As filed with the Securities and Exchange Commission on June 01, 2010

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

¨         REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR

12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

x        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

OR

¨         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

OR

¨            SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-14862

BRASKEM S.A.

(Exact Name of Registrant as Specified in its Charter)

Av. das Nações Unidas, 8,501

São Paulo, SP—CEP 05425-070 Brazil

(Address of Principal Executive Offices)

Marcela Aparecida Drehmer Andrade

Braskem S.A.

Av. das Nações Unidas, 8,501

São Paulo, SP—CEP 05425-070 Brazil

Telephone: + (55 11) 3576-9000

Fax: + (55 11) 3576-9532

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

The total number of issued shares of each class of stock of Braskem S.A. as of December 31, 2009 was:

190,462,446 Common Shares, without par value

329,871,890 Preferred Shares, Class A, without par value

593,818 Preferred Shares, Class B, without par value 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    ¨  Item 17    x  Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

All references herein to the “real,” “reais” or “R$” are to the Brazilian real, the official currency of Brazil. All references to “U.S. dollars,” “dollars” or “US$” are to U.S. dollars.

All references herein (1) to “we,” “us” or “our company” are references to Braskem S.A., its consolidated subsidiaries and jointly controlled entities, and (2) to “Braskem” are references solely to Braskem S.A.

On May 26, 2010, the exchange rate for reais into U.S. dollars was R$1.846 to US$1.00, based on the selling rate as reported by the Central Bank of Brazil (Banco Central do Brasil), or the Central Bank. The selling rate was R$1.741 to US$1.00 at December 31, 2009, R$2.337 to US$1.00 at December 31, 2008, and R$1.771 to US$1.00 at December 31, 2007, in each case, as reported by the Central Bank. The real/U.S. dollar exchange rate fluctuates widely, and the selling rate at May 26, 2010 may not be indicative of future exchange rates. See “Item 3. Key Information—Exchange Rates” for information regarding exchange rates for the Brazilian currency since January 1, 2005.

Solely for the convenience of the reader, we have translated some amounts included in “Item 3. Key Information—Selected Financial Information” and elsewhere in this annual report from reais into U.S. dollars using the selling rate as reported by the Central Bank at December 31, 2009 of R$1.741 to US$1.00. These translations should not be considered representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or at any other exchange rate. Such translations should not be construed as representations that the real amounts represent or have been or could be converted into U.S. dollars as of that or any other date.

Financial Statements

Braskem Financial Statements

We maintain our books and records in reais. The financial information of Braskem contained in this annual report has been derived from the records and financial statements of Braskem, and includes our audited consolidated financial statements at December 31, 2009 and 2008 and for each of the years ended December 31, 2009, 2008 and 2007.

We prepare our consolidated financial statements in accordance with accounting practices adopted in Brazil, or Brazilian GAAP, which are based on:

·         Brazilian Law No. 6,404, dated December 15, 1976, as amended, which we refer to hereinafter as the Brazilian Corporation Law;

·         the rules and regulations of the Brazilian Securities Commission (Comissão de Valores Mobiliários), or the CVM; and

·         the accounting standards issued by the Brazilian Accounting Standards Committee (Comitê de Pronunciamentos Contábeis), or the CPC.

Brazilian GAAP differs in certain respects from accounting principles generally accepted in the United States, or U.S. GAAP.

On December 28, 2007, the Brazilian government enacted Law No. 11,638, or Law No. 11,638/07, which became effective on January 1, 2008, and which amended the Brazilian Corporation Law and changed certain accounting policies under Brazilian GAAP. On December 17, 2008, the CVM issued Deliberação No. 565, or Deliberation No. 565, implementing these changes in accounting policies. On May 27, 2009, the Brazilian government enacted Law No. 11,941, or Law No. 11,941/09, which codified certain amendments to Brazilian GAAP adopted in Provisional Measure No. 449, dated December 3, 2008, or Provisional Measure No. 449/08. The main purpose of these changes to Brazilian GAAP was to harmonize Brazilian GAAP with the International Financial Reporting Standards as issued by the International Accounting Standards Board, or IFRS. For a discussion of the principal changes introduced by Law No. 11,638/07, Deliberation 565 and Law No. 11,941/09 as they relate to our financial statements, see note 2 to our audited consolidated financial statements.

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Consistent with Brazilian GAAP, our audited consolidated financial statements at December 31, 2009 and 2008 and for the three years ended December 31, 2009 have been prepared in accordance with CVM Instruction No. 247, dated March 27, 1996, as amended, or Instruction 247. Instruction 247 requires our company to proportionally consolidate jointly controlled companies that are not our subsidiaries but which we jointly control with one or more other shareholders.

Prior to April 1, 2007, we proportionally consolidated the results of Copesul—Companhia Petroquímica do Sul, or Copesul, in our consolidated financial statements. As a result of the Ipiranga Transaction described under “Item 4. Information on the Company—History and Development of Our Company—Ipiranga Transaction,” we have fully consolidated Copesul’s results in our consolidated financial statements as from April 1, 2007. Copesul merged with and into Ipiranga Petroquímica S.A., or Ipiranga Petroquímica, on September 11, 2008 and Ipiranga Petroquímica merged with and into Braskem on September 30, 2008.

Prior to December 1, 2007, we proportionally consolidated the results of Petroflex Indústria e Comércio S.A., or Petroflex, in our consolidated financial statements. As a result of our entering into an agreement in December 2007 to sell our interests in Petroflex, we accounted for our interest in Petroflex in our Brazilian GAAP financial statements using the equity method as from December 1, 2007. In April 2008, we sold all of our share capital in Petroflex.

Prior to April 1, 2008, we proportionally consolidated the results of Petroquímica Paulínia S.A., or Paulínia, in our consolidated financial statements. As a result of the completion of the first phase of the Petrobras Transaction described under “Item 4. Information on the Company—History and Development of Our Company—Petrobras Transaction,” we have fully consolidated the results of Paulínia and its subsidiaries in our consolidated financial statements as from April 1, 2008. On September 30, 2008, Ipiranga Petroquímica and Paulínia merged with and into Braskem.

Copesul Financial Statements

Prior to April 1, 2007, Copesul’s consolidated financial statements were proportionally consolidated into the Braskem’s consolidated financial statements under Brazilian GAAP, as described above under “—Braskem Financial Statements.” As a result of the Ipiranga Transaction described under “Item 4. Information on the Company—History and Development of Our Company—Ipiranga Transaction” and our obtaining effective management control over Copesul, we have fully consolidated the results of Copesul and its subsidiaries into our financial statements as from April 1, 2007.

We have included separate unaudited consolidated financial statements of Copesul at March 31, 2007 and for the three month period ended March 31, 2007 in this annual report because Copesul constituted a significant jointly controlled company, accounting for 85.0% of our income from continuing operations before income taxes in the three months ended March 31, 2007. Copesul maintained its books and records in reais and prepared its financial statements in accordance with Brazilian GAAP.

Copesul’s consolidated financial statements at March 31, 2007 and for the three month period ended March 31, 2007 were prepared in accordance with Brazilian GAAP in force at the time these financial statements were issued and do not reflect the changes in accounting policy introduced by Law No. 11,638/07 and Deliberation No. 565. As a result, the information in these financial statements may not be comparable to the information with respect to our company at the dates and for the periods presented in these financial statements.

Share Split

On March 31, 2005, we authorized the reverse split of all of our issued common shares, class A preferred shares and class B preferred shares into one share for each 250 issued shares. This reverse share split became effective on May 16, 2005. In connection with this reverse share split, we authorized a change in the ratio of our American Depositary Shares, or ADSs. Upon the effectiveness of our reverse share split and the ratio change, the ratio of our class A preferred shares to ADSs changed from 1,000 class A preferred shares per ADS to two class A preferred shares per ADS. All references to numbers of shares and dividend amounts in this annual report have been adjusted to give effect to the 20-for-one share split and the one-for-250 reverse share split.

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Market Share and Other Information

We make statements in this annual report about our market share in the petrochemical industry in Brazil and our production capacity relative to that of other petrochemical producers in Brazil, Latin America, the United States and the world. We have made these statements on the basis of information obtained from third-party sources that we believe are reliable. We have calculated our Brazilian market shares with respect to specific products by dividing our domestic net sales volumes of these products by the total Brazilian domestic consumption of these products as estimated by the Brazilian Chemical Industry Association (Associação Brasileira da Indústria Química), or ABIQUIM. We derive information regarding the production capacity of other companies in the Brazilian petrochemical industry and the estimated total Brazilian domestic consumption of petrochemical products principally from reports published by ABIQUIM. We derive information regarding the production capacity of other companies in the global petrochemical industry, the United States petrochemical industry and the Latin American petrochemical industry, international market prices for petrochemicals products and per capita consumption in certain geographic regions, principally from reports published by Chemical Markets Associates, Inc., or CMAI. We derive information regarding the size of the chemical distribution industry and our market share in this industry principally from reports published by the Brazilian Chemical and Petrochemical Distributors Association (Associação Brasileira dos Distribuidores de Produtos Químicos e Petroquímicos).

We have no reason to believe that any of this information is inaccurate in any material respect. However, we have not independently verified the production capacity, market share, market size or similar data provided by third parties or derived from industry or general publications.

Production Capacity and Sales Volume

As used in this annual report:

·         “production capacity” means the annual projected capacity for a particular facility, calculated based upon operations for 24 hours each day of a year and deducting scheduled downtime for regular maintenance; and

·         “ton” means a metric ton, which is equal to 1,000 kilograms or 2,204.62 pounds.

Rounding

We have made rounding adjustments to reach some of the figures included in this annual report. As a result, numerical figures shown as totals in some tables may not be arithmetic aggregations of the figures that precede them.

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CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements. Some of the matters discussed concerning our business operations and financial performance include forward-looking statements within the meaning of the U.S. Securities Act of 1933, as amended, or the Securities Act, or the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act.

Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates” and similar expressions are forward-looking statements. Although we believe that these forward-looking statements are based upon reasonable assumptions, these statements are subject to several risks and uncertainties and are made in light of information currently available to us.

Our forward-looking statements may be influenced by factors, including the following:

·         general economic, political and business conditions in our company’s markets, both in Brazil and abroad, including demand and prices for petrochemical products;

·         interest rate fluctuations, inflation and exchange rate movements of the real in relation to the U.S. dollar;

·         the cyclical nature of the Brazilian and global petrochemical industries;

·         competition in the Brazilian and global petrochemical industries;

·         prices of naphtha and other raw materials;

·         actions taken by our major shareholders;

·         our ability to implement our financing strategy and to obtain financing on satisfactory terms;

·         our ability to complete our pending acquisition of the remaining outstanding share capital of Quattor Participações S.A., or Quattor;

·         our progress in integrating the operations of  Quattor and Braskem PP Americas, Inc. (formerly known as Sunoco Chemicals, Inc.), or Braskem Americas, as well as other companies or assets acquired in the future, so as to achieve the anticipated benefits of these acquisitions;

·         changes in laws and regulations, including, among others, Brazilian laws and regulations affecting tax and environmental matters and import tariffs in other markets in which we operate or to which we export our products;

·         a continuation of the current worldwide economic downturn or deterioration in the Brazilian and world economies;

·         decisions rendered in major pending or future tax, labor and other legal proceedings; and

·         other factors identified or discussed under “Risk Factors.”

Our forward-looking statements are not guarantees of future performance, and our actual results or other developments may differ materially from the expectations expressed in the forward-looking statements. As for forward-looking statements that relate to future financial results and other projections, actual results will be different due to the inherent uncertainty of estimates, forecasts and projections. Because of these uncertainties, potential investors should not rely on these forward-looking statements.

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Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information or future developments or to release publicly any revisions to these statements in order to reflect later events or circumstances or to reflect the occurrence of unanticipated events.

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PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

Selected Financial Information

The following selected financial data have been derived from our consolidated financial statements. The selected financial data at December 31, 2009 and 2008 and for the three years ended December 31, 2009 have been derived from our consolidated financial statements included in this annual report. The selected financial data at December 31, 2007, 2006 and 2005 and for the years ended December 31, 2006 and 2005 have been derived from our audited consolidated financial statements that are not included in this annual report.

We have included information with respect to the dividends and/or interest attributable to shareholders’ equity paid to holders of our common shares and preferred shares since January 1, 2005 in reais and in U.S. dollars translated from reais at the commercial market selling rate in effect as of the payment date under the caption “Item 8. Financial Information—Dividends and Dividend Policy—Payment of Dividends.”

Our consolidated financial statements are prepared in accordance with Brazilian GAAP, which differs in certain respects from U.S. GAAP. For a discussion of certain differences relating to these financial statements, see note 35 to our audited consolidated financial statements included in this annual report.

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(1)   Translated for convenience only using the selling rate as reported by the Central Bank at December 31, 2009 for reais into U.S. dollars of R$1.741=US$1.00.

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(1)   Translated for convenience only using the selling rate as reported by the Central Bank at December 31, 2009 for reais into U.S. dollars of R$1.741=US$1.00.

(2)   On December 28, 2007, the Brazilian government enacted Law No. 11,638/07, which became effective on January 1, 2008, amended the Brazilian Corporation Law, and changed certain accounting policies under Brazilian GAAP. On December 17, 2008, the CVM issued Deliberation No. 565, implementing these changes in accounting policies. On May 27, 2009, the Brazilian government enacted Law No. 11,941/09, which codified certain amendments to Brazilian GAAP adopted in Provisional Measure No. 449/08. The main purpose of these changes to Brazilian GAAP was to harmonize Brazil GAAP with IFRS. For a discussion of the principal changes introduced by Law No. 11,638/07, Deliberation 565 and Law No. 11,941/09 as they relate to our financial statements, see note 2 to our audited consolidated financial statements. In order to make our financial statements at December 31, 2007 and 2006 and for the two years ended December 31, 2007 comparable to our financial statements at December 31, 2007 and 2006 and for the two years ended December 31, 2009, we have retrospectively revised our previously issued financial statements at December 31, 2007 and 2006 and for the two years ended December 31, 2007 to conform to the changes in accounting policy introduced by Law No. 11,638/07, Deliberation No. 565 and Law 11,941/09. We have not retrospectively revised our financial statements at December 31, 2005 and for the year ended December 31, 2005 to conform these changes in accounting policy because we cannot provide this information without unreasonable effort and expense and, therefore, the selected financial data at and for this period may not be comparable.

(3)   Includes quotas (i.e., shares) subject to mandatory redemption at and prior to December 31, 2006. Prior to January 1, 2006, we recorded quotas subject to mandatory redemption as a separate line item of our balance sheet and not as part of loans and financing. Accordingly, short-term loans and financing (including current portion of long-term debt) at December 31, 2005 reflect the reclassification of quotas subject to mandatory redemption in the amount of R$225.4 million, and long-term loans and financing at December 31, 2005 reflect the reclassification of quotas subject to mandatory redemption in the amount of R$404.1 million.

______________

(1)   Translated for convenience only using the selling rate as reported by the Central Bank at December 31, 2009 for reais into U.S. dollars of R$1.741=US$1.00.

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(1)   Including intra-company sales within our company. Intra-company sales of ethylene totaled approximately 1,966,300 tons in 2009, 1,708,300 tons in 2008, 1,644,000 tons in 2007, 882,500 tons in 2006 and 588,700 tons in 2005. Intra-company sales of propylene totaled approximately 630,900 tons in 2009, 638,400 tons in 2008, 567,800 tons in 2007, 86,500 tons in 2006 and 89,300 tons in 2005.

Exchange Rates

The Brazilian foreign exchange system allows the purchase and sale of foreign currency and the international transfer of reais by any person or legal entity, regardless of the amount, subject to certain regulatory procedures.

Since 1999, the Central Bank has allowed the U.S. dollar-real exchange rate to float freely, and, since then, the U.S. dollar-real exchange rate has fluctuated considerably.

In the past, the Central Bank has intervened occasionally to control unstable movements in foreign exchange rates.  We cannot predict whether the Central Bank or the Brazilian government will continue to permit the real to float freely or will intervene in the exchange rate market through the return of a currency band system or otherwise. The real may depreciate or appreciate against the U.S. dollar substantially. Furthermore, Brazilian law provides that, whenever there is a serious imbalance in Brazil’s balance of payments or there are serious reasons to foresee a serious imbalance, temporary restrictions may be imposed on remittances of foreign capital abroad. We cannot assure you that such measures will not be taken by the Brazilian government in the future. See “—Risk Factors—Risks Relating to Brazil—Brazilian government exchange control policies could increase the cost of servicing our foreign currency-denominated debt, adversely affect our ability to make payment under our foreign currency-denominated debt obligations and impair our liquidity” and “—Risk Factors—Risks Relating to Our Class A Preferred Shares and the ADSs—Exchange controls and restrictions on remittances abroad may adversely affect holders of the ADSs and the underlying class A preferred shares.” 

The following table shows the selling rate for U.S. dollars for the periods and dates indicated. The information in the “Average” column represents the average of the exchange rates on the last day of each month during the periods presented.

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Source: Central Bank

Risk Factors

Risks Relating to Our Company and the Petrochemical Industry

The global economic downturn has adversely affected economic growth in Brazil and our export markets.

