Good afternoon, ladies and gentlemen. At this time, we would like to welcome everyone to Braskem's Third Quarter 2016 Earnings Conference Call. Today, with us, we have Fernando Musa, CEO; Pedro Freitas, CFO, and Pedro Teixeira, IR Controller and Project Finance Director. We would like to inform you that this event is being recorded and all participants will be in listen-only mode during the company's presentation. After Braskem remarks are completed, there will be a question-and-answer section. At that time, further instructions will be given. [Operator Instructions] We have simultaneous webcast that may be accessed through Braskem's IR Web site, www.braskem-ir.com.br. The slide presentation may be downloaded from this Web site. 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 questions, which will be answered during the Q&A session, may be posted in advance on the Web site. Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the 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 Pedro Teixeira, IR, Controller and Project Finance Director. Mr. Teixeira, you may begin your conference.

Good afternoon, ladies and gentlemen, thank you for participating in another Braskem earnings conference call. Today, we will present our results for the third quarter of 2016. We remind you that pursuant to the Brazilian federal law from 2007, the results presented in today's presentation reflect the adoption of International Financial Reporting Standards. The financial information in today's presentation was reviewed by the independent external auditor. So, let's go to the next slide, which we will present the highlights in this year. In Brazil, the highlight was the resin market, which came to 1.3 million tons growing 6% against the same quarter last year and 8% over the previous quarter. Resin sales grew by 5% to 846,000 tons or 69% of market share. Braskem's crackers in Brazil set a new record for capacity utilization, an average of 94%, which is 4 percentage points higher than in the same quarter last year and 2 percentage points higher than the second quarter. To meet the growth in demand, Braskem reduced its resin exports and they were 7% lower compared to both the same quarter last year and the prior quarter. Exports of basic petrochemicals came to 333,000 tons [sic] 338,000 tons, growing by 11% from the second quarter. EBITDA from the operations in Brazil including exports amounted to R$2.2 billion, representing 75% of the company's consolidated EBITDA. In our PP operations in U.S. and Europe, the highlight is towards the average capacity utilization rate of 101%, reflecting the continued good level of operating efficiency. Sales volume in the quarter came to 516,000 tons, advancing 3% on the third quarter of last year. EBITDA in the United States and Europe was $161 million or R$524 million, accounting for 18% of the consolidated EBITDA. In Mexico, still in the ramp-up phase. The PE plants…

Thank you. The floor is now open for questions. [Operator Instructions] [indiscernible] Bradesco, would like to make a question.

All right. Good afternoon everyone. Thank you for the questions. So, I just had one simple question here. So Braskem is generating a lot of cash today, so I think our investors are happy to see how much the company is able to trade in terms of cash. So, I think a big question for us is to understand what they would do with their cash. So, I think the most obvious answers are first, increase dividends or second, go after new strategic projects such as PP paraffin U.S. or any others that company may consider strategic. So what I would like to hear from you is in terms of priorities, what is the priority of the company right now, it's either to increase dividend as happened this year once or go after the PP projects in U.S., and if you are going after the PP projects, what'll be the state of the projects under study to date? That's it. Thank you.

Hello, Felipe. Thank you for your question. As you said, the first quarter demonstrated the continuous strong cash generation that the company has generated. As for the use of cash, we see at least three levers; first on, dividend, just announced in October, one given high additional payment that was executed. Second, as you mentioned, it creates the opportunity for us to continue to invest in projects that are either capacity expansion like the potential PP project in U.S. that will be built in Texas or investments like the one we're making right now in our Bahia cracker to create flexibility. So, project portfolio would include capacity additions, but also improvement in competitiveness to support future cash flow generation. And the third is to continue our profits of reducing the leverage. We are now at 1.63x debt over EBITDA. We want to continue to manage the use of cash along those three dimensions and the concept here is to prepare ourselves for a potential down-cycle in the PE ethylene value chain that might be coming depending on the PE -- implementation of the project going on in U.S. And therefore, we will manage those leverages making sure that we can maintain debt over EBITDA under 2.5x, which is our desired leverage point.

Okay, great. Thank you very much.

