February 18, 2016 / 2:17 PM / 2 years ago

CORRECTED-UPDATE 1-Braskem boosts investment, ready to fire up Mexico plant

(Corrects 6th paragraph in Feb. 18 story to say UTEC is a high-performance polyethylene, not polypropylene)

SAO PAULO, Feb 18 (Reuters) - Braskem SA, Latin America’s largest petrochemical company, plans to increase investment by more than 50 percent this year as it starts new production lines in Mexico and the United States, making the most of cheaper raw materials and a stronger dollar.

The Brazilian company said in a filing on Thursday that it planned 3.66 billion Brazilian reais ($909 million) of capital spending in 2016. Last year Braskem invested 2.376 billion reais, 11 percent more than planned due to a currency swing.

Brazil’s currency, the real, hit all-time lows in recent months as the country’s economy lurched deeper into recession, boosting the impact of dollar-denominated revenue and investments on its earnings, which are denominated in reais.

Costs pegged to the greenback make up about half of Braskem’s investment plan this year, with a new polyethylene plant in Mexico accounting for nearly three-quarters of dollar costs, or $329 million.

The Ethylene XXI project, a joint venture with Mexico’s Idesa, will start producing polyethylene from natural gas-based ethane in the first quarter of 2016, Braskem said, culminating the biggest private investment ever by a Brazilian company in Mexico.

Braskem also plans $117 million of investments in Europe and the United States, with a Texas plant starting to produce UTEC, a high-performance polyethylene, in the second half of 2016.

The investment plans were outlined in Braskem’s fourth-quarter earnings report, which showed quarterly net income of 158 million reais, reversing a year-earlier loss as a stronger dollar boosted exports from Brazil and lower oil prices cut costs.

Braskem shares rose 5 percent in Thursday trading to a four-week high.

Cheaper oil has lowered the cost of naphtha, Braskem’s main raw material, opening a profitable spread for its principal business of turning petrochemicals into plastic resins.

Chief Executive Carlos Fadigas said he expects that spread to remain healthy this year, with a minor reduction in 2016 followed by a more challenging outlook in 2017, when more polyethylene plants fed by U.S. shale gas come onto the market.

In Brazil, a severe economic downturn could reduce demand for plastic resins by 4 percent or 5 percent this year, Fadigas told journalists, underscoring the importance of Braskem’s growing international footprint.

He said the company expects to export from the new plant in Mexico, seeking cost savings with operations in the United States, Europe and South America.

$1 = 4.02 Brazilian reais Reporting by Priscila Jordao and Brad Haynes; Additional reporting by Alberto Alerigi Jr. Editing by W Simon

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