOL technology development -- UNIPOL PP technology development over the years. So we acquired a lot of subject matter expertise when we bought the Dow business. So it gives us a lot of comfort with the technology. We know how to run it. We understand the cost of it, the maintenance of it, the complexity of it, and we have a lot of confidence in this technology. And then one thing that I want to make sure doesn't go unnoticed because we're really proud of it, safety, as Roberto tells us and our stakeholders every day, is the foundation of our company. It's our license to operate, and we're really pleased with the safety record of this project, right? Over 3 years of construction, you'll see the numbers on people in the site, and we really ended up with a first quartile safety record for the project, which we're really proud of. So I'm going to move on to the next slide to talk a little bit about the market, some of the context in which we developed the project and where we are today. So if I talk about propylene, the predominant feedstock, when we looked at propylene in North America, we really started to look at what was happening in the world and the development of shale gas and tight oil in the U.S. And what that led us to believe is that there was going to be significant NGLs and significant propylene production in the U.S. that would support a globally competitive asset in the U.S. What do I mean by that? There's continued to be investment in the propylene chain in the U.S. We've seen increases in the development of PDH projects. Those are propane dehydrogenation units. They essentially take propane and turn it into propylene. And why is this relevant for shale, because as we continue to grow the shale base in the U.S., we continue to produce NGLs, ethane and propane. Propane, we supply to the world, but it creates a competitive base of feedstock for us where we can derive propylene from that. And so these PDH units that you see in the yellow part of the bar are really the growth of propylene production in the U.S. and you can see how it continues to grow. The most recent PDH start-ups were Enterprise and Dow Chemical's PDHs, okay? So that brings to us a globally competitive feedstock. When you look at the trade balance, you'll see -- if you follow the yellow line, you'll see the net trade going from the U.S. to other parts of the world, which essentially means the arbitrage is open, and the cost basis of that propylene is competitive enough to price itself in the global markets all the time. That means that if we buy that feedstock, our derivative is going to be globally competitive. So that was the foundation for deciding not just to build in PP but to build in PP in North America and in the U.S., specifically. And you'll see, as we talk later, it's not just to supply in North America, but it's to supply our global polypropylene franchise and our clients around the world. One last note that I'll mention at the bottom, and I mentioned previously that we're the largest propylene buyer in North America, we do buy from a variety of sources and it creates a portfolio side buy for us. We buy from PDHs. We buy from refineries. We buy from steam crackers and we buy from metathesis units. So that broadens this base and supports the strategic initiative that we've had for the last 10 years to diversify our base feedstock portfolio. Next slide. So I'll start talking a little bit more about the polypropylene piece as opposed to the feedstock. So when we look at polypropylene and we looked at the context of the North American market, what you see here, going back to 2005, is you see a lot of shutdowns. What does that indicate? It indicates the market was in a trough environment for a long period of time. They were aging assets that were too expensive to operate. They weren't competitive anymore and many assets were shut down. The last actual build in the U.S. for polypropylene was before 2005. This last start-up in 2005 was actually a repurposing of an asset designed for another polymer that was repurposed to polypropylene. Indelpro started up a new asset in Mexico in 2008, but after that, you can see there's been a really long drought of capacity additions in North America. As we saw the growth rate continue to increase, and I'll talk about this, we saw an opportunity to do 2 things: one, new capacity to support the growth of Braskem; and then secondarily, really enhance our cost position with the newest, state-of-the-art and scale -- world-scale asset, okay? So that's what led to the 2020. And you see the existing capacity there. And you can imagine that the rest of the infrastructure PP in North America continues to age, and I'll come back to that as we go forward, okay? Next slide. So now we get into some of the market outlooks and what our expectations were. The original belief that we had was that the market would continue to grow at somewhere around a 2% growth rate year-over-year through the completion of the project. And we have seen that outside of the recent challenges with COVID. So we've seen that growth, and we do expect that growth to continue just like the external firms are indicating with this data. If we move to capacity issues to supply that demand, you can see that after 2021, we have a large increase, 411kta from other players in the industry. Those capacity additions, those are projects that have been announced, but we don't know the outlook of those projects, right? And this is one of the things that we're really proud of in this current environment of hurricanes and COVID is that we've completed our project. Many of these projects are underway. They're in initial stages. And it's very difficult to determine how long those projects will take to complete, whether there will be delays or whether they would come out on time. Another note. North American PP market continues to grow. The capacity was short of demand, so there were a lot of imports coming into North America, right? And what's happening now is those imports are being reversed. So a lot of questions we get around, well, is the growth rate there? What's going to happen to imports? Will there be exports out of North America? The first initial, I'll say, placement of volume from Delta will go to displace product that's being imported from outside of North America into North America. Now a big portion of that was coming from Braskem, so we spent the last 3 years utilizing our 3 region franchise in polypropylene: that's Brazil, Europe and the U.S. to supply additional seed volume to the U.S. so that we already had clients, we already had market share prior to starting up Delta. So now we're going to reverse that flow and that will take away some of the imports that have been coming into North America. And eventually, we'll get into an export market. I'll describe that a little later. I'm going to move on to Slide 14. So if you look at spreads, because there's a delay in the additional capacity coming on, Delta really is the only new capacity. And you can see what's happening when we start this plant up because we're the first. If you're the first, you're the first one to come into the market. You're the first one to supply the shortfall, and you're the first one to, I'll say, get the current spreads. As new capacity comes on, and you can see this predicted by external firms in 2022, you see some disruption from new plants. That starts to decline the total U.S. PP spreads. Having said that, we'll see how quickly these plants are able to be completed and come online to impact the North American market. Moving on to Slide 15. So this gets into a little bit of our strategy around what do we do with the volume, and how do we utilize that volume from Delta to really support our 3 region franchise. And I'll talk a little bit about domestic and then international preparation. So I mentioned previously the seed volume. You can see that 130kta really annually over the last 3 years we've been importing structurally to supply our clients. Our clients know this. They've been supportive of it because it's been supportive of their growth. We've prequalified grades equivalent to over 250kta of annual demand, so that gets us in a position where when we started the plant, we don't have to wait for qualifications. We can immediately sell into commercial markets into existing clients. I already mentioned the connectivity of our plant to large propylene supply. And when we look at leveraging this across our SG&A, we've added less than 10 people in the business to support this. And they were added over the last 2 years, so we've already absorbed those costs, so this new plan is going to make our business even more competitive in the North American market. One of our big projects concurrent with Delta was to really establish an export hub. Predominantly, we had exported out of Houston in the past when it was appropriate. We are following the lead of some of our peers in the polyethylene businesses in North America and we chose Charleston and the infrastructure that's being built out in Charleston as our export hub. We're really excited about it. The service levels, the infrastructure that's being built will give us the ability to be very responsive and cost-effective as we take polypropylene from North American supply to customers in Europe, South America and Asia. And when you look at this in the context of our 3 franchise business, Europe, North America, Brazil, it allows us to optimize. It allows us to increase share in Europe without increasing capacity. It allows us to optimize South America through freight. It's less expensive to supply to the West Coast of South America than Brazil in many instances. So this allows us to really optimize, not just the North American business but our 3 region business, okay? So move on from Slide 15. Now we're going to show a brief video about Delta and our new plant. [Presentation]

