Mexichem predicts higher PVC profit after ‘terrible month’

26 February 2009 22:28  [Source: ICIS news]

MEXICO CITY (ICIS news)--Calling December a “terrible month,” Mexican polyvinyl chloride (PVC) producer Mexichem said on Thursday it expects first-quarter profits to improve by up to 34% from the previous earnings period.

“December was a terrible month,” said Armando Vallejo, Mexichem’s chief financial officer told analysts during its fourth-quarter earnings conference call. “Volatility in foreign exchange hit our customers.”

Mexichem has holdings in Brazil, Colombia, Peru, Argentina, Mexico and the US. Latin American currencies suffered collapses of between 20% and 60% versus the dollar during the fourth quarter. Mexichem officials said the currency collapse spooked PVC buyers because the plastic’s prices are in dollars.

“We are not seeing the [currency] volatility of the last quarter of last year,” said Mexichem CEO Ricardo Munoz. “But we are keeping the same spread between raw materials and final prices.”

He estimated that the firm’s margin on PVC was around 12-15% with material selling at around $850/tonne (€672/tonne) and added that the firm had written down the value of inventories by 5-6% due to lower raw materials prices seen late last year. Both these factors should help Mexichem’s profits rebound when commodity prices increase, he said.

Vallejo also signalled counter-cyclical state spending programmes across Latin America as a source of support for the company, highlighting a $62bn increase in Brazil’s economic support programme, bringing the total planned spend there to $200bn. Also supportive are Mexico’s $50bn-plus spending programme, Colombia’s $22bn plan and Peru’s $6bn programme, he said.

“Those investments will boost demand for our products,” he said. Most of the programmes focus on infrastructure and the bulk of Mexichem’s products are used in construction.

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By: Alex Manda
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