The global economic slowdown since September 2008 has had, and may continue to have, a negative effect on economic growth in Brazil and in the countries to which we export our products. Brazilian gross domestic product, or GDP, was stagnant in 2009, and domestic resin sales volume declined by 0.4%. We believe that domestic demand for thermoplastic resins may continue to be affected by global macroeconomic factors. In addition, although the volume of our basic petrochemical and thermoplastic resin sales has recovered significantly beginning in the third quarter of 2009 from the levels experienced in the fourth quarter of 2008, exports, for which we generate lower margins than on our domestic sales, have constituted a larger percentage of our sales than has historically been the case.

Global demand for thermoplastic resins has been adversely affected beginning in the second half of 2008, reflecting the global economic slowdown. In addition, Chinese demand for thermoplastic resins declined following the conclusion of the Olympic Games in August 2008, and demand for thermoplastic resins in the United States and Europe declined as the effects of the global economic slowdown became more pronounced beginning in the second half of 2008. The contraction of demand in the United States led U.S. thermoplastic resin producers to increase the volume of exports of their thermoplastic products, leading to an increase in imports of these products in Brazil that placed pressure on our margins on domestic sales. In addition, we believe that pressure on the Brazilian market from imports may resume in 2010 due to the commissioning of new capacity in Asia and the Middle East, particularly if this new capacity is not absorbed in Asian and European markets.

Although emerging markets such as China, India and Brazil began to record growth in consumption of petrochemical products in the first half of 2009, recovery from the global economic slowdown has been slow in industrialized economies, particularly in the United States, the European Community and Japan. Uncertainty persists regarding the pace of recovery in the global economy. Although the United States has shown signs of improvement, recent developments in the sovereign debt markets relating to countries in the European Union, especially Greece, have led to increased uncertainty regarding the economic recovery in Europe.

A prolonged slowdown in economic activity in Brazil and our key export markets could continue to reduce demand for some of our products, which would adversely affect our results of operations.

The cyclical nature of the petrochemical industry may reduce our net sales revenue and gross margin.

The petrochemical industry, including the markets in which we compete, is cyclical and sensitive to changes in supply and demand in Brazil and elsewhere. This cyclicality may reduce our net sales revenue and gross margin. In particular:

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·         downturns in general business and economic activity may cause demand for our products to decline;

·         when demand falls, we may face competitive pressures to lower our prices; and

·         if we decide to expand our plants or construct new plants, we may do so based on an estimate of future demand that never materializes or materializes at levels lower than we predicted.

Historically, the international petrochemical markets have experienced alternating periods of limited supply, which have caused prices and profit margins to increase, followed by expansion of production capacity, which has resulted in oversupply and reduced prices and profit margins. The Brazilian petrochemical industry has become increasingly integrated with the global petrochemical industry, mainly as a result of increased demand for, and consumption of, petrochemical products in Brazil and the ongoing integration of regional and world markets for commodities. We establish the prices for the products we sell in Brazil with reference to international market prices. Our net sales revenue and gross margin are increasingly linked to global industry conditions that we cannot control.

We face competition from producers of polyethylene, polypropylene, PVC and other petrochemical products.

We face competition in Brazil from foreign producers of polyethylene, polypropylene, polyvinyl chloride, or PVC, and other petrochemical products. We generally set the prices for our second generation products sold in Brazil with reference to the prices charged for these products by foreign producers in international markets. As a result of the announced commissioning of new ethylene capacity, particularly in the Middle East and in China, we anticipate that we may experience increasingly intense competition from other producers of second generation products, both in Brazil and in foreign markets in which we sell these products. Some of our foreign competitors are substantially larger and have substantially greater financial, manufacturing, technological and marketing resources than our company.

Higher raw materials costs would increase our cost of sales and services rendered and may reduce our gross margin and negatively affect our overall financial performance.

Naphtha, a crude oil derivative, is the principal raw material for our Basic Petrochemicals Unit and, indirectly, of our other business units. Naphtha and condensate accounted, directly and indirectly, for approximately 66.6% of our consolidated cost of sales and services rendered in 2009.

The price of naphtha supplied by Petróleo Brasileiro S.A.—Petrobras, or Petrobras, has historically been linked to the Amsterdam-Rotterdam-Antwerp market price of naphtha and to the real/U.S. dollar exchange rate. Under a naphtha purchase agreement with Petrobras that we have operated under since March 2009, we have purchased naphtha from Petrobras at prices based on a variety of factors, including the market prices of naphtha and other petrochemical derivatives, the volatility of the prices of these products in the international markets, the real/U.S. dollar exchange rate, and the level of paraffinicity of the naphtha that is delivered. This contract replaced the naphtha supply contract between our company and Petrobras for the supply of naphtha to our basic petrochemicals plants in the petrochemical complex located in Camaçari in the State of Bahia, or the Northeastern Complex, which was terminated in June 2008, and superseded the naphtha supply contract between our company and Petrobras for the supply of naphtha to our basic petrochemicals plants in the petrochemical complex located in Camaçari in the State of Bahia, or the Southern Complex.

The price of naphtha that we purchase from other international suppliers is also linked to the Amsterdam-Rotterdam-Antwerp market price. The Amsterdam-Rotterdam-Antwerp market price of naphtha fluctuates primarily based on changes in the U.S. dollar-based price of crude oil in the international markets.

During 2009, the average Amsterdam-Rotterdam-Antwerp market price of naphtha in U.S. dollars declined by 32.6% to US$533.46 per ton in 2009 from US$791.34 per ton in 2008. The U.S. dollar price of naphtha was volatile during 2009, increasing from an average of US$258.16 per ton in December 2008 to an average of US$684.13 per ton in December 2009. Since December 31, 2009, the price of naphtha in U.S. dollars has increased to US$757.00 per ton at April 30, 2010. The price of naphtha in U.S. dollars may continue to be volatile. In addition, the real may depreciate against the U.S. dollar in the future, effectively increasing our naphtha costs in reais. Any increase in naphtha costs would reduce our gross margin and negatively affect our overall financial performance to the extent that we are unable to pass on these increased costs to our customers and could result in reduced sales volumes of our products.

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We do not hedge against changes in naphtha so that we are exposed to fluctuations in the price of our primary raw material.

We currently do not hedge our exposure to fluctuations in U.S. dollar or real prices of naphtha. Although we attempt to pass on increases in naphtha prices through higher prices for our products, in periods of high volatility in the U.S. dollar price of naphtha or in the real/U.S. dollar exchange rate, there is usually a lag between the time that the U.S. dollar price of naphtha increases or the real depreciates against the U.S. dollar and the time that we may effectively pass on those increased costs in reais to our customers in Brazil. As a result, if the U.S. dollar price of naphtha increases precipitously, or if the real depreciates precipitously against the U.S. dollar, as occurred in the fourth quarter of 2009, we may not immediately be able to pass on all of the corresponding increases in our naphtha costs to our customers in Brazil, which would likely reduce our gross margin and net income.

We depend on Petrobras to supply us with a substantial portion of our naphtha requirements.

Petrobras currently is the only Brazilian supplier of naphtha and has historically supplied 60% to 70% of the naphtha consumed by our company. Petrobras produces most of the naphtha it sells to us and imports the balance. Our production volume and net sales revenue would likely decrease and our overall financial performance would likely be negatively affected in the event of the following:

·         significant damage to Petrobras’ refineries or to the port facilities through which Petrobras imports naphtha, or to any of the pipelines connecting our plants to Petrobras’ facilities, whether as a consequence of an accident, natural disaster, fire or otherwise; or

·         any termination by Petrobras of the naphtha supply contract with our company, which provides that Petrobras may terminate the contracts for a number of reasons described in “Item 4. Information on the Company—Basic Petrochemicals Unit—Raw Materials of Our Basic Petrochemicals Unit.”

In addition, although regulatory changes have ended Petrobras’ monopoly in the Brazilian naphtha market and have allowed us to import naphtha, any reversal in the continuing deregulation of the oil and gas industry in Brazil could increase our production costs.

Our Polyolefins and Vinyls Units depend on our Basic Petrochemicals Unit to supply them with their ethylene and propylene requirements.

Our Basic Petrochemicals Unit is the only supplier of ethylene to our Vinyls Unit, the only supplier of ethylene to our polyethylene plants, and the principal supplier of propylene to our polypropylene plants located in Brazil. Because the cost of storing and transporting ethylene and propylene is substantial and there is inadequate infrastructure in Brazil to permit the importation of large quantities of these products, our Polyolefins Unit and Vinyls Unit are highly dependent on ethylene and propylene supplied by our Basic Petrochemicals Unit and production volumes of, and net sales revenue from, vinyls and polyolefins products would decrease, and our overall financial performance would be negatively affected, in the event of:

·         significant damage to our Basic Petrochemicals Unit’s facilities through which ethylene or propylene is produced, or to the pipeline or other facilities that connect our Vinyls and Polyolefins Units to our Basic Petrochemicals Unit, whether as a consequence of an accident, natural disaster, fire or otherwise; or

·         any significant reduction in the supply of naphtha to our Basic Petrochemicals Unit, as naphtha is the principal raw material used in the production of ethylene and propylene.

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Any downgrade in the ratings of our company or our debt securities would likely result in increased interest and other financial expenses related to our borrowings and debt securities and could reduce our liquidity.

Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., or Standard & Poor’s, Moody’s Investors Service, or Moody’s, and Fitch, Inc., or Fitch, maintain ratings of our company and our debt securities. Currently, Standard & Poor’s, Moody’s and Fitch maintain ratings of our company on a local and a global basis. On a global basis, Standard & Poor’s maintains a local currency rating for our company of “BB+ (stable)” and a foreign currency rating for our company of “BB+ (stable),” Moody’s maintains a local currency rating for our company of “Ba1” and a foreign currency rating for our company of “Ba1,” and Fitch maintains a local currency rating for our company of “BB+/Stable Outlook” and a foreign currency rating for our company of “BB+/Stable Outlook.” Any decision by these or other rating agencies to downgrade the ratings of our company or of our debt securities in the future would likely result in increased interest and other financial expenses relating to our borrowings and debt securities and could significantly reduce our ability to obtain such financing on satisfactory terms or in amounts required by us and our liquidity.

Some of our shareholders may have the ability to determine the outcome of corporate actions or decisions, which could affect the holders of our class A preferred shares and the ADS.

BRK Investimentos Petroquímicos S.A., or BRK, owns 53.9% of our total share capital, including 97.0% of our voting share capital. A group of companies controlled by the Odebrecht family, which we refer to as the Odebrecht Group, holds 53.8% of the voting share capital of BRK, and Petrobras holds, directly and indirectly, 46.2% of the voting share capital of BRK. Designees of Odebrecht S.A., or Odebrecht, constitute a majority of the members of our board of directors. Under a shareholders’ agreement that Odebrecht, Odebrecht Serviços e Participações S.A., or OSP, Petrobras and Petrobras Química S.A. – Petroquisa, the petrochemical subsidiary of Petrobras, or Petroquisa, entered into with us, which we refer to as the Petrobras Shareholders’ Agreement, we have agreed to undertake certain actions only after Odebrecht, Petrobras and Petroquisa have reached a consensus with respect to those actions and Odebrecht will have the sole power to approve the business plan of our company, as described under “Major Shareholders and Related Party Transactions—Major Shareholders—Shareholders’ Agreements.” As a result, Odebrecht will have the ability to determine the outcome of most corporate actions or decisions requiring the approval of our shareholders or our board of directors — in certain instances, with the consent of Petrobras and Petroquisa — which could affect the holders of our class A preferred shares and the ADS.

We may face conflicts of interest in transactions with related parties.

We maintain trade accounts receivable and current and long-term payables with some of our affiliates and other related parties, including Petrobras, which is our sole domestic supplier of naphtha. Petrobras and Petroquisa collectively hold 46.2% of the voting capital stock of BRK which holds 53.9% of our voting share capital and 97.0% of our total share capital. These accounts receivable and accounts payable balances result mainly from purchases and sales of goods, which are at prices and on terms equivalent to the average terms and prices of transactions that we enter into with third parties, other than the prices that we pay under our July 2009 naphtha purchase agreement with Petrobras that we have operated under since March 2009, which we believe are more suitable to the products that we receive from Petrobras compared to products and prices available in transactions that we enter into with other third parties. We also engage in financial and other transactions with some of our direct and indirect shareholders. These and other commercial and financial transactions between us and our affiliates could result in conflicting interests between our company and these shareholders.

We may make significant acquisitions which, if not successfully integrated with our company, may adversely affect our operating results.

We may make significant acquisitions in the future, in addition to the recent Sunoco Chemicals Acquisition and Quattor Acquisition described below.

Acquisitions involve risks, including the following:

·         failure of acquired businesses to achieve expected results;

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·         possible inability to retain or hire key personnel of acquired businesses;

·         possible inability to achieve expected synergies and/or economies of scale;

·         unanticipated liabilities; and

·         antitrust considerations.

If we are unable to integrate or manage acquired businesses successfully, we may not realize anticipated cost savings, revenue growth and levels of integration, which may result in reduced profitability or operating losses.

For a discussion of risks specifically pertaining to the Quattor Acquisition and the Sunoco Chemical Acquisition, see “—Risks Relating to the Quattor Acquisition and the Sunoco Chemicals Acquisition.”

We may face unforeseen challenges in the implementation of our joint venture expansion projects which could result in these projects failing to provide expected benefits to our company.

We are developing several expansion projects in Venezuela, Mexico and Peru in connection with local joint venture partners. If we proceed with any of these projects, our joint venture companies will undertake significant capital expenditure programs to implement these projects. Our ability to achieve our strategic objectives relating to these projects will depend on, in large part, the successful, timely and cost-effective implementation of these projects. Factors that could affect this implementation include the following:

·         the outcome of negotiations with our local joint venture partners, governments, suppliers, customers or others (including, for example, our ability to negotiate favorable long-term contracts with suppliers and customers, or the development of reliable spot markets, that may be necessary to support the financing and development of particular projects);

·         market conditions that may adversely affect the ability of our joint venture companies to obtain the financing necessary for the implementation of these projects;

·         difficulties in obtaining necessary licenses and regulations;

·         the occurrence of unforeseen technical difficulties (including technical problems that may delay start-up of, or interrupt production from, a project or lead to unexpected downtime of the plants of these joint venture companies);

·         delays in the delivery of third-party equipment or services by our joint venture companies vendors;

·         the failure of the equipment supplied by these vendors to comply with the expected capabilities; and

·         delays resulting from the failure of third-party suppliers or contractors to meet their obligations in a timely and cost-effective manner.

Although we believe that the cost estimates and implementation schedules of our joint venture projects are reasonable, we cannot assure you that the actual costs or time required to complete the implementation of these projects will not substantially exceed our current estimates. Any significant cost overrun or delay could hinder or prevent the implementation of our business plan, as originally conceived, and result in revenues and net income being less than expected.

Future adjustments in tariffs on imports that compete with our products could cause us to lower our prices.

We currently benefit from tariffs imposed by the Brazilian government on imports that allow us to charge prices for our polyolefins and vinyls products in the domestic market that include a factor based on the tariffs levied on comparable imports of those products. However, the Brazilian government has in the past used import and export tariffs to effect economic policies, with the consequence that tariffs can vary considerably, especially tariffs on petrochemical products. For example, in 2004 the Brazilian government lowered the tariffs applicable to most of the thermoplastic products that we produce by 1.5%. Future adjustments of tariffs could cause us to lower our domestic prices, which would likely result in lower net sales revenue and could negatively affect our overall financial performance.

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Our business is subject to stringent environmental regulations, and the imposition of new regulations could require significant capital expenditures and increase our operating costs.

We, like other Brazilian petrochemical producers, are subject to stringent Brazilian federal, state and local environmental laws and regulations concerning human health, the handling and disposal of solid and hazardous wastes and discharges of pollutants into the air and water. Petrochemical producers are sometimes subject to unfavorable market perceptions as a result of the environmental impact of their business, which can have an adverse effect on their results of operations.

The operations in the United States that we have acquired as part of the Sunoco Chemicals Acquisition are subject to extensive U.S. federal, state and local and foreign laws, regulations, rules and ordinances relating to pollution, protection of the environment and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. U.S. environmental laws and regulations may impose liability on us for the conduct of third parties, or for actions that complied with applicable requirements when taken, regardless of negligence or fault. Of particular significance to us are (1) regulatory programs to be established to implement air quality standards under the National Ambient Air Quality Standards for ozone and fine particles promulgated by the U.S. Environmental Protection Agency, or the EPA, and (2) various legislative and regulatory measures in the United States which are under review, discussion or implementation to address greenhouse gas emissions.

Costs and capital expenditures relating to environmental, health or safety matters are subject to evolving regulatory requirements and will depend on the timing of the promulgation and enforcement of specific standards which impose the requirements. Moreover, changes in environmental regulations could inhibit or interrupt our operations, or require modifications to our facilities. Accordingly, environmental, health or safety regulatory matters may result in significant unanticipated costs or liabilities.

We manufacture products that are subject to the risk of fire, explosions and other hazards.