So moving on, this is Pedro Freitas and talking a little bit about the financials of Delta. On Page 18, we can see the total CapEx. It was a $750 million project overall. We had a small cost overrun of less than 10% over the original schedule and over the original budget as well, which is a very good performance in the industry. We know that other players face cost overruns, sometimes even going up to 100% of the original cost or even above that. Less than 10% is really a good performance for the industry when we look at other companies and external benchmarks. We had the Linde Group, a German firm leading the EPC as the contractor. They have significant experience with the UNIPOL process technology and in the end, it was a good decision to have them on board. We were able to secure funding from 2 ECAs: Euler Hermes, the German ECA; and Nexi, the Japanese ECA, which provided competitive funds for Delta. And that helped increase the perspective of returns for the shareholders of Braskem in this project. Moving on to the next slide. The contribution to our results is not very hard to model for those that are looking at how much does this add to our results. Production, I mean, its production capacity, 450kta is the nameplate capacity. If not unusual for these projects to have some, I would say, additional capacity available because engineers tend to put in safety margins to ensure that the original production capacity will be met. We saw that in Mexico, in the plants in Mexico, that the polymer plants in Mexico are able to produce more than the original nameplate capacity. We think that Delta could have the same upside. And then the operating rate, I mean, if we're in 450, operating rates could be even above 100% if things go according to what is usual in the industry. So the sales volume should be the same as production. Sales price is -- I mean, we used the U.S. reference, the U.S. market reference and exports depending on the region. So as Mark said, we do intend to export in the beginning, and that would lead to an average sales price that is probably slightly lower than the U.S. price, given to the cost of logistics, right, the netback is smaller. Feedstock, you can see there how to do that. The spread, I mean, another way of doing this would be to say it's a sales price minus the cost, that's a spread. Mark showed the spreads a couple of slides back, so the average for this year is expected to be north of $600 per ton, next year as well. And then 2 years from now, a little bit less than that. That's the kind of the market expectation. And another way would be to say it's spread times the volume and then deduct the polymerization cost, which is -- I mean there is an estimate given here. And then SG&A, we don't expect to add a lot of SG&A. Delta stands on a site where we already have 2 other plants running in La Porte, so it leverages infrastructure. It leverages personnel, contractors. I mean there's a lot of synergy in running this facility, and we do have additional volumes. But for example, for exports, we're going to leverage Braskem's commercial strength in other regions in Latin America and also in Europe and Asia, so we don't expect to add a lot of muscle on the commercial side. Again, we expect to have a lot of synergies in fixed costs in Delta. So I'll pass the pass back to Mark for the closing remarks, and then we open up for Q&A.

