MEXICO CITY -- The decision by state oil company Petróleos Mexicanos to form a $556 million vinyl chloride monomer joint venture with Mexichem SAB de CV underscores the new federal government's commitment to the plastics industry, according to a top association official in Mexico.

"This decision demonstrates where the current federal administration stands and shows its commitment to the development of the [plastics] industry," Anipac President José del Cueto Gracia said via email. Anipac stands for Asociación Nacional de Industrias del Plástico AC.

Pemex's board of directors approved the deal with Mexichem, Latin America's largest PVC pipe, vinyl resins and compounds manufacturer, on Jan.16. Less than two months ago, Mexichem withdrew from the project, complaining that Pemex had procrastinated in completing a transaction approved by Mexico's antitrust authority a year earlier.

A senior Mexichem source said the delay was caused by the Pemex union's insistence on high worker levels at the facility in Pajaritos, near Coatzacoalcos. That plant will now undergo extensive modernization.

The Mexichem source said 800 people will work at the complex, roughly half of what the union was demanding.

Pemex uses only 50 percent of the complex's installed production capacity of 400,000 tons a year, industry consultants have said.

In a filing with the Mexican Stock Exchange on Jan. 17, Mexichem said production will increase by nearly 53 million pounds in the joint venture's first year of operation, by about 322 million pounds in the second and by 478 million pounds in the third.