Our operations are subject to hazards, such as fires, explosions and other accidents, associated with the manufacture of petrochemicals and the storage and transportation of feedstocks and petrochemical products. These hazards can cause personal injury and loss of life, severe damage to or destruction of property and equipment and environmental damage. A sufficiently large accident at one of our plants or storage facilities could force us to suspend our operations temporarily and result in significant remediation costs and lost net sales revenue. Although we maintain insurance coverage for losses due to fire damage and for losses of income resulting from shutdowns due to fire, explosion or electrical damage, those insurance proceeds may not be available on a timely basis and may be insufficient to cover all losses, which could have a material adverse effect on our financial performance.

Unfavorable outcomes in pending or future litigation may reduce our liquidity and negatively affect our financial performance and financial condition.

We are, and may be in the future, involved in numerous tax, civil and labor disputes, among others, involving monetary claims. If unfavorable decisions are rendered in one or more of these lawsuits, we could be required to pay substantial amounts, which could adversely affect our financial condition and results of operations.

For some of these lawsuits, we have not established any provision on our balance sheet or have established provisions only for part of the amounts in question, based on our judgments as to the likelihood of winning these lawsuits. For example, the unions that represent employers and workers at the facilities located in the Northeastern Complex, are involved in a lawsuit over the indices we and other companies have used for cost of living adjustments on workers’ wages since early 1990. As we believe that it is not probable that the employers’ union will lose this lawsuit, we have not recorded a provision in respect of this suit. If the employers’ union loses this lawsuit and we are required to pay damages from April 1990 to September 1990, we estimate that we could be subject to liability of up to R$35.0 million, although additional claims would have to be brought by the workers’ union or individual employees to quantify the amount of damages that we would be required to pay.

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For more information about our legal proceedings, see “Item 8. Financial Information—Legal Proceedings.”

Risks Relating to the Quattor Acquisition and the Sunoco Chemicals Acquisition

We may experience difficulties in integrating the Quattor Companies and Braskem Americas and, therefore, may fail to achieve the anticipated benefits from the Quattor Acquisition and the Sunoco Chemical Acquisition.

On April 1, 2010, we acquired for US$356.0 million all of the outstanding capital stock of Sunoco Chemicals, Inc., or Sunoco Chemicals, which we have renamed Braskem Americas. The assets of Braskem Americas  consist of three polypropylene plants located in La Porte, Texas, Marcus Hook, Pennsylvania and Neal, West Virginia, with an aggregate annual production capacity of 950,000 tons, as well as a petrochemicals research facility in Pittsburgh, Pennsylvania. We refer to this acquisition as the Sunoco Chemicals Acquisition. For a discussion of the Sunoco Chemicals Acquisition, see “Item. 4. Information on the Company—History and Development of Our Company—the Sunoco Chemicals Acquisition.”

On January 22, 2010, we entered into an investment agreement, which we refer to as the Quattor Investment Agreement, with Odebrecht, OSP, Petrobras, Petroquisa and Unipar – União de Indústrias Petroquímicas S.A., or Unipar. The Quattor Investment Agreement provides for, among others, the following transactions:

·         In April 2010, we conducted a capital increase through a private subscription by our shareholders as a result of which we received net cash proceeds of R$3,742.6 million in exchange for the issuance of 243,206,530 of our common shares and 16,697,781 of our class A preferred shares.

·         In April 2010, we purchased 60% of the outstanding share capital of Quattor from Unipar for an aggregate amount of R$659.4 million and the assumption of a put option granted by Unipar to BNDES Participações S.A.—BNDESPAR, or BNDESPAR, with respect to the shares of Rio Polímeros S.A., or RioPol, held by BNDESPAR. Quattor is a holding company that owns, directly and indirectly, 75.0% of the outstanding share capital of RioPol, 99.3% of the outstanding share capital of Quattor Petroquímica S.A., or Quattor Petroquímica, 100% of the outstanding share capital of Quattor Química S.A., or Quattor Química, and 33.3% of the outstanding share capital of Polibutenos S.A. Indústrias Químicas, or Polibutenos.

·         In May 2010, we purchased from Unipar all of the outstanding share capital of Unipar Comercial e Distribuidora S.A., or Unipar Comercial, for an aggregate amount of R$27.1 million, and 33.3% of the outstanding share capital of Polibutenos for an aggregate amount of R$22.4 million.

·         We agreed with Petroquisa to engage in a merger of shares (incorporações de ações) transaction in which we will issue an aggregate of approximately 18 million of our common shares to Petroquisa, and Quattor will become our wholly-owned subsidiary. We expect to complete this transaction in the second quarter of 2010.

We refer to the acquisition of control of Quattor and Polibutenos and the acquisition of Unipar Comercial as the Quattor Acquisition and to RioPol, Quattor Petroquímica, Quattor Química, Polibutenos and Unipar Comercial as the Quattor Companies. For a discussion of the Quattor Acquisition, see “Item. 4. Information on the Company—History and Development of Our Company—the Quattor Acquisition.”

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Integration of the Quattor Companies and Braskem Americas with our operations will be a complex and time-consuming process. Risks and challenges that may impair our ability to achieve the benefits of the Quattor Acquisition and the Sunoco Chemicals Acquisition include:

• We expect that integrating the operations of the Quattor Companies and Braskem Americas into ours may require significant management time and resources and may divert management’s attention from our day-to-day business.
• The Quattor Acquisition was made on the basis of publicly available information about Quattor and its subsidiaries. We were allowed to conduct only limited due diligence of non-public information about these companies and may discover additional liabilities on an ongoing basis.
• Although we conducted a comprehensive due diligence review with respect to our acquisition of Braskem Americas, we can offer no assurances that all material matters were disclosed to us during this due diligence process. Since our acquisition of Braskem Americas on April 1, 2010, we have conducted only limited due diligence of Braskem Americas, given the short period of time between this acquisition and the date of this annual report.
• We may incur unexpected liabilities or contingencies related to taxes, labor, environmental regulation or other matters as a result of our acquisition of the Quattor Companies and Braskem Americas, and rights of acceleration or termination under agreements to which the Quattor Companies or Braskem Americas are bound and that may be triggered as a result of our acquisition of the Quattor Companies and Braskem Americas could result in unanticipated expenses or adversely affect the results of operations and financial condition of the Quattor Companies or Braskem Americas and, consequently, our company.
• We may have difficulty retaining and integrating key employees of the Quattor Companies or Braskem Americas. The operations of the Quattor Companies or Braskem Americas could be adversely affected if we cannot retain their key employees to assist in the integration of these companies into our company and in their ongoing operations.
• We may encounter difficulties or delays in implementing common information systems, operating procedures, sales and credit policies and financial controls.

If we are unable to successfully respond to these risks and challenges, we may experience higher than expected operating costs or fail to achieve the anticipated benefits of the Quattor Acquisition and the Sunoco Chemicals Acquisition.

We will assume a substantial amount of indebtedness in connection with the Quattor Acquisition, which could limit our operating flexibility.

At December 31, 2009, we had R$9,760.1 million of outstanding indebtedness, excluding related party debt, and cash and cash equivalents and other short-term investments of R$3,130.4 million. In connection with the Quattor Acquisition, we conducted a capital increase through a private subscription by our shareholders as a result of which we received net cash proceeds of R$3,742.6 million in exchange for the issuance of 243,206,530 of our common shares and 16,697,781 of our class A preferred shares.

The total purchase price to our company of the Quattor shares, Polibutenos shares and Unipar Comercial shares that we acquired from Unipar was R$708.9 million. As a result of our acquisition of control of the Quattor Companies, we have consolidated the indebtedness of the Quattor Companies into our financial statements as from April 1, 2010. At December 31, 2009, (1) the total outstanding debt of Quattor was R$7,370.9 million, (2) the total outstanding debt of Polibutenos was R$41.3 million, of which R$13.6 million was reflected in the balance sheet of Quattor due to the proportional consolidation of the results of Polibutenos in the financial statements of Quattor, and (3) the total outstanding debt of Unipar Comercial was R$29.8 million. Following the Quattor Acquisition and through May 26, 2010, we have prepaid R$2,208.9 million aggregate principal amount of Quattor’s outstanding real-denominated indebtedness and US$271.7 million of Quattor’s outstanding U.S. dollar-denominated indebtedness.

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The substantial increase in our outstanding debt could limit our operating flexibility, including in the following respects:

• A substantial portion of our cash flow from operations must be dedicated to the payment of principal and interest on our indebtedness, reducing the funds available to us for other purposes.
• Our higher levels of indebtedness may impair our ability to adjust to changing market conditions or withstand competitive pressures.

Brazilian antitrust authorities could impose costly or restrictive conditions on the approval of the Quattor Acquisition or the Sunoco Chemicals Acquisition.

The Quattor Acquisition and the Sunoco Chemicals Acquisition are subject to the final approval of the Brazilian antitrust authorities. However, Brazilian law permits us to consummate these transactions prior to receiving this final approval, unless the Administrative Council for Economic Defense (Conselho Administrativo de Defesa Econômica), or CADE, issues a writ of prevention blocking the transaction or requires the parties to enter into an agreement permitting the effects of the transaction to be reversed which, by its terms, delays the consummation of the transaction. We, together with Petrobras, submitted the terms and conditions of the Quattor Acquisition for review by the Brazilian antitrust authorities on February 5, 2010. We submitted the terms and conditions of the Sunoco Chemicals Acquisition for review by the Brazilian antitrust authorities on February 24, 2010. The antitrust authorities will determine whether these transactions negatively impact competitive conditions in the markets in which we compete or adversely affect consumers in these markets.

Any action by the Brazilian antitrust authorities to fail to approve the Quattor Acquisition or the Sunoco Chemicals Acquisition or to impose conditions or performance commitments on our company as part of the approval process for the Quattor Acquisition or the Sunoco Chemicals Acquisition could materially and adversely affect our business, negatively affect our financial performance and prevent us from achieving the anticipated benefits of the Quattor Acquisition and the Sunoco Chemicals Acquisition. We cannot predict when CADE will take final action with respect to the Quattor Acquisition or the Sunoco Chemicals Acquisition.

The businesses of the Quattor Companies and Braskem Americas are subject to risks relating to the petrochemical business in which we currently operate.

The acquisitions of the Quattor Companies and Braskem Americas will subject us to risks and challenges relating to their businesses, many of which are similar to risks and challenges we already face as part of our operations, including the following:

• The operations of the Quattor Companies are conducted in Brazil and the Quattor Companies are exposed to traditional risks associated with operations in Brazil, such as fluctuations in interest rates, inflation and exchange rates, and changes in tax laws.
• The Quattor Companies and Braskem Americas face risks relating to the cyclicality of the petrochemical markets, fluctuations in commodity prices, competition from other producers of the petrochemical products produced by these companies, the application of federal, state and local environmental laws and regulations, and hazards associated with the manufacture of petrochemicals and the storage and transportation of feedstocks and petrochemical products.
• The Quattor Companies purchase all of their supplies of naphtha, ethane and propane, and a substantial portion of their supplies of propylene, from Petrobras. The Quattor Companies’ production volume and net sales revenue would likely decrease and our overall financial performance would likely be negatively affected in the event of (1) significant damage to Petrobras’ refineries or logistics facilities, or (2) the termination by Petrobras of its supply contracts with the Quattor Companies.

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Risks Relating to Brazil

Brazilian political and economic conditions, and the Brazilian government’s economic and other policies, may negatively affect demand for our products as well as our net sales revenue and overall financial performance.

The Brazilian economy has been characterized by frequent and occasionally extensive intervention by the Brazilian government and unstable economic cycles. The Brazilian government has often changed monetary, taxation, credit, tariff and other policies to influence the course of Brazil’s economy. The Brazilian government’s actions to control inflation and implement other policies have at times involved wage and price controls, blocking access to bank accounts, imposing capital controls and limiting imports into Brazil.

Our results of operations and financial condition may be adversely affected by factors such as:

·         fluctuations in exchange rates;

·         exchange control policies;

·         interest rates;

·         inflation;

·         tax policies;

·         expansion or contraction of the Brazilian economy, as measured by rates of growth in GDP;

·         liquidity of domestic capital and lending markets; and

·         other political, diplomatic, social and economic developments in or affecting Brazil.

Uncertainty over whether possible changes in policies or rules affecting these or other factors may contribute to economic uncertainties in Brazil and to heightened volatility in the Brazilian securities markets and securities issued abroad by Brazilian issuers. The President of Brazil has considerable power to determine governmental policies and actions that relate to the Brazilian economy and, consequently, affect the operations and financial performance of businesses, such as our company. The term of Brazil’s current President, Luiz Inácio Lula da Silva, expires in January 2011, and under Brazilian law he is not permitted to run for another four-year term in the October 2010 elections. Uncertainty regarding the election of President Lula’s successor and speculation about the policies that may be implemented by the Brazilian federal or state governments could adversely affect our business, results of operations and financial condition.

Fluctuations in the real/U.S. dollar exchange rate could increase inflation in Brazil, raise the cost of servicing our foreign currency-denominated debt and negatively affect our overall financial performance.

The exchange rate between the real and the U.S. dollar and the relative rates of depreciation and appreciation of the real have affected our results of operations and may continue to do so.

The Brazilian currency has been devalued often during the last four decades. Throughout this period, the Brazilian government has implemented various economic plans and various exchange rate policies, including sudden devaluations, periodic mini-devaluations (during which the frequency of adjustments has ranged from daily to monthly), exchange controls, dual exchange rate markets and a floating exchange rate system. From time to time, there have been significant fluctuations in the exchange rate between the Brazilian currency and the U.S. dollar and other currencies. For example, the real appreciated in value against the U.S. dollar by 11.8% in 2005, 8.7% in 2006 and 17.2% in 2007. In 2008, primarily as a result of the international financial crisis, the real depreciated by 31.9% against the U.S. dollar and prompted foreign investors to remove billions of reais from the Securities, Commodities and Futures Exchange (BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros), or the BM&FBOVESPA. In 2009, the real partially reversed these losses and appreciated by 25.5% against the U.S. dollar. The real depreciated against the U.S. dollar by 2.3% during the three months ended March 31, 2010.

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Depreciation of the real relative to the U.S. dollar also could result in inflationary pressures in Brazil by generally increasing the price of imported products and services and requiring recessionary government policies to curb demand. In addition, depreciation of the real could weaken investor confidence in Brazil and reduce the market price of our class A preferred shares and the ADSs. On the other hand, the appreciation of the real against the U.S. dollar may lead to a deterioration of the country’s current account and the balance of payments and may dampen export-driven growth.

We had total foreign currency-denominated debt obligations in an aggregate principal amount of R$6,338.6 million (US$3,640.4 million) at December 31, 2009, representing 64.7% of our consolidated indebtedness, excluding related party debt. Our indebtedness denominated in dollars represented 63.9% of our consolidated indebtedness and our indebtedness denominated in Japanese yen represented 1.0% of our consolidated indebtedness. At December 31, 2009, we had US$753.1 million in U.S. dollar-denominated cash equivalents and other investments.

As a result of the Quattor Acquisition, we have consolidated the indebtedness of the Quattor Companies into our financial statements as from April 1, 2010. At December 31, 2009, Quattor had total foreign currency-denominated debt obligations in an aggregate principal amount of R$1,949.6 million (US$1,119.7 million). As of the closing date of the Quattor Acquisition, after giving pro forma effect to the prepayment of indebtedness of Quattor as described under “Unaudited Pro Forma Combined Financial Information,” Quattor had total foreign currency-denominated debt obligations in an aggregate principal amount of R$1,150.9 million (US$661.0 million).

A significant depreciation of the real in relation to the U.S. dollar or other currencies could increase our financial expenses as a result of foreign exchange losses that we must record and could reduce our ability to meet debt service requirements of our foreign currency-denominated obligations, particularly as our net sales revenue is primarily denominated in reais. For example, the 31.9% depreciation of the real against the U.S. dollar in 2008 was the primary factor in the substantial increase in our net financial expenses in 2008, which was, in turn, a significant factor in our net loss for 2008.

The prices of naphtha, our most important raw material, and of some of our other raw materials, are denominated in or linked to the U.S. dollar. In 2009, naphtha and condensate accounted for 66.6% of our direct and indirect consolidated cost of sales and services rendered. When the real depreciates against the U.S. dollar, the cost in reais of our U.S. dollar-linked raw materials increases, and our operating income in reais decreases to the extent that we are unable to pass on these cost increases to our customers.

The Brazilian government’s actions to combat inflation may contribute significantly to economic uncertainty in Brazil and reduce demand for our products.

Historically, Brazil has experienced high rates of inflation. Inflation, as well as government efforts to combat inflation, had significant negative effects on the Brazilian economy, particularly prior to 1995. The inflation rate, as measured by the General Price Index—Internal Availability (Índice Geral de Preços—Disponibilidade Interna), or the IGP-DI, reached 2,708% in 1993. Although inflation rates have been substantially lower since 1994 than in previous periods, inflationary pressures persist. Inflation rates, as measured by the IGP-DI, were 1.2% in 2005, 3.8% in 2006, 7.9% in 2007 and 9.1% in 2008, although Brazil experienced a deflation rate of 1.4% in 2009. The Brazilian government’s measures to control inflation have often included maintaining a tight monetary policy with high interest rates, thereby restricting availability of credit and reducing economic growth. Inflation, actions to combat inflation and public speculation about possible additional actions also contributed materially to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets.

