The proposed $556 million vinyl chloride monomer joint venture between PVC pipe and chemicals producer Mexichem SAB de CV and state oil monopoly Petróleos Mexicanos will help the former close the gap on its U.S. rivals and salvage the latter's inefficient VCM operations on the Gulf, according to experts.
“Mexichem has a PVC resin production capacity in Mexico of about 1.1 billion pounds, which is one-third of that of a major PVC resin producer in the United States,” consultant Eduardo de la Tijera said 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 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,” said de la Tijera, managing director of Mexico City consulting firm Grupo Texne.
According to Rina Quijada, CEO of Houston consulting company IntelliChem Inc., Pemex uses only 50 percent of installed production capacity of 881 million pounds per year at its VCM plant in Pajaritos, Mexico.
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 interconnection between different units. I'm sure some new engineering design will be needed,” he said.
Quijada said the proposed Mexichem-Pemex deal is a good example of “the government and private sector working together to achieve a better competitive position in the domestic market.”