INSIGHT: Mexichem extends PVC reach across geographical boundaries

31 August 2010 16:17  [Source: ICIS news]

By Ronald Coifman

HOUSTON (ICIS)--Polyvinyl chloride (PVC) resin industries in Latin America continue to evolve from isolated businesses into vertically integrated and internationally connected heavyweights.

Local PVC players have expanded from domestic markets, and frequently reach outside their own boundaries to other regional and extra-regional consumers and industry participants. As such, market dynamics have increased in complexity and sophistication.

For example, Mexico’s PVC resin markets recently opened to US imports, which frequently drive pricing policies and market direction of the Mexican producer. Pacific coast countries import material from the US, usually from Shintech, which prices resin aggressively, according to market sources. Venezuela’s Pequiven produces most of its own requirements, and maintains steady prices on government mandate.

A few decades ago Latin America’s manufacturers of PVC end-products relied on imported resin to serve their domestic requirements. However, regional participants have integrated vertically and developed resin and end-product manufacturing and distribution capacities across geographical boundaries.

Mexichem is a prime example of these industry dynamics as the company reaches beyond its borders to the rest of the Americas and beyond.

The company has PVC resin production plants in Mexico and Colombia, and exports resin into Brazil, northern South America, Asia and the Middle East. Additionally, Mexichem, through subsidiaries, owns PVC pipe production plants and distributes finished pipe and accessories throughout most of Latin America, including Central America.

A long-awaited deal between Mexico’s PVC resin producers Mexichem and Cydsa cleared a major government regulatory hurdle in early August. Under the deal announced in April, 2008, Mexichem will purchase two Cydsa subsidiaries, Policyd, a producer of PVC resins, and pipe manufacturer Plasticos Rex. The deal allows Mexichem to benefit from additional vertical integration and lower costs for making the resin.

Mexico’s federal competition watchdog, the CFC, announced the approval of the deal subject to several conditions. Mexichem could not ask the government to establish compensatory payments for PVC imports from the US for the next ten years, and could not discriminate against buyers who previously imported PVC.

The CFC had previously rejected the Cydsa deal on concerns that Mexichem would become the country’s sole PVC producer and cause harm to the industry.

The deal contributed to the economy secretariat's decision to remove anti-dumping duties on US PVC effective 1 October 2009. The new legislations allows US producers to ship resin across the border, sometimes undermining the local producer’s pricing initiatives.

One US producer, Shintech, is frequently, but not exclusively, the major exporter into Mexico, market sources said. Limited-volume one-time low-ball offers into Mexico in August were from a not so traditional US supplier, while local PVC producer Mexichem stood firm on its higher prices this month, sources said.

With PVC exports regularly flowing from the US into Mexico, the latter has sufficient product to export, and has been known to ship large volumes to China, India, and Turkey.

In 2007 Mexichem bought Colombian PVC resin producer Petco, renaming the company Mexichem Resinas Colombia (MRC). MRC became a national and regional industry supplier when it signed a five-year export agreement in February 2010 with Brazil’s Braskem to supply PVC from its plant in Cartagena.

MRC produces 310,000 tonnes/year of suspension homopolymer, of which 150,000-160,000 tonnes/year are consumed in Colombia and the balance is exported.

MRC also makes 25,000 tonnes/year suspension copolymer, most of which is exported, and 60,000 tonnes/year of emulsion PVC, of which Colombia uses 6,000-8,000 tonnes/year and exports the rest to the US, Brazil, Peru, Venezuela, Chile and Europe. Emulsion PVC is considered to be in short supply globally.

In 2009, MRC exported 236,000 tonnes of PVC resins, with Brazil receiving 47% of these exports, followed by the US, Ecuador and Peru, according to Mexichem. Colombia’s PVC consumption totals 180,000 tonnes/year, and sole domestic producer

MRC supplies more than 85%.

To improve on value added benefits to its resin business, Mexichem purchased pipe and pipe-accesories manufacturing and marketing company Amanco, a strong presence in most Latin American countries. Mexichem also bought a 50% participation in PVC compounder Geon Polimeros Andinos.

Mexichem’s stake in Amanco facilitated vertical integration from PVC resin to finished goods. However, Amanco buys much of its PVC resin requirements from a US producer.

Venezuela needs to import suspension copolymer and emulsion PVC from Colombia’s MRC. However, these imports have been slowed due to Venezuela’s currency and import restrictions.

Venezuela’s Pequiven has a PVC suspension homopolymer production capacity of 120,000 tonnes/year, but is currently producing only around 95,000 tonnes/year. The country’s domestic consumption is around 85,000 tonnes/year, leaving approximately 10,000 tonnes/year for exports targeted mainly to India and China.

To supply the country while its PVC facility undergoes a 30-day maintenance turnaround beginning at the end of August, Pequiven negotiated the purchase of 2,600 tonnes of PVC, mostly specialty grades, from a key US producer, and not from Mexichem, with cash payment terms.

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By: Ron Coifman
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