Brazil may experience high levels of inflation in future periods. Increasing prices for petroleum, the depreciation of the real and future governmental measures seeking to maintain the value of the real in relation to the U.S. dollar may trigger increases in inflation in Brazil. Periods of higher inflation may slow the rate of growth of the Brazilian economy, which would lead to reduced demand for our products in Brazil and decreased net sales revenue. Inflation is also likely to increase some of our costs and expenses, which we may not be able to pass on to our customers and, as a result, may reduce our profit margins and net income. In addition, high inflation generally leads to higher domestic interest rates, and, as a result, the costs of servicing our real denominated debt may increase, causing our net income to be reduced. Inflation and its effect on domestic interest rates can, in addition, lead to reduced liquidity in the domestic capital and lending markets, which could adversely affect our ability to refinance our indebtedness in those markets. Any decline in our net sales revenue or net income and any deterioration in our financial condition would also likely lead to a decline in the market price of our class A preferred shares and the ADS.

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Fluctuations in interest rates could raise the cost of servicing our debt and negatively affect our overall financial performance.

Our financial expenses are affected by changes in the interest rates that apply to our floating rate debt. At December 31, 2009, we had, among other debt obligations, R$1,458.7 million of loans and financing and debentures that were subject to the Long-Term Interest Rate (Taxa de Juros de Longo Prazo), or TJLP, R$1,504.3 million of loans and financing and debentures that were subject to the Interbank Deposit Certificate (Certificado de Depósito Interbancário), or CDI, rate, and R$1,600.4 million of loans and financing that were subject to the London Interbank Offered Rate, or LIBOR.

As a result of the Quattor Acquisition, we will consolidate the indebtedness of Quattor into our financial statements as from April 1, 2010. At December 31, 2009, Quattor had, among other debt obligations, R$4,098.5 million of loans and financing and debentures that were subject to the CDI rate, R$1,550.5 million of loans and financing and debentures that were subject to the TJLP rate, and R$554.3 million of loans and financing that were subject to LIBOR.

The TJLP includes an inflation factor and is determined quarterly by the Central Bank. In particular, the TJLP and the CDI rate have fluctuated significantly in the past in response to the expansion or contraction of the Brazilian economy, inflation, Brazilian government policies and other factors. For example, in 2008 the CDI rate increased from 11.1% per annum at December 31, 2007 to 13.6% per annum at December 31, 2008. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk.” A significant increase in any of these interest rates could adversely affect our financial expenses and negatively affect our overall financial performance.

Changes in Brazilian GAAP in effect as from January 1, 2010 relating to the process of convergence to International Financial Reporting Standards may adversely impact our results of operations.

We prepare our financial statements in accordance with Brazilian GAAP, which differs in certain significant respects from U.S. GAAP and IFRS. We have reconciled the audited financial statements included in this annual report to U.S. GAAP in accordance with the requirements of Item 18 of Form 20-F as adopted by the SEC. See note 35 to our audited financial statements included in this annual report. However, the financial information presented in this annual report may differ significantly from financial statements prepared in accordance with U.S. GAAP, IFRS or the accounting standards of other countries. Other than as part of the reconciliation contained in note 35 to our audited financial statements, we have made no attempt to identify or quantify the impact of those differences.

The enactment of Law No. 11,638/07 and Law No. 11,941/09, which amended the Brazilian Corporation Law and changed certain accounting policies under Brazilian GAAP, created conditions for the alignment of Brazilian GAAP and IFRS. For more information about the principal changes introduced by Law No. 11,638/07 and Law No. 11,941/09 as they relate to our financial statements, see note 33 to our audited consolidated financial statements, included elsewhere in this annual report.

Under regulations adopted by the CVM, we will be required to present consolidated financial statements prepared in accordance with IFRS as of and for the year ending December 31, 2010 with comparative figures for 2009. Changes introduced to Brazilian GAAP as from January 1, 2010 are expected to be significant.

The changes in Brazilian GAAP could have a significant effect on our reported results of operations, including effects on our net income and the measures that our creditors use to monitor our performance under our debt instruments. Any reduction in our net income, as measured under the revisions introduced to Brazilian GAAP under these laws and regulations would have an adverse effect on our net income, and potentially, our ability to distribute dividends on our preferred and common shares. In addition, an adverse effect under the ratios contained in the covenants in our debt instruments, as a result of the change in the way that our operating results are measured under the revisions introduced to Brazilian GAAP, could adversely affect our ability to comply with these covenants, to obtain financing to fund our growth plans or to refinance our indebtedness on terms satisfactory to us.

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Brazilian government exchange control policies could increase the cost of servicing our foreign currency-denominated debt, adversely affect our ability to make payments under our foreign currency-denominated debt obligations and impair our liquidity.

The purchase and sale of foreign currency in Brazil is subject to governmental control. In 1990, the Central Bank centralized certain payments of principal on external obligations. Many factors could cause the Brazilian government to institute more restrictive exchange control policies, including the extent of Brazil’s foreign currency reserves, the availability of sufficient foreign exchange on the date a payment is due, the size of Brazil’s debt service burden relative to the economy as a whole, Brazil’s policy towards the International Monetary Fund and political constraints to which Brazil may be subject. A more restrictive policy could increase the cost of servicing, and thereby reduce our ability to pay, our foreign currency-denominated debt obligations and other liabilities. Our foreign-currency debt denominated in dollars and Japanese yen represented an aggregate of 64.9% of our indebtedness on a consolidated basis at December 31, 2009. As a result of the Quattor Acquisition, we will consolidate the indebtedness of the Quattor Companies into our financial statements as from April 1, 2010. At December 31, 2009, Quattor had total foreign currency-denominated debt obligations in an aggregate principal amount of R$1,949.6 million. If we fail to make payments under any of these obligations, we will be in default under those obligations, which could reduce our liquidity as well as the market price of our class A preferred shares and the ADSs.

Changes in tax laws may result in increases in certain direct and indirect taxes, which could reduce our gross margin and negatively affect our overall financial performance.

The Brazilian government implements from time to time changes to tax regimes that may increase our and our customers’ tax burdens. These changes include modifications in the rate of assessments and, on occasion, enactment of temporary taxes, the proceeds of which are earmarked for designated governmental purposes. We cannot predict the changes to Brazilian tax law that may be proposed and enacted in the future. However, future changes in Brazilian tax law may result in increases in our overall tax burden, which could reduce our gross margin and negatively affect our overall financial performance.

Risks Relating to Our Class A Preferred Shares and the ADSs

Our class A preferred shares and the ADSs have limited voting rights.

Under the Brazilian Corporation Law and our by-laws, holders of our class A preferred shares and, consequently, the ADSs are not entitled to vote at meetings of our shareholders, except in very limited circumstances. These limited circumstances directly relate to key rights of the holders of class A preferred shares, such as modifying basic terms of our class A preferred shares or creating a new class of preferred shares with superior rights. Holders of preferred shares without voting rights are entitled to elect one member and his or her respective alternate to our board of directors and our fiscal council. Holders of our class A preferred shares and the ADSs are not entitled to vote to approve corporate transactions, including mergers or consolidations of our company with other companies.

Holders of the ADSs may find it difficult to exercise even their limited voting rights at our shareholders’ meetings.

Holders may exercise their limited voting rights with respect to our class A preferred shares represented by the ADSs only in accordance with the deposit agreement relating to the ADSs. There are practical limitations upon the ability of ADS holders to exercise their voting rights due to the additional steps involved in communicating with ADS holders. For example, we are required to publish a notice of our shareholders’ meetings in certain newspapers in Brazil. To the extent that holders of our class A preferred shares are entitled to vote at a shareholders’ meeting, they will be able to exercise their voting rights by attending the meeting in person or voting by proxy. By contrast, holders of the ADSs will receive notice of a shareholders’ meeting by mail from the depositary following our notice to the American Depositary Receipt, or ADR, depository requesting the ADR depository to do so. To exercise their voting rights, ADS holders must instruct the depositary on a timely basis. This noticed voting process will take longer for ADS holders than for holders of class A preferred shares. If it fails to receive timely voting instructions for all or part of the ADSs, the depositary will assume that the holders of those ADSs are instructing it to give a discretionary proxy to a person designated by us to vote their ADSs, except in limited circumstances.

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In the limited circumstances in which holders of the ADSs have voting rights, they may not receive the voting materials in time to instruct the depositary to vote the class A preferred shares underlying their ADSs. In addition, the depositary and its agents are not responsible for failing to carry out the voting instructions of the holders of the ADSs or for the manner of carrying out those voting instructions. Accordingly, holders of the ADSs may not be able to exercise their voting rights, and they will have no recourse if the class A preferred shares underlying their ADSs are not voted as requested.

Exchange controls and restrictions on remittances abroad may adversely affect holders of the ADSs and the underlying class A preferred shares.

The Brazilian government may impose temporary restrictions on the conversion of Brazilian currency into foreign currencies and on the remittance to foreign investors of proceeds of their investments in Brazil. Brazilian law permits the government to impose these restrictions whenever there is a serious imbalance in Brazil’s balance of payments or there are reasons to foresee a serious imbalance. The Brazilian government imposed remittance restrictions for approximately six months in 1990.

These restrictions could hinder or prevent the Brazilian custodian of the class A preferred shares underlying the ADSs or holders who have exchanged the ADSs for the underlying class A preferred shares from converting dividends, distributions or the proceeds from any sale of such shares into U.S. dollars and remitting such U.S. dollars abroad. In such an event, the Brazilian custodian for our class A preferred shares will hold the reais that it cannot convert for the account of holders of the ADSs who have not been paid. Neither the custodian nor the depositary will be required to invest the reais or be liable for any interest.

Holders of the ADSs may face difficulties in protecting their interests because we are subject to different corporate rules and regulations as a Brazilian company and our shareholders may have fewer and less well-defined rights.

Holders of the ADSs are not direct shareholders of our company and are unable to enforce the rights of shareholders under our by-laws and the Brazilian Corporation Law.

Our corporate affairs are governed by our by-laws and the Brazilian Corporation Law, which differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States, such as the State of Delaware or New York, or elsewhere outside Brazil. Even if a holder of ADSs surrenders its ADSs and becomes a direct shareholder, its rights as a holder of the class A preferred shares underlying the ADSs under the Brazilian Corporation Law to protect its interests relative to actions by our board of directors may be fewer and less well-defined than under the laws of those other jurisdictions.

Although insider trading and price manipulation are crimes under Brazilian law, the Brazilian securities markets are not as highly regulated and supervised as the U.S. securities markets or the markets in some other jurisdictions. In addition, rules and policies against self-dealing or for preserving shareholder interests may be less well-defined and enforced in Brazil than in the United States and certain other countries, which may put holders of our class A preferred shares and the ADSs at a potential disadvantage. Corporate disclosures also may be less complete or informative than for a public company in the United States or in certain other countries.

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Holders of the ADSs may face difficulties in serving process on or enforcing judgments against us and other persons.

We are a corporation (sociedade anônima) organized under the laws of Brazil, and all of our directors and executive officers and our independent public accountants reside or are based in Brazil. Most of our assets and those of these other persons are located in Brazil. As a result, it may not be possible for holders of the ADSs to effect service of process upon us or these other persons within the United States or other jurisdictions outside Brazil or to enforce against us or these other persons judgments obtained in the United States or other jurisdictions outside Brazil. Because judgments of U.S. courts for civil liabilities based upon the U.S. federal securities laws may only be enforced in Brazil if certain conditions are met, holders may face greater difficulties in protecting their interests in the case of actions by us or our directors or executive officers than would shareholders of a U.S. corporation.

Actual or anticipated sales of a substantial number of class A preferred shares could decrease the market prices of our class A preferred shares and the ADSs.

Sales of a substantial number of our class A preferred shares could negatively affect the market prices of our class A preferred shares and the ADSs. If, in the future, substantial sales of shares are made by OSP, Petroquisa or other existing or future holders of class A preferred shares, the market price of our class A preferred shares and, by extension, the ADSs may decrease significantly. As a result, holders of the ADSs may not be able to sell the ADSs at or above the price they paid for them.

Holders of the ADSs may be unable to exercise preemptive rights with respect to the class A preferred shares underlying the ADSs.

Holders of the ADSs will be unable to exercise the preemptive rights relating to the class A preferred shares underlying the ADSs unless a registration statement under the Securities Act is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to the shares relating to these preemptive rights or to take any other action to make preemptive rights available to holders of the ADSs, and we may not file any such registration statement. If we do not file a registration statement or if we and the depositary decide not to make preemptive rights available to holders of the ADSs, those holders may receive only the net proceeds from the sale of their preemptive rights by the depositary, or if they are not sold, their preemptive rights will be allowed to lapse.

Holders of the ADSs could be subject to Brazilian income tax on capital gains from sales of ADSs.

Historically, any capital gain realized on a sale or other disposition of ADSs between non-Brazilian holders outside Brazil was not subject to Brazilian income tax. However, Brazilian law provides that, commencing on February 1, 2004, “the acquiror, individual or legal entity resident or domiciled in Brazil, or the acquiror’s attorney-in-fact, when such acquirer is resident or domiciled abroad, shall be responsible for the retention and payment of the income tax applicable to capital gains earned by the individual or legal entity resident or domiciled abroad who disposes of property located in Brazil.” The Brazilian tax authorities have recently issued a normative instruction confirming that they intend to assess income tax on capital gains earned by non-Brazilian residents whose assets are located in Brazil. In our view, ADSs representing class A preferred shares, which are issued by the depositary outside Brazil, will not be deemed to be “property located in Brazil” for purposes of this law. However, we cannot assure holders of our ADSs as to whether Brazilian tax authorities will attempt to tax any capital gains arising from the sale or other disposition of ADSs, even when the transaction is consummated outside Brazil between non-Brazilian residents.

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The relative volatility and liquidity of the Brazilian securities markets may decrease the liquidity and market price of our class A preferred shares and the ADSs.

The Brazilian securities markets are substantially smaller, less liquid and more volatile than major securities markets in the United States. The BM&FBOVESPA, which is the principal Brazilian stock exchange, had a market capitalization of R$2,335 billion (US$1,341 billion) at December 31, 2009 and an average daily trading volume of R$5.7 billion (US$3.2 billion) for 2009. In comparison, aggregate market capitalization of the companies (including U.S. and non-U.S. companies) listed on The New York Stock Exchange, or the NYSE, was US$18.9 trillion at December 31, 2009 and the NYSE recorded an average daily trading volume of US$46 billion for 2009. There is also significantly greater concentration in the Brazilian securities markets. The ten largest companies in terms of market capitalization represented approximately 52.0% of the aggregate market capitalization of the BM&FBOVESPA at December 31, 2009. The ten most widely traded stocks in terms of trading volume accounted for approximately 50.4% of all shares traded on the BM&FBOVESPA in 2009. These market characteristics may substantially limit the ability of holders of the ADSs to sell class A preferred shares underlying ADSs at a price and at a time when they wish to do so and, as a result, could negatively impact the market price of the ADSs themselves.

Developments in other emerging markets may decrease the market price of our class A preferred shares and the ADSs.

The market price of our class A preferred shares and the ADSs may decrease due to declines in the international financial markets and world economic conditions. Although economic conditions are different in each country, investors’ reaction to developments in one country can affect the securities markets and the securities of issuers in other countries, including Brazil. Brazilian securities markets are, to varying degrees, influenced by economic and market conditions in other emerging market countries, especially those in Latin America. Any return to economic turmoil in Argentina or adverse economic developments in other emerging markets may adversely affect investor confidence in securities issued by Brazilian companies, causing their market price and liquidity to suffer. Any such developments could immediately affect our ability to raise capital when needed and the market price of our class A preferred shares and the ADSs.

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ITEM 4. INFORMATION ON THE COMPANY

We are the largest producer of petrochemical resins in the Americas and the eighth largest producer of petrochemical resins in the world, based on annual production capacity at December 31, 2009, and we are the only producer of ethylene, polyethylene and polypropylene in Brazil. We produce a diversified portfolio of petrochemical products in our 29 plants in Brazil and the United States, and have a strategic focus on polyethylene, polypropylene and PVC. We are also the third largest Brazilian-owned private sector industrial company, based on net sales revenue in 2008. We recorded net sales revenue of R$15,248.3 million and net income of R$767.8 million during the year ended December 31, 2009.

Our business operations are organized into three production business units and one distribution business unit, which correspond to our principal production processes, products and services. Our business units are as follows:

·         Basic Petrochemicals, which accounted for R$11,144.2 million, or 54.5%, of the net sales revenue of all segments, including net sales to our other business units, and had an operating margin of 9.6% in 2009;

·         Polyolefins, which accounted for R$7,216.9 million, or 35.3%, of the net sales revenue of all segments and had an operating margin of 2.3% in 2009;

·         Vinyls, which accounted for R$1,536.4 million, or 7.5%, of the net sales revenue of all segments and had a negative operating margin of 7.0% in 2009; and

·         Chemical Distribution, which accounted for R$548.9 million, or 2.7%, of the net sales revenue of all segments and had an operating margin of 3.6% in 2009.

We believe the integration of the operations of the companies that formed our company has produced, and will continue to produce, significant synergies and cost savings from reductions in taxes, procurement and logistics expenses, production expenses, general and administrative expenses and other operating expenses.

