Earnings guidance for Mexico’s Alpek upgraded on strong Q2 results

22 July 2011 01:47  [Source: ICIS news]

MEXICO CITY (ICIS)--Mexican conglomerate Alfa on Thursday raised the 2011 earnings guidance for chemical subsidiary Alpek to $770m from $675m on the strength of its purified terephthalic acid (PTA)/polyethylene terephthalate (PET) production chain.

The company’s new estimate for total earnings before interest, tax, depreciation and amortisation (EBITDA) was up by 14.1% from the previous guidance.

The increase marks the second time this year that Alpek’s earnings guidance has been raised.

Alpek’s earnings guidance was raised by 4.4% to $675m from $590m in April.

Executives said during Alfa’s second-quarter earnings conference call that factors including its newest acquisitions, weather problems and global market forces combined to boost earnings its PTA/PET business by 90% from the same period last year and 15% from the first quarter.

Much of the income growth came from the acquisition of three US plants from Eastman Chemical.

Purchased in the fourth quarter of 2010, the plants began to affect financial results in this year's first quarter with full integration occurring in the second, Alfa said.

The company's new integrated PET and PTA business in South Carolina have capacities of 675,000 tonnes/year and 600,000 tonnes/year, respectively.

The added capacity coincided with soaring cotton prices early in the year, which created high demand, particularly in Asia, for PTA and caprolactam, a key component of nylon.

However, that demand may now be levelling out, the company said.

Alfa CFO Ramon Leal said, “We are realistic about the polyester chain. Industry dynamics are changing somewhat in the Asian market, and some of the competitive advantages we have recently enjoyed like high cotton prices as polyester fibre prices may be changing in the future.”

“Going forward, we might see some moderation in the strength in the polyester market that has led to such high margins,” Leal continued. “While none of the changes will be drastic, we could be looking at a slightly less dynamic market for the third and fourth quarter of this year as the market begins to moderate.”

Leal added that Alfa's US presence through its subsidiary, DAK Americas, was now a major force in the US PET/PTA market and has only three or four major competitors, some of which were affected by the flooding and storms that hit the nation this spring.

Alpek finance director Raul Millares said that even though the new guidance was higher, it was stable, and the future growth of the PET/PTA market would likely moderate, with 3-4% annual growth in the foreseeable future.

By: James Young

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