Great. Thanks, Pedro. So just some closing remarks and some summarizing here. We're really -- first of all, really pleased to be here today to talk about the completion of this project and the commercialization of it. It's just -- it's a really exciting time for Braskem. The Delta project reinforces our position, as I've said, in the North American PP market. We feel very strongly about this. We're committed to polypropylene. It's a focus for us. We believe in polypropylene, and we're very focused on our clients, not just in North America but globally that are polypropylene clients. So it's an important piece of our business. It's a 3-region franchise, and we're proud to be the third largest PP producer in the world and have aspirations to be bigger. The investment, it highlights our ability to execute large projects. Many of you have reviewed, have analyzed the large projects in the U.S. Gulf Coast over the past 10 years. And arguably, it's been a really difficult build cycle even though a lot of money has been spent. And I think we're really proud that we executed a project that's first quartile safety performance, that's less than 10% overrun in cost and schedule and in an environment that's extremely challenging. So we think this project was not only a great addition to our asset base, but we've run an extremely good project relative to the industry. And our expectation is that this ramps up through the remainder of this year. I will tell you that we've been producing commercial quantities for the last 2 weeks, and I think the commissioning and start-up is going extremely well, and we're really looking forward to start supplying this product directly to our North American clients as well as our global clients, and that's underway. The expectation is that we will be at nameplate capacity as we begin 2021. Another important aspect that we haven't touched on is our commitment to sustainability. We take sustainability very seriously, and this plant was designed with a few things in mind. One was to reduce its environmental footprint. So when we look at Delta relative to a typical polypropylene line, as an example, it has approximately 50% of the greenhouse gas emissions of an existing polypropylene line in North America. So that tells you how we view this plant as part of our portfolio of increasing our sustainability and sustainability of our business. And then lastly, I want to come back to the clients. We have clients and partners in North America and across the world in PP that we're looking to grow and we're struggling to grow because of supply, and we feel really proud that we were the ones that were able to invest, to deliver a plant that will allow our client base to continue to grow with their markets and their clients. And that's really important to us. It's a fundamental piece of our culture and how we operate our business. And we're really happy that we're able to satisfy our clients in a new way with Delta, both in North America and globally. So with that, I'll conclude my remarks. Really appreciate you listening to us and look forward to the Q&A.