Our registered office is at Rua Eteno, 1561, Camaçari, Bahia, CEP 42810-000, Brazil, and our telephone number at this address is 55-71-3413-2102. Our principal executive office is at Avenida das Nações Unidas, 8501, São Paulo, SP, CEP 05425-070, Brazil, and our telephone number at this address is 55-11-3576-9000.

Strategy of Our Company

Our vision is to strengthen our position as a world-class petrochemical company with the goal of becoming one of the five largest petrochemical companies in the world in terms of enterprise value.

The key elements of our strategy include:

·         Expansion in Selected International Markets. As part of the continuous evaluation of our business and plans, we regularly consider a range of strategic options and transactions. From time to time, we consider a variety of potential strategic transactions to expand our presence in the global petrochemicals market. We plan to expand the production capacity of our business units during the next several years through the acquisition of petrochemical producers outside Brazil that currently compete with us or produce complementary products, and by constructing new facilities outside Brazil with access to competitive raw material sources independently or in conjunction with third parties. In addition to our acquisition of Braskem Americas:

Ø       In April 2010, we formed BraskemIdesa S.A.P.I, or BI, a joint venture with Grupo Idesa, S.A. de C.V., one of Mexico’s leading petrochemical groups, or Idesa, for the development, construction and operation of an olefins complex to be located in the Coatzacoalcos Petrochemical Complex in the Mexican state of Veracruz. This company will use ethane extracted from natural gas as its raw material, with an annual ethylene production capacity of 1.0 million tons, and three polyethylene plants with a combined annual production capacity of 1.0 million tons of HDPE, low density polyethylene, or LDPE, and linear low density polyethylene, or LLDPE;

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Ø       In November 2008 we formed Polipropileno del Sur, S.A., or Propilsur, a joint venture with Petroquímica de Venezuela, S.A., or Pequiven, for the development, construction and operation of a polypropylene plant;

Ø       In November 2008 we formed Polietilenos de America, S.A., or Polimerica, a joint venture with Pequiven, for the development, construction and operation of the Jose Olefins Project, an olefins complex that, if completed as currently contemplated, will include an ethylene cracker that will use ethane extracted from natural gas as its raw material, with an annual production capacity of 1.3 million tons, and three polyethylene plants with a combined annual production capacity of 1.1 million tons of HDPE, LDPE and LLDPE; and

Ø       We have entered into a memorandum of understanding with Petróleos Del Perú – Petroperú S.A., or Petroperú, and Petrobras to evaluate the technical and economic feasibility of the construction of a new petrochemical complex in Peru that would use ethane as its feedstock to produce polyethylene.

We believe that additional capacity purchased by our company or developed by our company together with joint venture partners will enable us to maintain and expand our leadership position in Latin America and support our expansion into strategic export markets.

·         Reinforcement of Our Leading Position in Latin America. We are the leading petrochemical company in Latin America, based on annual production capacity at December 31, 2009. Following the completion of the Quattor Acquisition, we are the only producer of ethylene, polyethylene and polypropylene in Brazil. We are seeking to reinforce our leading position in the Latin American petrochemical market, with a focus on polyethylene, polypropylene and PVC. In addition, we continuously seek to improve our production processes in order to achieve lower production costs and greater operational efficiency. We recognize the cyclical nature of the markets for our petrochemical products and believe that, by focusing on relationships with our customers, we can foster customer loyalty even during periods of lower demand. Our growth strategy is centered on increasing customers’ consumption of our products, and enabling them to substitute non-plastic materials with thermoplastics. We also continue to seek to expand our exports to other countries in Latin America and to protect our market share in Brazil.

·         Acquisition of Feedstocks at Competitive Prices. As a result of the integration of our facilities and large production scale, we believe that we are a low-cost producer of second generation petrochemicals. We are seeking to continue to diversify our feedstock purchases to obtain more competitive prices and as part of this effort, began to import lower-cost naphtha in 2002, and during the past several years have imported between 30% and 40% of our feedstock requirements, primarily from North Africa. We are seeking to continue to reduce our operating costs through negotiations of feedstock purchases at competitive prices. For example, in 2009 we renegotiated our naphtha supply agreements with Petrobras, we are acquiring naphtha under a short-term supply arrangement with Petróleos de Venezuela, S.A., or PDVSA, and we are negotiating a long-term naphtha supply agreement with Pemex.

In addition, we are seeking to diversify the raw materials that we use for our production processes. As a result of the Quattor Acquisition, we will acquire RioPol, which uses ethane and propane as its principal feedstocks, and Quattor Química, which has begun using ethane and propane as feedstocks for a portion of its production. BI, our joint venture in Mexico, has entered into a long-term supply contract to purchase ethane from Pemex Gas y Petroquímica Básica, or Pemex Gas, a state-owned Mexican company, under competitive commercial conditions. We expect that Propilsur, Polimerica and our project in Peru will use low cost ethane in their production processes.

·         Diversification of Our Products and Business. We are pursuing business opportunities by developing new and specialized products and technologies, including the following:

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Ø       We are developing manufacturing process to produce “green” polymers made out of renewable raw materials in an effort to become a leader in the production of environmentally sustainable resins, such as (1) the processes that will be used in our 100% “green” polyethylene plant that is expected to commence operation in the second half of 2010, and (2) a process to produce “green” polypropylene, which we have been able to produce on a small scale in our research facilities and expect to develop on a commercial scale in partnership with Novozymes, a world leader in the production of industrial enzymes;

Ø       We are continuing to develop a specialized production process for LLDPE and LDPE that permits us to produce thermoplastics with distinctive characteristics for the flexible packaging industry, including greater resistance to impact and punctures, improved polish and greater transparency; and

Ø       We are investing in the manufacturing of performance products that have higher added value that allow us to enter new markets, such as new applications for ultra high molecular weight polyethylene, or UHMWP, and other products, including Utech fibers that we expect to market for applications in the manufacture of armor and the anchoring of offshore oil platforms.

·         Differentiation of Our Business. We recognize the cyclical nature of the markets for our petrochemical products and believe that, by focusing on relationships with our customers, we can foster customer loyalty even during periods of lower demand. Our growth strategy is centered on increasing customers’ consumption of our products, and enabling them to substitute non-plastic materials with thermoplastics. We are seeking to establish close, long-term relationships with our customers and are committed to providing technological support and solutions to our customers through our two research centers, including a research center in Pittsburgh, Pennsylvania which we acquired as part of the Sunoco Chemicals Acquisition, which develop processes, products and applications for the petrochemical sector and which, at December 31, 2009, had approximately 280 employees. We are seeking to continue to serve as partners with our customers in developing new products and applications and, consequently, new business opportunities for them. We offer our customers more flexible delivery options and credit terms unlike importers, which typically offer deliveries only through port facilities financed through letters of credit.

History and Development of Our Company

We were founded in 1972 as Petroquímica do Nordeste Copene Ltda. to plan, execute and coordinate the activities of the Northeastern Complex. The construction of the Northeastern Complex formed part of a development policy of the Brazilian government implemented in the early 1970’s to diversify the geographical distribution of industrial assets and to promote economic growth across different regions of Brazil. On June 18, 1974, we were incorporated as a corporation under the laws of Brazil (with Brazilian company registry No. 29300006939) and were renamed Copene Petroquímica do Nordeste S.A.

Prior to August 1995, Petroquisa owned 36.2% of our total share capital, representing 48.2% of our voting share capital. At that time, Nordeste Química S.A., or Norquisa, owned 17.3% of our total share capital, representing 47.6% of our voting share capital, and the remainder of our share capital was owned by various Brazilian private sector groups, pension funds, banks and our employees.

Privatization of Our Company

In August 1995, as part of the Brazilian government’s privatization program, Petroquisa sold 14.8% of our total share capital, representing 32.8% of our voting share capital, through an auction. Norquisa acquired 5.5% of our total share capital, representing 10.8% of our voting share capital, in this auction, and the remaining shares were acquired by various Brazilian pension funds. At the time of this auction, Norquisa was controlled by several second generation producers in the Northeastern Complex. As a result of this auction, Norquisa became our controlling shareholder.

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Consolidation of Petrochemical Assets

In 2001, the Odebrecht Group and a group of companies controlled by the Mariani family, or the Mariani Group, acquired control of Norquisa through purchases of shares of Norquisa and the contribution to our company of:

·         66.7% of the voting share capital of Polialden Petroquímica S.A., or Polialden;

·         35.0% of the voting share capital of Politeno Indústria e Comércio S.A., or Politeno; and

·         Proppet S.A., or Proppet, which was merged into our company in 2001.

In 2002, we acquired from the Odebrecht Group and the Mariani Group in exchange for shares representing 47.3% of our voting and total share capital:

·         OPP Química S.A., or OPP Química, which in turn owned 41.6% of the total share capital of Trikem S.A., or Trikem, representing 64.4% of its voting share capital;

·         29.5% of the total share capital and voting share capital of Copesul; and

·         92.3% of the total share capital of Nitrocarbono S.A., or Nitrocarbono, representing 95.5% of its voting share capital.

Upon completing these transactions, we changed our corporate name to Braskem S.A.

Consolidation of Minority Interests

Between 2003 and 2007, we purchased the minority interests of Nitrocarbono, OPP Química, Polialden, Trikem and Politeno, and merged these companies into Braskem through the following transactions:

·         In 2003, (1) we conducted a public exchange offer for the outstanding common shares of Nitrocarbono not owned by our company and, following the completion of this exchange offer, we merged with Nitrocarbono, (2) we merged with OPP Química, (3) we acquired the outstanding common shares of Polialden not owned by our company, and (4) we acquired substantially all of the outstanding common shares of Trikem not owned by our company, and conducted a public exchange offer for the remaining common shares of Trikem not owned by our company.

·         In 2004, (1) we merged with Trikem, and (2) we acquired additional non-voting shares of Polialden, increasing our interest in the total share capital of Polialden from 56.3% to 63.7%.

·         In April 2006, we purchased all of the common and preferred shares of Politeno that were owned by SPQ Investimentos e Participações Ltda., or SPQ, a subsidiary of Suzano Petroquímica S.A., or Suzano, Sumitomo Chemical Company Limited, or Sumitomo, and Itochu Corporation, or Itochu. We refer to this transaction as the Politeno Acquisition. Following the Politeno Acquisition, we owned 100% of the voting share capital and 96.2% of the total share capital of Politeno.

·         In May 2006, Polialden merged with and into Braskem. In connection with this merger, (1) we converted 2,632,043 of our class A preferred shares into 2,632,043 common shares in order to maintain the required minimum ratio of our common shares to preferred shares in accordance with the Brazilian Corporation Law after the completion of our merger with Polialden, and (2) we issued 7,878,825 of our class A preferred shares in exchange for 264,886,083 of Polialden’s preferred shares.

·         In April 2007, Politeno merged with and into Braskem. In connection with this merger, (1) we converted 486,530 of our class A preferred shares into 486,530 common shares in order to maintain the required minimum ratio of our common shares to preferred shares in accordance with the Brazilian Corporation Law after the completion of our merger with Politeno, and (2) we issued 1,533,670 of our class A preferred shares in exchange for 412,901,157 of Politeno’s class A preferred shares and 2,126,856,433 of Politeno’s class B preferred shares.

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Ipiranga Transaction

In March 2007, we entered an investment agreement with Ultrapar Participações S.A., or Ultrapar, and Petrobras, which we refer to as the Ipiranga Investment Agreement. We refer to the transactions contemplated by the Ipiranga Investment Agreement and the related transactions described below as, collectively, the Ipiranga Transaction. Under the Ipiranga Investment Agreement, Ultrapar, as a commission agent acting on behalf of Braskem and Petrobras, acquired 100% of the share capital of Ipiranga Química S.A., or Ipiranga Química. As of March 18, 2007, Ipiranga Química owned 86.9% of the voting share capital and 92.4% of the total share capital of Ipiranga Petroquímica. Ipiranga Petroquímica, in turn, owned 29.5% of the share capital of Copesul.

Under the Ipiranga Investment Agreement, we entered into the following transactions, which we refer to as the Ipiranga Transaction:

·         we acquired, directly and indirectly, shares of Copesul representing 62.7% of the total and voting share capital of Copesul;

·         we acquired shares of Ipiranga Química representing 60% of its total share capital and voting share capital, which in turn owns all of the total share capital and voting share capital of Ipiranga Petroquímica; and

·         we acquired shares of Refinaria de Petróleo Ipiranga S.A. (which changed its corporate name to Refinaria de Petroleo Riograndense S.A., or RPR, in October 2008), representing 33.3% of its total share capital and voting share capital.

As a result of the Ipiranga Transaction, we fully consolidated the results of Copesul and its subsidiaries and consolidated the results of Ipiranga Química and its subsidiaries, including Ipiranga Petroquímica, into our financial statements as from April 1, 2007. In addition, we have accounted for our interest in the results of RPR under the equity method in our financial statements as from April 1, 2007.

In February 2008, Ultrapar transferred 60.0% of the share capital of Ipiranga Química to our company and 40.0% of the share capital of Ipiranga Química to Petrobras, as required by the Ipiranga Investment Agreement. In March 2009, Ultrapar transferred 33.3% of the share capital of RPR to our company. As a result of this transfer, we jointly and equally control RPR with Petrobras and Ultrapar.

Under the Ipiranga Investment Agreement, we paid Ultrapar R$651.9 million in April 2007, R$156.7 million in October 2007, R$47.0 million in November 2007 and R$633.5 million in February 2008 for the shares of Ipiranga Química and RPR that we have acquired from Ultrapar in the Ipiranga Transaction.

As part of the Ipiranga Transaction:

·         in June 2007, EDSP67 Participações S.A., or EDSP67, acquired the 7.6% of the total share capital of Ipiranga Petroquímica not owned by Ipiranga Química for a purchase price of R$117.9 million. In August 2007, EDSP67 merged with and into Ipiranga Petroquímica. As a result of these transactions, Ipiranga Petroquímica became a wholly-owned subsidiary of Ipiranga Química; and

·         in October 2007, our subsidiary EDSP58 Participações S.A., or EDSP58, acquired 22.7% of the total and voting share capital of Copesul through a public tender offer, or the Copesul Tender Offer, for the Copesul shares not then owned by our company, Ipiranga Petroquímica, Petroquisa or its affiliate, Petroquímica Triunfo S.A., or Triunfo.  The purchase price for these shares was R$1,294.2 million. At the time of the Copesul Tender Offer, we owned 60% of the total and voting share capital of EDSP58, and Petrobras owned the remaining share capital of EDSP58. In October 2007 and November 2007, EDSP58 purchased additional shares of Copesul at the price per share paid in the Copesul Tender Offer. In November 2007, Copesul redeemed all of its outstanding shares, other than shares held by our company, EDSP58, Ipiranga Petroquímica, Petroquisa and Triunfo at the price per share paid in the Copesul Tender Offer. The aggregate purchase price for the shares purchased and redeemed after the completion of the Copesul Tender Offer was R$124.3 million. In December 2007, EDSP58 merged with and into Copesul. Following this merger, Braskem owned 39.2% of the total and voting share capital of Copesul, Ipiranga Petroquímica owned 39.2% of the total and voting share capital of Copesul and Petroquisa and Triunfo owned 21.6% of the total and voting share capital of Copesul.

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Petrobras Transaction

On November 30, 2007, Braskem entered into an investment agreement with Odebrecht, Petrobras, Petroquisa and Norquisa. On May 14, 2008, Braskem, Odebrecht, Norquisa, Petrobras and Petroquisa entered into an amendment to this agreement. We refer to this agreement, as amended, as the Petrobras Investment Agreement and to the transactions under the Petrobras Investment Agreement as the Petrobras Transaction. Under the Petrobras Investment Agreement, the Petrobras Transaction was completed in two phases.

In the first phase of the Petrobras Transaction, on May 30, 2008, Petroquisa contributed the following assets to its wholly-owned subsidiary Grust Holdings S.A., or Grust:

·         36.4% of the voting and outstanding share capital of Copesul;

·         40.0% of the voting and outstanding share capital of Ipiranga Química; and

·         40.0% of the voting and outstanding share capital of Paulínia.

In addition, on May 30, 2008, Braskem, Petroquisa and Grust engaged in an exchange of shares transaction (incorporação de ações) in which an aggregate of 46,903,320 of our common shares and 43,144,662 of our class A preferred shares were issued to Petroquisa in exchange for all of the outstanding share capital of Grust.

As a result of the completion of the first phase of the Petrobras Transaction, Petrobras owned, directly and indirectly, 23.1% of our total share capital, including 30.0% of our voting share capital, and Braskem owned, directly and indirectly:

·         99.2% of the outstanding share capital of Copesul;

·         all of the outstanding share capital of Ipiranga Química, which in turn owns all of the outstanding share capital of Ipiranga Petroquímica; and

·         all of the outstanding share capital of Paulínia.

Paulínia was incorporated on September 16, 2005 to construct and operate a polypropylene plant that has been constructed in Paulínia, in the State of São Paulo. On that date, we acquired 60.0% of the total and voting share capital of Paulínia. Prior to the completion of the first phase of the Petrobras Transaction, Paulínia was a joint venture between our company and Petroquisa and its results were proportionally consolidated in our financial statements. As a result of the completion of the first phase of the Petrobras Transaction, we have fully consolidated the results of Paulínia into our financial statements as from April 1, 2008.

