Mexichem signs 5-yr VCM supply deal with OxyChem

19 June 2008 23:36  [Source: ICIS news]

HOUSTON (ICIS news)--US vinyl chloride monomer (VCM) producer Occidental Chemical (OxyChem) has signed a deal worth more than $2bn (€1.3bn) to provide polyvinyl chloride (PVC) feedstock to Mexican vinyl producer Mexichem, a source close to OxyChem said on Thursday.

The five-year agreement will provide Mexichem with a steady supply of VCM - the immediate feedstock for PVC production - and Mexichem will supply OxyChem with chlorine, sources said.

The source close to OxyChem said it was unable to provide further details on volumes or total value of the contract because the company was still preparing a formal statement on the deal.

A source close to Mexichem said the company’s profit margins for PVC have been hampered by rising prices for VCM over the last several months, but the situation has grown increasingly dire this month as VCM contract prices soared amid rising values for feedstock ethylene, a commodity closely linked to the surging energy complex.

It was unclear on Thursday if the deal was partially born out of Mexichem’s failure to wrestle control of a Petroleos Mexicanos (Pemex) 400,000 tonne/year-capacity VCM plant at the Pajaritos petrochemical complex near the Gulf port city Coatzacoalcos, Veracruz, earlier this year.

Mexichem had planned to pay state-owned Pemex as much as $50m to take over management at the plant in order to increase production and efficiency, as the plant has experienced frequent and prolonged maintenance turnarounds and production rates that were well below capacity, sources said.

However, industry participants said that deal would have required approval from Mexico’s notoriously gridlocked federal legislature, and the deal fell through when it looked that that approval would not be forthcoming.

US VCM producers include OxyChem, Dow Chemical, PPG Industries, Westlake, Georgia Gulf and Formosa Plastics.

($1 = €0.64)

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By: Greg Holt
+1 713 525 2653



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