[Operator Instructions] Our first question comes from Mr. Luiz Carvalho from UBS.

Roberto, Pedro, Mark and Rosana, thanks for the very comprehensive presentation. I have basically 3 questions here. I think that they're pretty straightforward. The first one, if you can share a bit of the -- some color on the returns of the specific project, I don't know, ROIC or IRR, that would be great. The second one is about -- Mark, maybe you mentioned about the ramp-up of the plant and likely to happen throughout 2021. I don't know maybe if you can give a bit more color on a quarterly basis, how can we expect that? And lastly, just quickly on the feedstock competitiveness. So how can we see this plant, say, being competitive from a feedstock perspective when you compare to other players?

Sorry. I was on mute. Pedro, are you going to -- do you want to start and then turn it over to me?

Yes. Yes, I can kick it off with -- I mean we have a very stringent capital allocation and capital decision process. I would say that for large projects like this, we aim at IRRs. Of course, IRRs are higher than our cost of capital but, in this case, I could say that IRR is north of 15%. That's the expectation that we had in the project approval. And things have -- I mean they have been pretty stable, right, in the PP market. So we don't anticipate any major changes compared to that original situation we had. So Mark?

Yes. Thanks, Pedro. Yes, I'll talk -- first of all, talk a little bit about feedstock. So as I mentioned previously, we're a very large buyer, right, of propylene in North America. And I'll say, per se, we're not integrated. Having said that, we have purification assets at multiple sites, multiple PP sites. That is why we have the ability to take refinery grade propylene into our system, and we buy a lot of chem grade and polymer grade. We also buy on multiple price indices. So you can view this as very broad-based portfolio. We're buying on a refinery grade basis. We're buying on a polymer grade minus basis. We're buying on a chem grade minus basis, and we're buying on a propane plus basis. So that gives us a basket of indicators that mitigate volatility risk, mitigate one piece of the propylene supply market getting out of whack with another. And then the last thing I'll comment on is that we went to market in a period of time where there was excess propylene to secure the anchor contracts for this plant. And my view of those contracts is they're the most competitive contracts of their kind in the U.S. Gulf Coast, so I think they enhance our portfolio. We don't buy propylene for a specific plant typically. Typically, we buy from a supplier that can supply to multiple plants in the U.S. Gulf Coast. So it's not easy to attribute any specific piece of our portfolio directly to Delta, but the ability to go out to the market and secure a large volume of propylene when the market was adequately supplied, we think gives us the competitive feedstock base for this project to be profitable into the future. The second question -- I'm sorry, if you could remind me the second question. Second question?

Yes. It was about the ramp-up of the plant.

It's the ramp-up. Sorry. Yes. So yes, so the ramp-up -- and look, it's a new plant. And we run it really hard, and then we find something that's not working properly, we shut it down for a little bit and then start it back up. So my expectation is that before year-end, we'll be running at a 450kta rate, okay? How much more...

Sorry, say it again? By...

By year-end, as in by the year 2020, we will be running at a 450kta rate, so benchmark rate, if you will. And we've already demonstrated the plant can run at that rate. We haven't demonstrated that plant can run at that rate for multiple months in a row, obviously, because it's too new towards the start-up, but we've already demonstrated that level of production rate. Hopefully, that's clear.

Awesome. Congrats about the project.

Our next question comes from Mr. Bruno Montanari from Morgan Stanley.