Under the Petrobras Investment Agreement, Petrobras had the option in the second phase of the Petrobras Transaction to contribute up to 100% of the share capital of Triunfo to Braskem in exchange for approximately 13.4 million of our class A preferred shares.

On May 5, 2009, the second phase of the Petrobras Transaction was completed with the merger of Triunfo with and into Braskem. Braskem issued an aggregate of 13,387,157 of our class A preferred shares to the shareholders of  Triunfo as consideration for their equity interests in Triunfo. Triunfo owned and operated a polyethylene plant located in the Southern Complex with an annual production capacity of 160,000 tons.

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Petroflex Transactions

In October 2007, we acquired shares of Petroflex representing 13.4% of its total and voting share capital from Suzano for an aggregate purchase price of R$61.0 million as a result of our exercise of our preemptive rights in August 2007 following the announcement of the acquisition of control of Suzano by Petrobras. As a result of this acquisition, we owned 33.5% of the total share capital of Petroflex including 33.6% of its voting share capital.

In April 2008, we sold all of our share capital in Petroflex to Lanxess Participações Ltda., or Lanxess, for an aggregate price of R$252.1 million. As a result of this transaction, we registered a non-operational gain of R$115.6 million.

Mergers of Copesul, Ipiranga Petroquímica and Paulínia into Braskem

On July 16, 2008, Grust contributed all of the share capital of Copesul that it owned to Ipiranga Petroquímica in exchange for common shares of Ipiranga Petroquímica. On July 28, 2008, Grust distributed these shares of Ipiranga Petroquímica, together with all of the share capital that it owned in Ipiranga Química and Paulínia, to Braskem. On September 11, 2008, Copesul merged with and into Ipiranga Petroquímica. In connection with this merger, Ipiranga Petroquímica issued 494,052,653 of its preferred shares, representing 0.71% of its total share capital, to Triunfo as consideration for the share capital of Copesul that Triunfo owned.

On September 30, 2008, the share capital of Ipiranga Petroquímica owned by Ipiranga Química was transferred to Braskem, and Ipiranga Petroquímica merged with and into Braskem. In connection with this merger, we issued 1,506,060 of our preferred shares, representing 0.5% of our total share capital, to Triunfo as consideration for the share capital of Ipiranga Petroquímica that it acquired in the merger of Copesul into Ipiranga Petroquímica.

On September 30, 2008, Paulínia merged with and into Braskem.

Change of Corporate Name of Ipiranga Química

On October 2, 2008, Ipiranga Química changed its corporate name to IQ Soluções & Química.

The Sunoco Chemicals Acquisition

On April 1, 2010, we acquired all of the outstanding capital stock of Sunoco Chemicals, which we have renamed Braskem Americas, for US$356.0 million. The assets of Braskem Americas consist of three polypropylene plants located in La Porte, Texas, Marcus Hook, Pennsylvania and Neal, West Virginia, with an aggregate annual production capacity of 950,000 tons, as well as a petrochemicals research facility in Pittsburgh, Pennsylvania. As a result of our acquisition of Braskem Americas, we will consolidate the results of the Braskem Americas into our financial statements as from April 1, 2010.

Strategic Rationale for the Sunoco Chemicals Acquisition

Through the Sunoco Chemicals Acquisition, we are taking an important step in the internationalization of our company and the establishment of our company as a participant in the U.S. petrochemical industry. We believe our acquisition of Braskem Americas will provide access to raw materials at competitive prices, diversification of our sources of raw materials and access to leading consumer markets. In addition, we believe that this acquisition may provide commercial and logistics synergies with our other investments in Mexico and Venezuela when our additional planned capacity in these countries becomes operational. In addition, we anticipate that this acquisition will assist in positioning our company to participate in growth opportunities in the North American market that may arise from further consolidation of the petrochemical industry in North America.

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Financing of Purchase Price

On March 29, 2010, we entered into a syndicated unsecured credit agreement in an aggregate principal amount of US$210.0 million to finance the Sunoco Chemicals Acquisition. The loans under this credit agreement bear interest at the rate of LIBOR plus 2.625% per annum, payable quarterly in arrears through April 2015. The principal amount of these loans is payable in five equal semi-annual installments, commencing in April 2013.

CADE Review of the Sunoco Chemicals Acquisition

The Sunoco Chemicals Acquisition is subject to the final approval of the Brazilian antitrust authorities. However, Brazilian law permits us to consummate this transaction prior to receiving this final approval, unless CADE issues a writ of prevention blocking the transaction or requires the parties to enter into an agreement permitting the effects of the transaction to be reversed which, by its terms, delays the consummation of the transaction. We submitted the terms and conditions of the Sunoco Chemicals Acquisition for review by the Brazilian antitrust authorities on February 24, 2010. The antitrust authorities will determine whether this transaction negatively impacts competitive conditions in the markets in which we compete or adversely affect consumers in these markets. There can be no assurances that the Brazilian antitrust authorities will approve the Sunoco Chemicals Acquisition as currently structured or that these authorities will not impose additional conditions on the Sunoco Chemicals Acquisition.

The Quattor Acquisition

On January 22, 2010, we entered into the Quattor Investment Agreement with Odebrecht, OSP, Petrobras, Petroquisa and Unipar under which, among other things:

·         In February 2010, a subsidiary of Petrobras, which owned all of our common shares that were owned by Petrobras and its subsidiaries, was merged into BRK, a subsidiary of Odebrecht to which Odebrecht had contributed all of our common shares that were owned by Odebrecht and its subsidiaries;

·         Odebrecht, OSP, Petrobras, Petroquisa and our company entered into the Petrobras Shareholders’ Agreement, relating to, among other matters, the voting and transfer of our shares;

·         In April 2010, Odebrecht and Petrobras contributed an aggregate of R$3.5 billion to the share capital of BRK, and we conducted a capital increase through a private subscription by our shareholders as a result of which we received net cash proceeds of R$3,742.6 million in exchange for the issuance of 243,206,530 of our common shares and 16,697,781 of our class A preferred shares;

·         In April 2010, we purchased 60% of the outstanding share capital of Quattor from Unipar for an aggregate amount of R$659.4 million and the assumption of a put option granted by Unipar to BNDESPAR with respect to the shares of RioPol held by BNDESPAR. Quattor is a holding company that owns, directly and indirectly, 75.0% of the outstanding share capital of RioPol, 99.3% of the outstanding share capital of Quattor Petroquímica, 100% of the outstanding share capital of Quattor Química, and 33.3% of the outstanding share capital of Polibutenos;

·         In May 2010, we purchased from Unipar all of the outstanding share capital of Unipar Comercial e Distribuidora S.A., or Unipar Comercial, for an aggregate amount of R$27.1 million, and 33.3% of the outstanding share capital of Polibutenos for an aggregate amount of R$22.4 million;

·         We and Petroquisa agreed to engage in a merger of shares transaction in which we will issue an aggregate of approximately 18 million of our common shares to Petroquisa, and Quattor will become our wholly-owned subsidiary. We expect to complete this transaction in the second quarter of 2010; and

·         We will conduct a tender offer to acquire the remaining 0.7% of the share capital of Quattor Petroquímica. We expect to complete this transaction in the third quarter of 2010.

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In connection with BNDESPAR’s acquisition of its equity interest in RioPol, Unipar granted to BNDESPAR an option to sell to Unipar 190,784,674 common shares of RioPol and 30 preferred shares of RioPol, representing 15.0% of the total share capital of RioPol.

Agreements Relating to COMPERJ and Suape Complex

In connection with the Quattor Acquisition, on January 22, 2010, we entered into an Association Agreement with Odebrecht, OSP, Petroquisa and Petrobras regarding the continued development of two petrochemical complexes in the States of Rio de Janeiro and Pernambuco, Brazil. The Rio de Janeiro Petrochemical Complex (Complexo Petroquímica do Rio de Janeiro), which we refer to as COMPERJ, an integrated petrochemical complex to be located in Itaboraí in the State of Rio de Janeiro, is currently under development by Petrobras and Petroquisa. Petrobras has announced that COMPERJ is expected to have annual production capacity of:

·         1,300,000 tons of ethylene;

·         800,000 tons of propylene;

·         850,000 tons of polypropylene; and

·         850,000 tons of polyethylene.

As part of our evaluation of a potential investment in COMPERJ, we are reviewing the scale and scope of this project.

Under the Association Agreement, within 60 days after Petrobras and Petroquisa deliver their development plan for COMPERJ to Braskem, Braskem has the option of entering into negotiations with the other parties to the Association Agreement to continue the development of, and assume control of, COMPERJ. If Braskem elects to exercise this option, the parties to the Association Agreement will use their best efforts to enter into such agreements as may be necessary to allow Braskem to assume control of COMPERJ within 120 days after delivery of the development plan. In the event that Braskem does not exercise its option, Braskem will have the right, for so long as Petrobras and Petroquisa collectively own a controlling interest in COMPERJ, to distribute COMPERJ’s products to third parties on terms mutually acceptable to Petrobras, Petroquisa and Braskem.

Petrobras and Petroquisa are also developing an integrated petrochemical complex to be located in Ipojuca in the State of Pernambuco, which we refer to as the Suape Complex. The Suape Complex will be composed of three integrated plants:

·         a purified tereftalic acid, or PTA, plant with an annual production capacity of 700,000 tons;

·         a polyethylene therephthalate, or PET, plant with an annual production capacity of 450,000 tons; and

·         a textile polymers and polyester filaments plant with an annual production capacity if 240,000 tons.

Under the Association Agreement, the parties have agreed that they will use their best efforts to execute all necessary corporate and contractual documentation to allow Braskem to acquire a controlling interest in the companies developing the Suape Complex during the second quarter of 2010. The acquisition price to be paid by Braskem in connection with this acquisition will be determined by investment advisers to Braskem, Petrobras and Petroquisa.

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Strategic Rationale for the Quattor Acquisition

Through our participation in the Quattor Acquisition, we are taking a further major step in the consolidation and development of the Brazilian petrochemical industry and therefore our position in the global petrochemical industry. We believe the Quattor Acquisition will provide the following strategic and financial benefits to our company:

• Diversify our principal feedstocks—By acquiring RioPol, which operates using ethane and propane as feedstocks, and Quattor Química, which uses naphtha, ethane and propane supplied by Petrobras, we have diversified the types of feedstocks that we use in our basic petrochemical business. In addition, the Quattor Acquisition will allow Braskem to optimize the naphtha supply logistics from Petrobras and from foreign suppliers, which we believe will permit us to reduce costs significantly in this area;
• Expand our business to achieve greater economies of scale and operational flexibility—By expanding the size and geographic scope of our business, we believe that we will attain economies of scale, including reduced costs related to maintenance services, energy, raw materials and supplies and logistics. In addition, because we will have greater production capacity for a range of resins, we will be able to optimize our production mix and utilize specific plants for longer production runs of specific resins, thus lowering our transition costs; and

• Increased leadership role in Latin America – The Quattor Acquisition will allow us to join technological efforts and innovative actions in order to develop new products and applications, providing value-added services and solutions to our client base. In addition, Braskem will take a leading role in the petrochemical segment, reinforcing actions to protect and strengthen the entire value chain.

Accounting and Financial Impact of the Quattor Acquisition

As a result of our acquisition of control of the Quattor Companies, we have consolidated the results of the Quattor Companies into our financial statements as from April 1, 2010, including the indebtedness of the Quattor Companies. At December 31, 2009, (1) the total outstanding debt of Quattor was R$7,370.9 million, (2) the total outstanding debt of Polibutenos was R$41.3 million, of which R$13.6 million was reflected in the balance sheet of Quattor due to the proportional consolidation of the results of Polibutenos in the financial statements of Quattor, and (3) the total outstanding debt of Unipar Comercial was R$29.8 million.

CADE Review of the Quattor Acquisition

The Quattor Acquisition is subject to the final approval of the Brazilian antitrust authorities. However, Brazilian law permits us to consummate these transactions prior to receiving this final approval, unless CADE issues a writ of prevention blocking a transaction or requires the parties to enter into an agreement permitting the effects of the transaction to be reversed which, by its terms, delays the consummation of the transaction. We, together with Petrobras, submitted the terms and conditions of the Quattor Acquisition for review by the Brazilian antitrust authorities on February 5, 2010. The antitrust authorities will determine whether these transactions negatively impact competitive conditions in the markets in which we compete or adversely affect consumers in these markets. We cannot assure you that the Brazilian antitrust authorities will approve the Quattor Acquisition as currently structured or that these authorities will not impose additional conditions on the Quattor Acquisition.

Refinancing of Quattor Indebtedness

On March 31, 2010, Quattor prepaid its outstanding indebtedness to the International Finance Corporation, or the IFC, in the aggregate principal amount of US$145.0 million.

On April 8, 2010, Quattor entered into a credit agreement with an international financial institution under which Quattor borrowed an aggregate principal amount of R$563.0 million. This loan bears interest, payable in arrears at the CDI rate plus 1.20% per annum. The principal amount of this loan matures within 120 days after disbursement. This loan can be prepaid at any time without penalty.

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On April 15, 2010, Quattor prepaid its outstanding indebtedness to the Export-Import Bank of the United States, or the Exim Bank, and under its loan agreements guaranteed by Servizi Assicurativi del Commercio Estero, or SACE. The aggregate principal amount outstanding under these loans was US$281.2 million.

Following the Quattor Acquisition and through May 26, 2010, we prepaid R$2,208.9 million aggregate principal amount of Quattor’s outstanding real-denominated indebtedness and US$271.7 million of Quattor’s outstanding U.S. dollar-denominated indebtedness with the proceeds of our capital increase.

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Our Corporate Structure

The following chart presents our ownership structure and the corporate structure of our principal subsidiaries and equity investments as of May 26, 2010. The percentages in bold italics represent the percentage of the voting share capital owned by each entity and the percentages not in bold italics represent the percentage of the total share capital owned by each entity.

(2)   Includes shares held by Petroquisa.

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Petrochemical Industry Overview

Global Petrochemical Industry

The petrochemical industry transforms a variety of feedstocks, primarily naphtha (a by-product of the oil refining process), ethane, propane, butane and condensate (a by-product of the natural gas condensation process), into widely used industrial and consumer goods. The petrochemical industry is generally organized into first, second and third generation producers based on the stage of transformation of various petrochemical raw materials, or feedstocks.

First Generation Producers

First generation producers, which are referred to as “crackers,” break down or “crack” naphtha, ethane, propane, butane or condensate, their principal feedstocks, into basic petrochemicals. Crackers account for approximately 98% of global production of ethylene. The basic petrochemicals produced by these crackers include:

·        olefins, primarily ethylene, propylene and butadiene;

·        aromatics, such as benzene, toluene and xylenes (including para-xylene, ortho-xylene and mixed xylenes), which we refer to as BTX products; and

·         fuels, solvents and other products.

The use of different types of feedstock results in different products in the cracking process. Crackers using naphtha as their feedstock produce a larger quantity of by-products and co-products, such as propylene and BTX products, than crackers using ethane, propane or butane as their feedstocks.

Naphtha is the primary feedstock, accounting for almost 60% of the world’s ethylene production. The petrochemical industries in Asia and Europe predominantly use naphtha as feedstock, while those in the Middle East and North America primarily use ethane, propane or butane. First generation producers in South America predominantly use naphtha as their feedstock.

CMAI reports that annual global ethylene production capacity in 2009 was 133 million tons. The table below sets forth annual global ethylene production capacity by region for 2009.

Source: CMAI

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A number of petrochemical companies have announced plans to build significant additional ethylene production capacity, primarily in the Middle East and Asia. According to CMAI, 25.3 million tons of annual ethylene capacity are scheduled to be commissioned between 2010 and 2014. However, expansions of ethylene capacity are frequently subject to delays and we cannot predict when the planned additional capacity will be commissioned, if at all. For example, of the 11.0 million tons of annual ethylene capacity that was scheduled to be commissioned in 2009, only 5.0 million tons has actually commenced production.

Countering this trend towards increased supply have been the significant capacity closures announced during the fourth quarter of 2008 and during 2009 as a result of the global economic slowdown. As demand for products containing ethylene derivatives has declined, economically marginal ethylene capacity has been closed, primarily in the United States (approximately 1.7 million tons in 2009) and Western Europe (approximately 0.4 million tons in 2009).

Because ethylene must be stored and transported at cryogenic temperatures, the cost of storing and transporting ethylene is substantial and most ethylene is used to produce second-generation petrochemical products at plants located in or nearby the petrochemical complexes in which the ethylene is produced. Other products of the crackers are sold in global commodities markets.

Second Generation Producers

Second generation producers process the basic petrochemicals obtained from the crackers to produce intermediate petrochemicals, including thermoplastic resins. These petrochemicals include:

·         polyethylene, PVC and polystyrene (each produced from ethylene);

·         polypropylene and acrylonitrile (each produced from propylene);

·         caprolactam (produced from benzene); and

·         polyisobutylene (produced from butadiene).

Approximately 60% of all global ethylene production is used to produce polyethylene. Annual global production of polyethylene, polypropylene and PVC resins in 2009 was approximately 182 million tons, concentrated in Asia, followed by Europe and North America. CMAI estimates that by 2014 annual production capacity of these resins will increase by approximately 44 million tons, driven primarily by the growth in polyethylene production, concentrated in the Middle East and Asia, particularly in China.

