Unigel, one of Brazil’s most traditional petrochemical companies, is focusing on agribusiness after Russia invaded Ukraine. Months after restarting the operation of two fertilizer plants leased from oil giant Petrobras, which contributed to 2021 being the best year ever, the company will expand local production of strategic inputs for nitrogen fertilizers and chemicals that are currently 100% imported.

“In the medium term, we have growth plans in all three fields: agribusiness, acrylics and styrenics. But today the major focus is on agriculture because we can see Brazil’s reliance on imported fertilizers. This exposure makes us want to invest more,” said Daniel Zilberknop, Unigel’s chief financial officer.

The company, which is the largest producer of acrylics and styrenics in Latin America, could be exposed to the risks of shortages generated by the war. By leasing Petrobras’s fertilizer units in Bahia and Sergipe, which were previously idle, Unigel became the only local producer of ammonia, used in fertilizers and in the acrylic chain. Before, this raw material had to be 100% imported, and Russia accounts for 23% of the global supply.

Unigel Agro will complete the business portfolio and integrate the company’s other operations, first in the case of ammonia and now in sulfuric acid, Mr. Zilberknop said. There will be more developments ahead, and green hydrogen and green ammonia are on the company’s radar.

At this moment, the company is investing $100 million in a new plant for the product in Camaçari, Bahia, which will be used to reactivate an ammonium sulfate plant (a nitrogen fertilizer), which came in the package of assets leased from Petrobras – sulfuric acid is used in the production of both fertilizers and acrylics, and the steam generated in the production process is used as energy in the styrenics operation.

To reactivate the nitrogen fertilizer plants, the company had already disbursed about $100 million. “Before, we navigated more the petrochemical cycle. With Unigel Agro, the scale has also changed. We intend to expand into agribusiness production, further integrating our business,” the executive said.

Last year, while the stronger petrochemical spreads boosted performance in the first half, the full operation of the nitrogen fertilizer plants has driven the results at a time of weaker spreads – in the year, the results in acrylics and styrenics also grew compared to previous years, with a greater focus on operational efficiency.

Unigel ended 2021 with gross revenue of R$8.49 billion, more than double what was reported in the previous year, and EBITDA of R$1.7 billion, a more than threefold increase. The net income reached R$882 million and the cash generated by operational activities more than doubled to R$1.1 billion.

After a ramp-up in the nitrogen fertilizer plants in August, Unigel became the largest nitrogen fertilizer manufacturer in the country. The business had a relevant contribution in the results in 2021, accounting for 25% of the gross revenue and 33% of the adjusted EBIDTA.

Today, Unigel Agro’s installed capacity is 925,000 tonnes per year of ammonia, 1.125 million tonnes of urea, 670,000 tonnes of ammonium sulfate and 220,000 tonnes of Arla, used to reduce emissions from large vehicles.

In the executive’s view, the war in Ukraine brings direct consequences for the oil and gas and fertilizer markets but for now is not a reason for concern for Unigel Agro, which uses gas in the production of urea and ammonia.

Considering local supply contracts with Petrobras and Shell, assured demand and raw material hedging, the operation is expected to smoothly navigate the conflict. Russia is the largest exporter of ammonia and urea in the world and one of the biggest players in NPK fertilizers, which caused the prices of these inputs to skyrocket as the country was sanctioned for the invasion of Ukraine.

Unigel ended 2021 with R$849 million in cash reserves and will be able to face the investment in sulfuric acid with the funds generated by its businesses. The company was on its way to selling shares on the stock exchange but suspended the IPO in the second half of last year amid deteriorating market conditions.

“The company is at its best moment and is able to invest in growth with deleveraging,” the executive said. At the end of the year, Unigel’s net debt, of about R$2.1 billion, accounted for 1.2 times the annualized EBITDA, a ratio seen as comfortable by rating agencies.

Source: Valor International

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