Just 1 question. Would you say that the design of the project is to keep exporting a substantial amount of production? Or eventually, do you aim at perhaps taking more market share in the U.S., where then you can take advantage of better spreads given the higher price? And linking to spreads, on the presentation, you mentioned that 2022 spreads are expected to be at $512. Just trying to figure out if that would be kind of the sustainable level or if you expect long-term spreads could go back to the kind of the high $600 handle?

So I'll address the export piece first. The original design for the plant was to allocate approximately half of the new volume to exports and about half to domestic -- I shouldn't say domestic, half to North America, U.S., Mexico, Canada. This will iterate dependent on client needs, strategic client needs, and netbacks or spreads globally, right? Because we're going to continue to optimize what we -- where we supply and how we supply and what we supply. The foundational rationale for building this plant in the U.S. was because there's still a lot of growth in the U.S. converting market, right? It's the supplier strategic clients. And I expect that we're going to be supplying our strategic clients from Delta system predominantly for the next 4 to 6 months, and this is because the North America market is extremely tight right now. Demand has far outstripped supply. We saw a drop in the automotive segment for about 3 months after the onset of COVID in March, and that rebound has actually come back to pre-COVID levels for automotive. All other markets have continued to be strong. So our demand profile today for PP in the U.S. is at pre-COVID levels. Now I don't believe that will stay for the long term in automotive. I think we'll have volatility in automotive, but I think it shows the robustness of the polyolefins market, of polypropylene and polyethylene consumption. So right now, our big focus is on solving the demand needs in North America because of the tightness in supply and then starting to spread out into supplying our affiliates in other parts of the world. We do have other sources of export supply to supply our international markets, and that's Brazil. So we will also be looking at the value associated with supplying out of Brazil or supplying out of the U.S. Prior to Delta, we had 1 option. It was Brazil. Post-Delta, we have 2 options, and that allows us to look at these global arbitrages and see what's the most value to the company, right, how do we create the best spread, all right? But over time, I still expect us, because of efficiencies and optimization of our supply chain, that we're always going to have an export piece out of North America to supply specifically our direct clients in South America and Europe. I'm sorry. I'm going back now. So then we had a question about spreads into the future. And again, these are from external consulting firms. So the -- if you want to know the rationale for the dip, the rationale for the dip is new PP plants, right? ExxonMobil had announced 1. Lyondell had softly announced 1. Formosa had announced 1. IPPL (sic) [ IPL ] in Canada and Pembina in Canada. Pembina in Canada has publicly announced that their project is on hold. The others are a little hazy. So they're predicting clearly some capacity coming on that will drive those margins down. Again, typically, that happens in a build cycle. And this is cyclical, right, similar to these other big capital investment businesses. So our expectation is that when capacity comes on, there'll be a dip in spreads. But then spreads will come back up -- will move back up to the previous levels that support that reinvestment. Hopefully, that's clear.

Our next question comes from Regis Cardoso from Crédit Suisse.

Two questions from my side. First one on the ESG perspective. I mean one of the things we've seen recently was government stepping up their efforts, in particular, now more recently, in California. We're also talking fracking bans. And also, one other recent aspect of it was the crisis after COVID with lower oil prices also led to a shutdown, lower oil prices and lower natural gas prices led to the shutdown of many shale fields in the U.S. And we haven't really seen that production come back on stream so far. So my question really is whether you believe that any of those trends could a pose a supply risk for this plant in the sense that the U.S. shale could not be as [ prowess ] or it could not, at some point, be so -- has a big surplus as it has today. And then the second question, more straight to the point, really is in terms of product flow because you meant that you were already marketing a lot of the volumes coming from imports from other plants. Does this mean that as the plant ramps up, we won't see as much revenues increase as we will see margins increase because you're substituting imported deals -- sorry, imported product for -- produced locally? And does it also mean that the Brazilian plants will run at a lower utilization rates?