Polyethylene, polypropylene and PVC resins are commodity products that are sold in global commodities markets. Prices of these resins are influenced by global macroeconomic factors, the cost of raw materials, demand trends in the industries that consume these resins and transportations costs. Industry profitability is measured based on the spread between the cost of feedstock and the price of the resins produced. As Asia is the largest regional producer and consumer of resins as well as the principal trader in the international market, demand in the region directly affects the spot prices in all regions. We use the Asia Resin Price – Naphtha Cost spread as a benchmark to analyze the profitability of the global petrochemical industry.

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Set forth below is a graph showing the Asia Resin Price – Naphtha Cost spread of high density polyethylene, or HDPE, from 2002 through 2009.

Source: CMAI

Third Generation Producers

Third generation producers purchase the intermediate petrochemicals from second generation producers and transform them into final products including:

·         plastics (produced from polyethylene, polypropylene and PVC);

·         acrylic fibers (produced from acrylonitrile);

·         nylon (produced from caprolactam);

·         elastomers (produced from butadiene, styrene and acrylonitrile); and

·         disposable containers (produced from polystyrene and polypropylene).

Third generation producers manufacture a variety of consumer and industrial goods, including containers and packaging materials, such as bags, film and bottles, textiles, detergents, paints, automobile parts, toys and consumer electronic goods.

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Latin American Petrochemical Industry

CMAI reports that annual ethylene production capacity by producers in Latin America in 2009 was 6.8 million tons. Following the Quattor Acquisition, which we completed in late April 2010, we own and operate all of the ethylene capacity in Brazil. The table below sets forth annual global ethylene production capacity by country for 2009.

Source: CMAI Braskem

Most of the polyethylene, polypropylene and PVC resins produced using the basic petrochemicals of the crackers located in Latin America is used in the country in which it is produced. The second generation producers in Brazil have historically exported a portion of their production to other countries in Latin America and elsewhere, second generation producers in Argentina have exported a significant portion of their production to Brazil and other countries in the region and second generation producers in Colombia have exported a portion of their production, primarily PVC, to other countries in the region.

Brazilian Petrochemical Industry

The production of first and second generation petrochemicals in Brazil centers around four major complexes. These complexes include:

·         the Northeastern Complex located in Camaçari in the State of Bahia, which commenced operations in 1978 and, at December 31, 2009, uses naphtha as its principal raw material and had an annual ethylene production capacity of 1,280,000 tons;

·         the Southern Complex located in Triunfo in the State of Rio Grande do Sul, which commenced operations in 1982 and, at December 31, 2009, uses naphtha as its principal raw material and had an annual ethylene production capacity of 1,252,000 tons;

·         the petrochemical complex located in Capuava in the city of Santo André, State of São Paulo, or the São Paulo Complex, which commenced operations in 1972 and, at December 31, 2009, uses naphtha as its principal raw material and had an annual ethylene production capacity of 700,000 tons; and

·         the petrochemical complex located in Duque de Caxias in the State of Rio de Janeiro, or the Rio de Janeiro Complex, which commenced operations in 2005 and, at December 31, 2009, uses ethane and propane as its principal raw materials and had an annual ethylene production capacity of 540,000 tons.

Each complex has a single first generation producer, also known as the raw materials center, and these raw materials centers supply basic petrochemicals to second generation production plants of our company and other second generation producers located in these complexes and elsewhere. The basic petrochemicals, which are in gaseous or liquid form, are transported primarily through pipelines to the second generation producers’ plants, which are generally located near the crackers, for further processing.

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We have owned and operated the cracker in the Northeastern Complex since it commenced operations. We have owned an interest in the cracker in the Southern Complex since 2002 and acquired the remaining interests in this cracker in 2007. Following the Quattor Acquisition, we will own and operate the crackers in the São Paulo Complex and the Rio de Janeiro Complex.

There are 33 second generation producers operating in Brazil. Following the Quattor Acquisition, we are the only producer of polyethylene and polypropylene located in Brazil, and one of two producers of PVC located in Brazil. Intermediate petrochemicals are produced in solid form as plastic pellets or powders and are transported primarily by truck to third generation producers, which generally are not located near the second generation producers.

Third generation producers manufacture a variety of consumer and industrial goods, including containers and packaging materials, such as bags, film and bottles, textiles, detergents, paints, automobile parts, toys and consumer electronic goods. There are approximately 11,300 third generation producers operating in Brazil.

Petrobras’ Role in the Supply of Feedstocks to the Brazilian Petrochemical Industry

Prior to 1995, Brazil’s Constitution granted a monopoly to the Brazilian government, exercised through Petrobras, over the research, exploration, production, refining, importing and transporting of crude oil and refined petroleum products (excluding petrochemical products) in Brazil. The Brazilian Constitution also provided that byproducts of the refining process, such as naphtha, could only be supplied in Brazil by or through Petrobras. Naphtha is the principal feedstock used in Brazil for the production of basic petrochemicals such as ethylene and propylene. In 1995, the Brazilian Constitution was amended to allow petroleum and petroleum related activities to be carried out by private companies through concessions or authorizations granted by the Brazilian government.

In 1997, Law No. 9,478/97 implemented the 1995 constitutional amendment by creating the Brazilian Energy Policy Council (Conselho Nacional de Política Energética) and the National Petroleum Agency (Agência Nacional do Petróleo), or the ANP, which were charged with regulating and monitoring the oil industry and the Brazilian energy sector. Following the creation of the ANP, new rules and regulations were implemented, aimed at gradually ending Petrobras’ monopoly. Our company has imported naphtha from trading companies and oil and gas producers located abroad since 1997. In addition, during 2009, Petrobras supplied 64.7% of the naphtha consumed by our company, and the remaining naphtha consumed by our company was imported. In addition, during 2009, Petrobras supplied all of the naphtha ethane and propane consumed by Quattor.

Pricing and Tariffs

We set prices for ethylene, the principal first generation petrochemical product that we sell to third-party second generation producers, by reference to international market prices. See “—Basic Petrochemicals Unit—Sales and Marketing of Our Basic Petrochemicals Unit.” Prices paid by second generation producers for imported first generation petrochemical products partly reflect transportation and tariff costs. We establish the prices of ethylene by-products, such as butadiene, by reference to several market factors, including the prices paid by second generation producers for imported products. Prices paid for such imports also reflect transportation and tariff costs.

Second generation producers, including our company, generally set prices for their petrochemical products by reference to several market factors, including the prices paid by third generation producers for imported products. Prices paid for such imports also reflect transportation and tariff costs.

The Brazilian government has frequently used import tariffs to implement economic policies. As a result, import tariffs imposed on petrochemical products have varied in the past and may vary significantly in the future. Tariffs on imports of first generation petrochemical products, primarily propylene, have been set at 2.0% since 2004, while tariffs on polyethylene, polypropylene and PVC resins have been set at 14.0% since 2004.

Imports and exports within the free trade area in South America (Mercado Comum do Sul), or Mercosul, which is composed of Argentina, Brazil, Paraguay and Uruguay, have not been subject to tariffs since December 2001. Imports of suspension PVC from the U.S. and Mexico have been subject to tariffs of 16.0% and 18.0%, respectively, since 1992 as a result of the imposition of anti-dumping duties by the Brazilian Foreign Trade Chamber (CAMEX—Câmara de Comércio Exterior), or the CAMEX, of the Ministry of Development, Industry and Trade. These duties will expire on December 14, 2010, unless extended. Since 2008, imports of suspension PVC from the China have been subject to tariffs ranging between 10.5% and 21.6%, and imports of suspension PVC from South Korea have been subject to tariffs ranging between 2.7% and 18.9%, as a result of the imposition of anti-dumping duties by the CAMEX of the Ministry of Development, Industry and Trade. These duties will expire in August 2013, unless extended.

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Supply and Demand

Per capita consumption of polyethylene, polypropylene and PVC resins in Brazil has grown by a compound annual growth rate of 3.5% between 1995 and 2009, reaching 20.3 kilograms per person in 2009 according to reports of CMAI. However, Brazilian consumption of these resins is significantly lower than the consumption in the United States (76 kilograms per person), Europe (68 kilograms per person), and Japan (57 kilograms per person) reported by CMAI.

The Brazilian markets in which we compete are cyclical and are sensitive to changes in supply and demand. Demand for our petrochemical products in Brazil is significantly affected by general economic conditions in Brazil and other countries in Mercosul, particularly Argentina. The Brazilian markets are also impacted by the cyclical nature of international markets as prices for petrochemical products in Brazil are determined in part by reference to international market prices for these products and by the prices, including tariff and transportation costs, paid by importers of petrochemical products into Brazil.

Traditionally, the second and third calendar quarters have been the periods of the year with the highest sales for the petrochemical industry in the Brazilian market. The increase during this six-month period is tied in part to the production of consumer goods for sale during the year-end holiday season.

The following table sets forth information relating to the estimated production of Brazilian companies and to exports and imports of the products included therein for the years indicated. The estimates of total domestic consumption assume that all domestic production is immediately sold in the market and that there has been no change in total domestic inventory.

___________________________

(1)   Includes ethylene, propylene and butadiene.

(2)   Preliminary data.

(3)   Includes benzene, toluene and xylenes.

(4)   Includes polyethylene, polypropylene, and ethyl vinyl acetate copolymer, or EVA.

(5)   Preliminary data.

Source: ABIQUIM and Braskem estimates.

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U.S. Polypropylene Industry

The polypropylene industry in the United States consists of 11 companies with an aggregate annual production capacity of 8.4 million tons of polypropylene. Competition is based on price, product quality, product delivery, reliability of supply, product performance and customer service. In general, demand is a function of economic growth in the United States and elsewhere in the world. Based on published rated industry capacities, Braskem Americas, which we acquired in April 2010, is the fourth largest producer of polypropylene in North America. The rated capacity of Braskem Americas’ polypropylene plants as of December 31, 2009 was approximately 950,000 tons per year, or approximately 11.1% of total industry capacity in the United States.

Basic Petrochemicals Unit

At December 31, 2009, our Basic Petrochemicals Unit’s facilities had one of the largest annual production capacities of all first generation producers in Latin America. Including net sales to our other business units, our Basic Petrochemicals Unit generated net sales revenue of R$11,144.2 million in 2009, or 54.5% of the net sales revenue of all segments in 2009. Net sales revenue generated by sales to our other business units was R$5,065.1 million during 2009, representing 45.5% of the net sales revenue of our Basic Petrochemicals Unit.

Prior to April 2007, our Basic Petrochemicals Unit was comprised of the operations conducted by our company in the Northeastern Complex. As a result of our obtaining effective management control over Copesul in April 2007, we have fully consolidated Copesul’s results in our consolidated financial statements and included Copesul’s results in our Basic Petrochemicals segment as from April 1, 2007. On September 11, 2008, Copesul merged with and into Ipiranga Petroquímica, and on September 30, 2008, Ipiranga Petroquímica merged with and into Braskem.

Our Basic Petrochemicals Unit produces:

·         olefins, such as ethylene, polymer and chemical grade propylene, butadiene, isoprene and butene-1;

·         aromatics, such as benzene, toluene, para-xylene, ortho-xylene and mixed xylene;

·         fuels, such as automotive gasoline and liquefied petroleum gas, or LPG; and

·         other basic petrochemicals, such as ethyl tertiary butyl ether, or ETBE, solvent C9 and pyrolysis C9.

The products of our Basic Petrochemicals Unit are used primarily in the manufacture of intermediate second generation petrochemical products, including those manufactured by our Polyolefins Unit and our Vinyls Unit. Our Basic Petrochemicals Unit also supplies utilities to other plants located in the Northeastern Complex and the Southern Complex and renders services to the operators of those plants.

In 2009, 83.9% of our Basic Petrochemicals Unit’s sales (including intra-company sales) were derived from the sale of basic petrochemicals, 5.4% from the sale of condensate, 5.2% from the sale of fuels, 4.7% from the sale of utilities and services and 0.8% from the sale of caprolactam and related products. In 2009, 52.2% of our Basic Petrochemicals Unit’s net sales revenue from sales of basic petrochemicals was derived from sales made to our Polyolefins and Vinyls Units.

We believe that our Basic Petrochemicals Unit is well positioned to take advantage of increased demand for basic petrochemicals products in Brazil, both by our other business units and by third parties, and to compete in the international market. As a result of the weakness in domestic demand for thermoplastics, as well as price instability as domestic prices of our products were realigned following the decline in global petroleum prices and the significant depreciation of the real against the U.S. dollar in the second half of 2008, we temporarily shut down one of our ethylene crackers in the Northeastern Complex and one of our ethylene crackers in the Southern Complex in December 2008. We resumed production at these facilities in February 2009 and beginning in March 2009 production reached historical capacity utilization rates.  As the margins that we expect to be able to generate on our exported basic petrochemical products are similar to those we have historically generated on our domestic sales of these products, we do not believe that the diversion of our basic petrochemical products to the export markets will have a material adverse effect on our operations or operating income. However, a prolonged slowdown in economic activity in Brazil and elsewhere could continue to reduce demand for some of our basic petrochemical products, which would adversely affect our results of operations.

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Products of Our Basic Petrochemicals Unit

Our other business units and third-party petrochemical producers use ethylene and propylene produced by our Basic Petrochemicals Unit to produce second generation products such as polyethylene, polypropylene and PVC. We also sell butadiene and a variety of aromatics, such as benzene, para-xylene, ortho-xylene and mixed xylenes, to third-party petrochemical producers for use as raw materials in the production of a variety of second generation products, including synthetic rubber, elastomers, resins, ethyl benzene (which is used to make styrene monomer/polystyrene), linear alkyl benzene, purified terephthalic acid, dimethyl terephthalate, or DMT, phthalic anhydride, plasticizers and paint.

The following table sets forth the sales volume of basic petrochemicals by our Basic Petrochemicals Unit (including our intra-company sales) for the periods indicated.

___________________________

(1)   Includes Copesul as from April 1, 2007.

(2)   Includes the following intra-company sales:

·         approximately 1,966,300 tons of ethylene in 2009, 1,708,300 tons in 2008 and 1,644,000 tons in 2007;

·         approximately 630,900 tons of propylene in 2009, 638,400 tons in 2008 and 567,800 tons in 2007;

·         approximately 18,400 tons of para-xylene in 2007; and

·         approximately 25,300 tons of benzene in 2009, 55,800 tons in 2008 and 62,800 tons in 2007.

(3)   Includes benzene, toluene, ortho-xylene, para-xylene and mixed xylenes.

Olefins

Olefins are relatively unstable hydrocarbons characterized by a structure that is chemically active and permits other chemically reactive elements, such as oxygen, to be added. Ethylene and propylene, which are types of olefins, are the chemical “backbone” for many plastic resins used to manufacture consumer products. Our primary olefins products include polymer grade ethylene and propylene, also known as monomers. Different combinations of monomers are polymerized, or linked together, to form polymers or plastic resins with different properties and characteristics.

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Aromatics

Aromatics are hydrocarbons identified by one or more benzene rings or by chemical behavior similar to benzene. Aromatics readily react to add other active molecular groups, such as nitrates and sulfonates.

Caprolactam and Related Products

Caprolactam is a raw material that forms the basis for the production of Nylon-6 textile thread, engineering resins and film, and is a structural material in the motor and electronics industries. We also produce ammonium sulfate for use as a fertilizer, and cyclohexane and cyclohexanone, both for use in paint solvents, pesticides, natural resins, oils and rubber.

In May 2009, we temporarily closed our caprolactam plant. We are continuing to analyze our options regarding the resumption of caprolactam production based on our estimate of Brazilian demand for this product and our cost of production.

Condensate

Condensate is a low-density mixture of hydrocarbon liquids that are present in gaseous from in the raw natural gas produced from many natural fields and recovered through a condensation process. We resell condensate that we purchase from our raw material suppliers to RPR for further refining into naphtha which we then purchase from RPR.

Fuels

Our company has been authorized by the ANP to produce and sell automotive gasoline since August 15, 2000 and LPG since October 2, 2001, both domestically and for export. We have been producing and selling both automotive gasoline and LPG since these dates.

Utilities

We produce electric power, steam, compressed air and purified drinking and demineralized water, some of which are by-products of our production of basic petrochemicals. We use these utilities in our own production processes, including those of our Polyolefins Unit and our Vinyls Unit, and sell these utilities to other companies in the Northeastern Complex and the Southern Complex. Our utilities facilities include units for thermoelectric power generation, water treatment and the production of steam and compressed air.

Production Facilities of Our Basic Petrochemicals Unit

We believe that the technological processes we use at our basic petrochemicals plants are among the most advanced in the world. Our Basic Petrochemicals Unit currently owns and operates:

·         five major basic petrochemicals units in the Northeastern Complex (two olefins units, two aromatics units and a utilities unit); and

·         four major basic petrochemicals units in the Southern Complex (two olefins units, one aromatics unit and a utilities unit).

We define the term “unit” to mean several production lines that are linked together to produce olefins, aromatics or utilities. During 2008, we expanded the annual production capacity of one of our olefins units in the Southern Complex by 52,000 tons of ethylene and 30,000 tons of propylene. At December 31, 2009, our basic petrochemicals plants had total annual production capacity of 2,532,000 tons of ethylene and 1,210,000 tons of propylene.