We have Hassan from Alembic Global would like to make a question.

Good afternoon folks. One of the sort of recent trends that we have seen over the last couple of months is sort of production scaling back of coal out in China, right. And there are obviously a variety of products you guys produce, be it on the olefins, polyolefin side of things or the PVC side of things that are currently being produced using different sort of production percentages, coal as a feedstock. So, do you believe that -- some of this sort of resilience or strength in, be it, PVC pricing or ethylene, polyethylene pricing, we are seeing on the back of the entire coal prices, A, and B, what's your perception going forward in terms of the impact this may have in the market?

Thank you, Hassan for your question. We've been following what's going on in China with the significant investments that were made over the years and are still being made in multiple plants leveraging different types of feedstock, the main one being coal. But our analysis has shown that at the current oil price and the way the Chinese government is managing coal price and the environmental aspects of it, the coal to olefins and therefore polyolefin is not very competitive. So, our assumption is that the scale back in production from coal is the combination of the environmental restrictions and the economic logic kicking in to moderate their production. As we look forward, it seems that a little bit similar to what we are seeing in the U.S., many of the projects that have been announced over the years in China are being delayed and/or canceled. One announcement that we did in little bit more detail was the whole PDH investment where we see many reports mentioning several million tons of propylene production from PDH. But when you dig a little bit deeper, many of those projects seem to be either very early stage or more on the idea phase. So, we're probably going to see spacing of any future capacity entrance in China, which should contribute to a smoother supply and demand equilibrium going forward. Having said all that, of course, the relative prices of oil, coal and gas in U.S. that is a key contributor to the methanol to olefins in China value chain are the crucial variables. So, if they stay where they are, we do expect that this capacity will have a mild effect on them. If you look at the expectation for ethylene new capacity in China. In the first quarter of this year, IHS was expecting 2.7 million tons of new capacity in 2019. In the third quarter, they're only projecting 0.8 million tons for 2019. So, this is a concrete illustration of spacing out of the new entrances and/or canceling of new projects.

Very helpful. Now as a follow-up, obviously a lot of discussion on ethane, particularly out here in the U.S., but potentially not enough discussion surrounding propane and why I bring that up is obviously you guys have been producing the polypropylene as well. So, my question really is that as these discussions continue, one of the points that's constantly brought up is that as ethane demand continue rising in the U.S., be it from the influx of new greenfield facilities or more and more sort of exported ethane, propane may provide a relieve valve, meaning propane could provide a ceiling for ethane pricing. So now, my question to you is that what do you feel, with that as a backdrop over the next couple of years, how do you see propane and propylene pricing shaping out?

We would share your point of view. As you said, the ethane consumption going up with the new projects starting in U.S. and we will probably reach a point where propane use at the crackers will increase and therefore help balance the supply to the new and existing cracker base in U.S. So, with that in mind, you probably reach a point where ethane and propane go towards some kind of export parity and linking between ethane and propane price. In that scenario, the propylene question is a little bit trickier, because on the PDH side, you will have the [indiscernible] PDH up and running. They will be competitive. They will run 100% of the time. So, you have that production coming. If the crackers start to use a little bit more propane, you have more propylene in the market. So, one very possible scenario is that propylene prices decrease in U.S. given the abundance of supply coming from the PDH as that will be running plus the crackers moving to more propane feedstock. So, this should lead to a high availability of propylene and low price of propylene, which is one of the key drivers for our PP project in U.S. which is a combination of strong PP demand in U.S., but a very good competitive cost position to serve both U.S. and eventually to export PP out of the U.S. into other markets around the world, in that scenario where propylene is very competitive globally.

Super very helpful. Thank you so much.

Sarah, Barclays, will like to make a question.

Hi. Good afternoon. I had two very specific questions. One is regarding your debt and accessing the capital markets. So, I know that you've been reducing your debt, but I was wondering if you are contemplating any kind of transaction, either new net financing or possibly more likely doing any liability management and perhaps likely targeting the 2018? And then, the other question that I had was about S&P, which still has your rating on negative outlook and what kind of conversations you have been having with them? Thank you.