There's a lot there. So I'll start with shale, and then we'll come back to the imports and the spreads and the impact on us and kind of the moving supply chain, if you will, within the Braskem system. So first of all, on the shale piece, let's be really specific on this. With propylene, it's about propane, okay? So -- and I agree with all your comments. There's certainly watchouts. There's things that we're watching really closely. But you also know that we have a redundancy in our system, right? Largely in South America, we're naphtha-based and largely in North America, we're gas-based. So we have a natural hedge in our system, and it's a good point. That's a risk that we look at all the time and trying to understand where those 2 fundamental energy markets are going. Having said that, we don't anticipate a drop-off in propane production in North America. North America is one of the propane engines for the world right now. And so we expect that to continue. And that's really the foundation behind PDHs, and so that's the foundation behind the competitiveness of the feedstock. But again, very good points, and those are things that we're always on the watch out for. When I move over to the portfolio and imports and exports and how that starts to impact our financials, yes, you bring up a couple of really good points. First of all, importing resin to the U.S., specifically, is probably one of the more costly import activities globally because most of the world exports and imports in 25 kg bags or 1,000 kg super sacks. The U.S. business operates in hopper cars, in railcars, in bulk. 90-plus percent of the U.S. market is supplied by railcars. So if you bring in a 55 kg bag, you have to somehow put in a railcar, and that's expensive, right? So certainly, we will gain cost efficiency in the Braskem system supplying domestically as opposed to supplying from export. Now when you flip that around and you go the other way, we're putting it in a 55 -- or 25 kg bag, 50 lb bag here. And that's pretty reasonable, right? That's pretty cost-effective and then it ships across the world, and it's consumed out of that 25 kg bag. So we will see some improvement in our supply chain costs associated with going from importing in the U.S. to exporting. When we get to Brazil -- and by the way, we've already backed off on Brazil, right? We're not still pulling large volumes from Brazil into North America, and that's simply because Delta was in the commissioning and start-up phase, right? But if we look at the current environment, again, long term, we'll have to rebalance our portfolio to find that optimum supply chain for export, whether it's Brazil or the U.S. Over the short term, Brazil demand for PP is similar in context to U.S. demand for PP. It's far outstripping the ability to supply. And as you all know, we're the major supplier in Brazil. So at this point in time, Brazil needs every fund they can keep of PP to supply the domestic and, I'll say, the local market Mercosul. So hopefully, that answers that question over the short term. Over the long term, we're going to have to rebalance. Yes.

Mark, this is Pedro. Just to complement on the Brazil side. The Brazilian demand is, as Mark mentioned, growing very steeply in the past few months. So we are actually relocating those export volumes. Looking from Brazil, right, from the Brazilian perspective, we are relocating the export volumes from the U.S. and other markets into Brazil, which is actually good for our results because we don't have to incur in the logistics costs to export. So actually, we still export PP from Brazil, but the current market dynamics are providing, I would say, a very good composition in our ability to relocate those tons, right, that volume. But even if that was not happening, as I said earlier, we have commercial outlets in Europe, in Asia and in other countries in Latin America. So we're very confident that we would be able to place those PP tons in these other markets and with reasonable margins, right? So again, looking at the Brazilian perspective, Delta does not create a problem. We're just relocating from export markets. Thinking of the U.S. as an export market into other export markets and in the short term, actually into Brazilian market itself.

Our next question comes from Christian Audi from Santander.

Here's 3 questions. Maybe Roberto, we could start with 2. Strategically, this is another important move for Braskem in its existing presence in the Americas. I was wondering if you could talk a little bit about the strategic direction or aspirations that you have to potentially go beyond the Americas as we continue to look for ways to grow outside of Brazil? And then the other 2 questions for maybe Pedro and Mark, how far are you in the commercial contracts for the Delta project? In other words, you've -- you secured most of them. How is that evolving, if you could provide some color there? And then the third question, Mark, you touched on this new capacity coming in, in the coming years from other companies. When this new capacity does come in, is there something about the Delta project that sets it apart from these upcoming competitive capacity, be it cost, be it technology use, be it location, anything that would give you a competitive advantage versus this future competition?