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The table below sets forth the primary products of our Basic Petrochemicals Unit, annual production capacity at December 31, 2009 and annual production for the years presented.

___________________________

(1)   Includes Copesul as from April 1, 2007.

(2)   Actual production may exceed production capacity based on the quantity of toluene and mixed xylenes consumed in the production of para-xylene.

(3)   In May 2009, we temporarily closed our caprolactam plant.

(4)   Automotive gasoline in cubic meters.

(5)   In September 2007, we completed the conversion of our methyl tertiary butyl ether, or MTBE, plant in the Southern Complex to the production of ETBE, and in July 2009 we completed the conversion of our MTBE plant in the Northeastern Complex to the production of ETBE.

Raw Materials of Our Basic Petrochemicals Unit

Naphtha

Naphtha is the principal raw material that we use to produce our basic petrochemical products and represents the principal production and operating cost of our Basic Petrochemicals Unit. We also use condensate as a raw material in our basic petrochemical units in the Southern Complex.

The price of naphtha and condensate that we purchase varies primarily based on changes in the U.S. dollar-based international price of crude oil. Naphtha and condensate accounted for 89.5% of the total cost of sales of our Basic Petrochemicals Unit during 2009, and accounted for 66.6% of our direct and indirect consolidated cost of sales and services rendered during 2009.

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The following table shows the average Amsterdam-Rotterdam-Antwerp market price of naphtha for the periods indicated.

___________________________

(1)   The information in the “Average” row represents (i) during 2009, 2008 and 2007, the mean average of average monthly naphtha prices during the year, and (ii) during 2010, the mean average of average monthly naphtha prices from January through April.

(2)   Through May 26, 2010.

Source: Bloomberg L.P.

Supply Contracts and Pricing of the Basic Petrochemicals Unit

The following table shows the distribution of the naphtha purchases by our Basic Petrochemicals Unit for the periods indicated.

___________________________

(1)   Includes Copesul as from April 1, 2007.

Supply Contracts with Petrobras

In July 2009, we and Petrobras entered into a Petrochemical Naphtha Purchase and Sale Contract, which we have operated under since March 2009. This contract replaced the naphtha supply contract between our company and Petrobras for the supply of naphtha to our basic petrochemicals plants located in the Northeastern Complex, which was terminated in June 2008, and superseded the naphtha supply contract between our company and Petrobras for the supply of naphtha to our basic petrochemicals plants located in the Southern Complex. This contract has a term of five years, expiring in March 2014, and is automatically renewable for one five-year period, unless either party notifies the other party in writing at least one year prior to the expiration of the contract that it does not intend to renew the contract.

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Under the terms of this contract:

·         Petrobras has agreed to sell and deliver naphtha to our basic petrochemicals plants in the Northeastern Complex and the Southern Complex exclusively for our use as a raw material;

·         we are required to purchase a minimum monthly volume of naphtha;

·         we provide Petrobras with a firm commitment order for naphtha each month, together with an estimate of the volume of naphtha that we will purchase over the following six months;

·         we may request volumes of naphtha that exceed a monthly firm commitment order, which Petrobras may supply at its discretion;

·         since March 2009, the price that we pay for naphtha is based on a variety of factors, including the market prices of naphtha and a variety of petrochemical derivatives, the volatility of the prices of these products in the international markets, the real/U.S. dollar exchange rate, and the level of paraffinicity of the naphtha that is delivered;

·         the contract will be amended in the event that unforeseen extraordinary events occur that cause a disruption in the economic-financial equilibrium of the contract; and

·         Petrobras may terminate the contract, without prior notice, in the event of: (1) our failure to cure any breach of the contract following a 30 day grace period; (2) a force majeure event that continues for more than 90 days; (3) we transfer or offer as a guaranty all or part of our rights and obligations under the contract to a third party without Petrobras’ consent; (4) an alteration of our ownership or corporate purposes that conflicts with the object of the contract; or (5) our dissolution, bankruptcy or liquidation.

Supply Arrangements with SONATRACH

La Société Nationale pour la Recherché, la Production, le Transport, la Transformation et la Commercialisation des Hydrocarbures—SONATRACH (the Algerian national petroleum company), or SONATRACH, is our most important supplier of imported naphtha and condensate. We have imported naphtha supplied by SONATRACH since 2002. On an annual basis, we negotiate the minimum and maximum volumes of naphtha and condensate that we will purchase from SONATRACH and the pricing formula for the naphtha and condensate supplied by SONATRACH. In the event that we were unable to renew our supply arrangements with SONATRACH, we believe that we could purchase sufficient quantities of naphtha from other suppliers, including Petrobras, to meet the supply needs of our basic petrochemicals plants in the Northeastern Complex and the Southern Complex.

Supply Contracts with Repsol

Copesul began importing naphtha from Repsol YPF Trading y Transporte S.A., or Repsol, in 2002. On an annual basis, we negotiate the minimum and maximum volumes of naphtha that we will purchase from Repsol and the pricing formula for the naphtha and condensate supplied by Repsol. In the event that we were unable to renew our supply arrangements with Repsol, we believe that we could purchase sufficient quantities of naphtha from other suppliers, including Petrobras, to meet the supply needs of our basic petrochemicals plant in the Southern Complex.

Other Supply Contracts

As part of our strategy to diversify our sources of supply of naphtha, we have entered into a short-term naphtha supply agreement with PDVSA and are negotiating a naphtha supply agreement with Pemex.

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Spot Market Purchases of Naphtha

In addition to our supplies of naphtha under the agreements described above, we purchase naphtha on the spot market from time to time from foreign suppliers located in North Africa and South America.

Utilities

We self-generate approximately 45% of the Northeastern Complex’s energy consumption requirements, and the remainder is furnished by Companhia Hidro Elétrica do São Francisco—CHESF, or CHESF, a Brazilian government-owned electric power generation company located in the State of Bahia, and by Companhia de Eletricidade do Estado da Bahia—COELBA.

We self-generate approximately 35% of the Southern Complex’s energy consumption requirements, and the remainder is acquired primarily under auction contracts in the free market for energy (Mercado Livre de Energia) from several companies.

Sales and Marketing of Our Basic Petrochemicals Unit

Basic Petrochemicals

We sell our basic petrochemical products principally in Brazil, mainly to second generation petrochemical producers, including our other business units, as well as to customers in the United States, Europe, South America and Asia.

As is common with other first generation petrochemical producers, our Basic Petrochemicals Unit has a high concentration of sales to a limited number of customers. Net sales to our Basic Petrochemicals Unit’s 10 largest customers (excluding intra-company sales) accounted for 53.7% of our Basic Petrochemicals Unit’s total net sales revenue (excluding intra-company sales) during the year ended December 31, 2009.

As part of our commercial strategy, our Basic Petrochemicals Unit focuses on developing longer-term relationships with our customers. We have entered into long-term supply contracts with Oxiteno do Nordeste S.A., or Oxiteno, and Innova S.A., or Innova. These supply contracts have an initial 15-year term and are automatically renewable for additional terms of five years (Innova) or 10 years (Oxiteno), unless one party notifies the other of its intention not to renew. These contracts also provide for minimum and maximum quantities to be purchased and monthly deliveries.

We determine the domestic prices that we charge for ethylene by reference to Western European contract prices. We determine the domestic prices that we charge for propylene based on a formula under which 70% of the price is determined by reference to Northwest Europe prices and the remaining 30% is determined by reference to U.S. Gulf prices. We determine the domestic price of butadiene by reference to the North American contract price for these products, and our price for butadiene, unlike our prices for our other basic petrochemical products, include freight costs. We set the domestic prices of benzene and ortho-xylene by reference to North American spot market prices. We set the domestic prices of solvents by reference to international market prices and we determine the domestic prices for our other olefins and aromatics products with reference to several market indicators.

We export basic petrochemicals mainly to customers in the United States and in Europe. We set export prices for:

·         benzene, toluene and para-xylene with reference to market prices prevailing in the U.S. Gulf market; and

·         propylene, ETBE, ortho-xylene, butene-l and isoprene with reference to market prices prevailing in the European market.

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We are focused on maintaining our leading position in the Brazilian market, while continuing to use our exports to hedge our operations and adjust the imbalances between demand and production. Export net sales of our Basic Petrochemicals Unit represented 18.2% of our Basic Petrochemicals Unit’s net sales revenue during 2009.

The following table sets forth export volumes of our Basic Petrochemicals Unit for the years indicated:

______________

(1)   Includes Copesul as from April 1, 2007.

Caprolactam and Related Products

We sell caprolactam and related products in northeastern Brazil, primarily to third generation petrochemical producers located in the Northeastern Complex, as well as to customers in South America and Asia.

Fuels

We sell automotive gasoline and LPG to Petrobras and fuel distribution companies. Our Basic Petrochemicals Unit has been authorized by the ANP to produce and sell automotive gasoline since August 15, 2000. We sold approximately 551,900 cubic meters of type “A” automotive gasoline in 2009.

We set the domestic prices for fuels by reference to Brazilian market prices and we set export prices for automotive gasoline with reference to market prices prevailing in the U.S. Gulf market. Domestic net sales revenue of our Basic Petrochemicals Unit from automotive gasoline was R$444.9 million in 2009, and export net sales revenue of our Basic Petrochemicals Unit from automotive gasoline was R$61.6 million in 2009.

Utilities

We produce electric power, steam, treated water and compressed air for our own use and for sale to other second generation producers in the Northeastern Complex and the Southern Complex and other companies located outside of these complexes. We the prices of utilities based on our production costs. In 2009, our net sales revenue from sales of utilities (including sales to our other business units) was R$515.4 million.

Competition

Our basic petrochemical customers, which are mostly second generation petrochemical producers with plants located in the Brazilian petrochemical complexes, would have difficulty obtaining their feedstocks from other sources at lower prices due to the high cost of transportation of these products, as well as other logistical difficulties. In addition, because Brazil produces sufficient quantities of olefins to meet domestic demand, imports of these products are generally sporadic and usually related to scheduled plant maintenance shutdowns or to meet unsatisfied domestic demand.

As a result of the weakness in demand for our basic petrochemical products from second-generation producers in Brazil during the second half of 2008, we diverted sales of these products to the export market and continue to export a greater percentage of these products than we have historically exported. Competition in the international markets for these products is primarily based on the price of delivered products and competition has increased since mid-2008 as the balance between supply and demand has been disrupted due to the impact of the global economic downturn on consumers of these products. We expect the disruption of the balance between supply and demand for our olefins products to continue to be disrupted in 2010 as additional ethylene capacity is commissioned. In the international markets for our basic petrochemical products, we compete with a large number of producers, some of which are substantially larger and have substantially greater financial, manufacturing, technological and marketing resources than our company.

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Polyolefins Unit

At December 31, 2009, our polyolefins production facilities had the largest annual production capacity of all second generation producers of polyolefins products in Latin America. Our Polyolefins Unit generated net sales revenue of R$7,216.9 million during 2009, or 35.3% of the net sales revenue of all segments in 2009.

As a result of our obtaining effective management control over Ipiranga Petroquímica in April 2007, we have fully consolidated Ipiranga Petroquímica’s results in our consolidated financial statements and included Ipiranga Petroquímica’s results in our Polyolefins segment as from April 1, 2007. On September 30, 2008, Ipiranga Petroquímica merged with and into Braskem.

Prior to the completion of the first phase of the Petrobras Transaction on May 30, 2008, we owned 60.0% of the total and voting share capital of Paulínia. As a result, at dates and for periods prior to April 1, 2008, we proportionally consolidated Paulínia’s results in our consolidated financial statements and did not include Paulínia’s results in our Polyolefins segment. Following the completion of the first phase of the Petrobras Transaction on May 30, 2008, we owned 100% of the total and voting share capital of Paulínia, and have fully consolidated Paulínia’s results in our consolidated financial statements and included Paulínia’s results in our Polyolefins segment as from April 1, 2008. The Paulínia plant commenced operations in April 2008 with an initial annual production capacity of 300,000 tons of polypropylene. On September 30, 2008, Paulínia merged with and into Braskem.

On May 5, 2009, the second phase of the Petrobras Transaction was completed with the merger of Triunfo with and into Braskem. Prior to this merger, Triunfo owned and operated a polyethylene plant located in the Southern Complex with an annual production capacity of 160,000 tons.

Products of Our Polyolefins Unit

Our Polyolefins Unit produces:

·         polyethylene, including LDPE, LLDPE, medium density polyethylene, or MDPE, HDPE, UHMWP, and EVA; and

·         polypropylene;

We manufacture a broad range of polyolefins products for use in consumer and industrial applications, including:

·         plastic films for food and industrial packaging;

·         bottles, shopping bags and other consumer goods containers;

·         automotive parts; and

·         household appliances.

We anticipate that long-term growth in domestic demand for these products will continue to increase due to:

·         greater consumption of plastic-based consumer products, as Brazil’s consumption of plastic based products on a per-capita basis is low when compared to the United States and many European countries; and

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·         the trend towards substitution of plastics for more traditional packaging materials, such as glass and paper.

Prior to May 2007, our Polyolefins Unit also produced PET resin and DMT. In May 2007, we permanently closed the DMT unit in our PET plant as a result of this plant’s high maintenance and operational costs due to its aging technology. DMT is the primary raw material used by our PET plant. As a result, our PET plant was also temporarily closed in May 2007 in order for us to review the technology used to produce PET. Pending completion of a review of our options to resume PET production, we continued to serve our PET customers with PET purchased from M&G Polimeros Brasil S.A., or M&G, the largest PET producer in Brazil and a subsidiary of M&G Finanziaria Industriale S.p.A. In December 2008, we permanently closed our PET plant. We continued to purchase PET from M&G until the expiration of our purchase agreement with M&G in April 2009 and we continued to serve our PET customers with PET purchased under this agreement until June 2009.

The following table sets forth a breakdown of the sales volume of our Polyolefins Unit by product line and by market for the years indicated.

___________________________

(1)   Includes Paulínia as from April 1, 2008.

(2)   Includes Ipiranga Petroquímica as from April 1, 2007.

(3)   In May 2007, we temporarily closed our PET plant. In December 2008, we permanently closed our PET plant.

We provide technical assistance to our customers to meet their specific needs by adapting and modifying our polyethylene and polypropylene products. In particular, we develop customized value-added polypropylene compounds for use by our customers in their specialized applications. We believe that the variety of technological processes at our polyolefins plants provides us with a competitive advantage in meeting our customers’ needs.

Polyethylene Products

Polyethylene has the simplest chemical structure of all commercial polymers and is a very versatile material. Global production volume of polyethylene is the highest among all commercial plastics. Polyethylene is used to manufacture a wide variety of products.

Our customers purchase different polyethylene resins depending on the manufacturing process that they employ and the desired physical characteristics of the end products that they manufacture. LDPE is the most flexible of polyethylene products and is used in a variety of plastic or film applications and in food packaging and extrusion coating. LLDPE is used in applications that require greater sealing capacity and better mechanical resistance, including plastic films and flexible food packaging. MDPE is used in applications that require impact resistance and stiffness, such as diapers and hygienic articles, water storage tanks, technical parts and industrial containers. HDPE is used for applications that require higher mechanical resistance, such as high strength films, food packaging, merchandise bags, telecommunications and sewage pipes, pails, lids, trash containers, bottles, flasks, safety helmets, sporting goods, pallets and toys.

While each form of polyethylene is used for different applications, there is some overlap in the uses of these resins, and with certain modifications, polyethylene resins may be substituted for each other in certain end product manufacturing processes. For example, demand for LLDPE has grown since it was first introduced in 1989 and has resulted in reduced demand for LDPE, as manufacturers of certain containers and plastic film applications have switched their production processes and technology to use LLDPE in a blend with LDPE.

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Polypropylene Products

Polypropylene is a versatile polymer with a high strength-to-weight ratio. This thermoplastic resin may be manufactured with a variety of properties that permit its use in different processes, such as injection, extrusion, blow molding and thermoforming. Through these processes, polypropylene may be used as a primary raw material for many applications, including the manufacture of carpet fibers, non-woven fabrics for diapers, injection molded parts for durable packaging and automobiles, medical instruments, flexible packaging for candy, pasta and cookies, and bottles for beverages. The balance between the mechanical properties and the high thermal resistance of polypropylene is a primary reason why this thermoplastic resin has begun to replace engineering materials such as acrylonitrile-butadiene-styrene (known as ABS), polycarbonate and nylon in domestic appliances and machinery. The lack of toxicity and high chemical resistance of polypropylene permits it to be used in applications with strict sanitary specifications, including in the food and pharmaceutical industries.

Production Facilities of Our Polyolefins Unit

At December 31, 2009, our Polyolefins Unit owned 11 production facilities. Our Polyolefins Unit operates five plants located in the Southern Complex and three plants located in the Northeastern Complex. During 2008, we expanded the annual production capacity of our polyethylene plants in the Northeastern Complex by 20,000 tons and expanded the annual production capacity of our polypropylene plant in the Southern Complex by 30,000 tons.

The table below sets forth for each of our primary polyolefins products, our annual production capacity at December 31, 2009 and annual production for the years presented.