So, Sarah. Thank you for the question. This is Pedro Freitas. We are always analyzing the market for -- we've been planning to get in. We right now don't have anything in our hands. We do look at our upcoming bond maturities in 2018, 2020, 2021 and we will -- when the timing is right, we will go to market to [indiscernible] those bonds. But so far, we are still analyzing the market.

Great. Thanks. And regarding any conversations with S&P regarding what might be required for them to remove the negative outlook on your rating?

Yes. So on that, the review that we get from S&P is very much because of the Brazilian sovereign rating. So, the negative is there -- from our understanding is that, the negative is there because of the Brazil situation. Brazil is two notches below us. So, if there is any further downgrade in Brazil, our understanding is that that negative is there because of that. On the other hand, Fitch has removed the negative from our rating. So, we have now a stable outlook for our investment grade rating with Fitch.

Got it. Thank you.

[Operator Instructions] Mr. Pedro from Citigroup will like to make a question.

Thank you so much for taking the question. Congratulations for the results. I have two questions, one of them is a follow-up, I think most of my questions were answered in this call in the Portuguese version as well. So, the first one is, when looking forward to 2017, there is a particular event for your propylene assets in the U.S., which is the startup of the PDH facility from enterprise in which you have an up tick or agreement to take a good share of that facility on propylene production. So, I just wanted to understand what is the effect to your polypropylene business margin for 2017 with the startup of that facility in the contract itself. Is there any change on the contract conditions as well given the delays on the project? And the second question is, how does that contract interact and if it interacts at all with the expected supply for the conversion that is taking place in Camacari [indiscernible] supply which is different, but if you mind to comment on that and how the economics of that conversion should work? I would appreciate. Thank you.

Okay. So, talking about the contract purchase of propylene from Enterprise, this is a contract that involves volumes that can be produced both from the PDH or the Enterprise. We do not foresee any change in that contract. This is a long-term contract that was signed back in 2012. Their project is delayed, but it was in the window that exists in the contract before the startup date. So, there is no trigger of any penalty on the Enterprise side because of any delays. So, we do expect to start receiving volumes from the PDH paid contracts during 2017. We're the largest buyer of propylene in the U.S. market and we have multiple contracts. This is one other contract that we have that will be a part of the supply for three assets in the Gulf Coast. As far as impact for the margins, as I said before during the previous question, the higher availability of propylene in the region should lead to lower propylene price. Therefore, the contracts -- the effect of the PDH at starting should be a positive contributor to the PP business margins in the U.S. Speaking about the ethane contract or ethane flow from the U.S. into Camacari, even though we have an agreement with Enterprise as well, the two contracts are not connected, those are two independent contracts. So, there is no link whatsoever with -- except for the fact that it's the same buyer and the same seller. As far as the concept of this ethane supply into our cracker, the concept is to convert a part of one of the trains in Camacari, so that it can also crack ethane and not only naphtha. We are doing the investment as we speak with an expectation of the end of this process in the second half of next year where we could start flowing ethane from the U.S. into the Camacari cracker. The concept here is a concept of flexibility, so we will have the flexibility to either crack naphtha or ethane. We do believe that ethane cracking will be competitive, even though it will land in Camacari, we have cost addition because of the logistics compared to U.S. cracking, but given that this is an addition and flexibility into a much larger cracker, the economics are interesting. The investment necessary to adapt the cracker is in the $100 million plus -- $100 million, $120 million in total and includes not only some other [indiscernible] at the cracker, but most of the investment is in the logistics at the port and the pipeline to move the ethane from the ships into the cracker in Bahia.

Okay. Well, thank you so much. Very clear.

[Operator Instructions] I'll turn over to the company for closing remarks.

I would like to thank all the participants to this dialogue. It was another strong quarter for Braskem with very good operational results, very good commercial results, which reinforces our conviction that our strategy that is built around, increased focus in competitiveness, increased focus on the internationalization of our operations and the desire to diversify our feedstock matrix is the right strategy. We have been generating very solid and positive results over the last few quarters and we do expect to continue to be able to generate good results. Thank you all for participating. Bye.

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