Okay. Thank you for the questions. For this moment, what we are analyzing in Braskem, we don't have provision to new green building plants -- greenfield plant. We have some studies to some additional capacity at the bottleneck, but not a greenfield plant. Mark, for the second question?

Yes. So let me talk a little bit about the plant and how we operate, right? As you see, we have a lot of lines. And Delta -- so first of all, Delta was designed to be extremely cost competitive, extremely sustainable and make the, I'll say, the bulk of our core product portfolio. What do I mean by that? The plant was not designed to make a lot of specialty materials that we don't make today. It has the capability to do that in the future, but that's not the primary focus of it. We have other plants that can make more specialized products and are better designed to make specialized products. So what Delta allows us to do -- and we view this as a system, right, and we call it line loading. But viewed as a system, you have multiple lines where you can make multiple products. And you try to align the right products to the right line for cost effectiveness, for supply chain and logistics effectiveness, right, and for effectiveness in operations. Big plants, you try to have fewer products, longer runs of fewer products, right, because they're very large plants like Delta. We have other plants, on the other hand, that are more complex that have different capabilities and are better designed to make specialties. And today, we're making the broad portfolio on those. So what we're going to do is we're going to line load. We're going to allocate more of the core volume to Delta, allowing those other plants that are capable of making specialties, the line time, the capacity to make those specialties. And that's what will enhance our market position. So Delta is more of an enabler for that as opposed to the actual means. Did I answer the question? I want to make sure that's clear.

Yes. That's helpful. And on the commercial side, Mark, I was just trying to understand...

Yes. On the commercial contract?

How can we gauge-- yes. How can we gauge how well or how fast is commercial contracts are being secured?

Well, yes. And just a comment about leadership. I view leadership as not just scale. I view leadership as relationships, as product portfolio, as service levels, as satisfying client needs. And I believe we're the best. I have confidence that we're the best at that in North America. I have confidence we're the best of that in all 3 regions. But I have a lot of confidence about that, that we're the best of that in North America. So this is -- and if you go back in the history of these businesses, right, we didn't go back that far. But if you go back to Aristech Chemical, you go back to Epsilon, you go back to Sunoco, you go back to Dow, you go back to the history of these businesses, we've been dealing with these strategic clients, strategic partners for decades. And this is more of a continuity of that, and it's a continuity of those relationships. So you can take that to be -- we've been working on placing this volume with our strategic partners in North America for the last 3 years. I think we're in great shape. I'm really confident right now. We're not just trying to solve and satisfy the demand that we committed to our strategic clients, but we're also trying to solve the shortfall from other unplanned outages in the polypropylene industry in North America caused by hurricanes and other events. So I think we're actually looking beyond that, if that makes sense to you, right? This is not a, oh, we just now are negotiating. We've already been talking to the strategic partners for a long time so that we have, I'll say, continuity of the relationship. The real challenge right now is covering other shortfalls in the market because we're the only ones that have new capacity.

This concludes the Q&A session. I'll turn over to Mr. Pedro Freitas for closing remarks.

Thank you. So I would like to thank all of you that participated in the call. I would ask everybody that still -- I mean if you have other questions and would like to discuss, please get in touch with our Investor Relations team headed by Rosana, and we'll be happy to address any other questions you may have about Delta or other aspects of Braskem. We are very excited with Delta. We think it's a very significant addition to our portfolio. It's a major milestone in the North American PP market. As what's highlighted during the presentation, it reinforces Braskem's leading position in that market, and we see it as a very value-additive project for Braskem. So I would like to thank you all, and I hope to talk to you all soon. Thank you.

Thank you. This concludes today's Braskem's Delta conference call. You may disconnect your lines at this time.