Two Mexican plastic conglomerates tap windfall earnings to diversify from Mexico

Two Mexican plastic conglomerates, Alpek and Orbia, have used a windfall from operations that continued in the first quarter to fund investment involving plant acquisitions and market development far from Mexico, in moves that coincide with a private investment drought in the country since late 2018.

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Alpek, based in Mexico City, reported on April 25 a “record-high” comparable first quarter 2022 EBITDA at $333 million, 11% more than in the previous quarter. This because of “higher-than-expected margins.”

Alpek will close in the second quarter the purchase of OCTAL, a PET products company based in Oman.

As for Orbia, formerly Mexichem, the Monterrey-based organization also posted first quarter earnings showing “higher sales across all businesses.”

Orbia, the northern Mexico-based company, bought in late 2019 an Indian company that serves agriculture, residential, industrial and commercial markets in the South Asian country.

Mexico relies on U.S. imports for most plastic needs from the automotive, packaging and agriculture industries.

Alpek increases guidance

Alpek on April 25 also raised its full-year guidance for EBITDA to $1.25 billion, 21% more than earnings previously projected as higher prices more than offset lower volume.

The company reported a 9% year-on-year reduction in plastics and chemicals production in the first quarter. Polyester production fell 5% year-on-year.

Despite the lower on-year production, revenue increased 45% to $2.3 billion from $1.6 billion a year earlier. Comparable EBITDA polyester more than doubled to $193 million.

The global economy´s continued strength as well as tighter logistics, “specifically for marine freight” helped results, Alpek´s CEO Jose de Jesus Valdez said.

The January-March period turned out to show Alpek´s “highest ever quarterly comparable EBITDA, with record results from the both the polyester and plastics and chemicals segments,” de Jesus Valdez added.

North American polypropylene to propylene margins were 38 cents per pound in the first quarter 2022, down from 47 cents per pound in the previous quarter and 52 cents per pound in the third quarter 2021, according to Alpek. Back in the first quarter of 2020 those margins were only about 15 cents per pound.

Gains across businesses

Monterrey-based Orbia said on April 27 that its first quarter revenue was $2.6 billion, a 36% increase.

According to Sameer Bharadwaj, CEO of Orbia since Feb. 2021, “markets remained robust, with strong demand across our five businesses, and we invested in initiatives supporting our growth strategy” in the first quarter.

Vestolit and Alphagary, which account for 38% of Orbia´s revenue and market PVC resins, saw a 50% year-on-year revenue increase to $1 billion.

On PVC the company is seeing “robust demand in the construction industry, with key markets performing better than pre-pandemic.”

Orbia´s building and infrastructure unit Wavin, which represents 30% of revenue, saw a 15% on-year increase to $778 million. Orbia´s agriculture-oriented Netafim posted an on-year, 14% revenue increase to $313 million.

The northern Mexico-based company also owns Koura, that accounts for 8% of revenue and produces refrigerants for automotive and climate control. It saw a 19% on-year revenue increase to $204 million.

Data Communications represents 13% of revenue through the sales of products that include HDPE goods for connectivity.

Orbia´s Alphagary division bought in 2021 Shakun Polymers, a producer of compounds for the wire and cable markets in the Indian subcontinent, the Middle East and Africa.

Orbia announced in Dec. 2019 the acquisition of a majority stake in India´s Vectus, a plumbing and drainage pipe manufacturer that serves agriculture, residential, industrial and commercial customers.

Mexican market

Mexico´s Braskem Idesa is the country´s top polyethylene manufacturer. The Brazilian-owned company is also carrying out Mexico´s current biggest private investment project.

Mexico´s total plastics imports totaled $27.5 billion in 2020, 63% of it from the United States, according to the U.S. International Trade Administration.

Mexico relies on the U.S. for imports of hydrocarbons, finished fuel, feedstock, intermediate and finished petrochemicals.

The Mexican plastics and resins industry sector was worth $39 billion in 2020 with “opportunities for continued U.S. participation in the sale of capital equipment, resins, plastic materials, and plastic parts,” the ITT said.

Mexico’s plastic market is driven by the packaging and construction sectors, which account for 47% and 12% of the market, respectively, the ITT added.

The country is home to one of the world´s ten biggest auto assembly industries with plants owned by most large automotive world companies including from the U.S., Europe and Asia. Most vehicles assembled in Mexico are exported to the U.S.

Private investment in Mexico slowed after Mexican President Andres Manuel Lopez Obrador won the 2018 elections and shortly afterwards cancelled government accords related to construction of the new international airport of Texcoco after a non-binding referendum. 

According to a March 30 report by newspaper El Financiero, there has been a sort of “strike of investment” and private investment may not see a recovery at least during the remainder of Obrador´s term, in part as a result of the mistrust related to the cancellation of airport contracts.

Lopez Obrador won the presidency in 2018 on a campaign based on promises including fighting corruption.

By Renzo Pipoli