MEXICO CITY (July 6, 12:10 p.m. ET) — The proposed $556 million vinyl chloride monomer-producing joint venture between PVC pipe and specialty chemicals maker Mexichem SAB de CV and state oil monopoly Petróleos Mexicanos (Pemex) will help the former close the gap on its U.S. rivals and salvage the latter's inefficient VCM operations on the Gulf, experts say.
“Mexichem has a PVC resin production capacity in Mexico of about 500,000 metric tons, which is one-third of that of a major PVC resin producer in the United States,” consultant Eduardo de la Tijera Coeto told Plastics News on July 4.
If the deal goes ahead, he added, “Mexichem will become a very solid company while Pemex's VCM business, which has been very weak, will become stronger and more profitable thanks to the influence of Mexichem. My impression is that it is a win-win situation for both Mexichem and Pemex.”
Mexichem, Latin America's largest manufacturer of PVC pipe, vinyl resins and compounds, and Pemex asked Mexico's antitrust authority in late June to approve the deal. A Mexichem spokesman said he expects the Federal Competition Commission (Comisión Federal de Competencia) to make a decision by mid September.
“The significance of this is that the vinyl chain in Mexico will be fully integrated. It will very much resemble the way the U.S. vinyl industry is organized,” De la Tijera, managing director of Mexico City consulting firm Grupo Texne, said.
According to Rina Quijada, CEO of Houston consulting company IntelliChem Inc, Pemex uses only 50 percent of the installed production capacity of 400,000 tons per year at its VCM plant in Pajaritos, Veracruz state.
But it's not because of low demand, De la Tijera said, “but because of production limitations. The significance of the proposed new deal is that additional capital will be invested to make Pajaritos work.
“That means investment in modernizing some of the facilities, such as some of the furnaces, and improving inter-connection between different units. I'm sure some new engineering design will be needed.”
“Mexichem, in its vinyl businesses, has grown enormously in PVC and pipe,” said Quijada, “buying all the PVC producers in Mexico and Colombia and positioning itself very strongly in the consumption of PVC for pipe…
“Now for strategic reasons and so as to continue growing in a very competitive market, it's become necessary for Mexichem to seek a stronger position in VCM.
“It means that the concept of upward integration has become an important factor in Mexichem's growth. One way of improving the availability of VCM is investing in a plant that produces VCM.”
Quijada described the proposed deal between Mexichem and Pemex as a good example of “the government and private sector working together to achieve a better competitive position in the domestic market.”