Mexico’s Alpek pauses construction of PTA, PET plant in Texas citing high costs

Monterrey, Mexico -based Alpek said on Sep. 27, 2023 that along with its partners in the planned Corpus Christi Polymers (CCP) project it has decided to temporarily pause construction due to rising costs, shortly after it decided to also close a filament plant in Mexico, citing profitability challenges.

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Due to high inflation rates, the construction and labor costs have surpassed initial expectations. As a result, the partners decided to pause the project and to evaluate options as well as the project schedule. The site will be adequately preserved to re-start construction in the future, the company said in a statement.

“Alpek keeps its compromise to maximize the value of the CCP,” said Jorge Young, general director of Alpek.

“We are confident that taking time to evaluate different options will allow us to improve the CAPEX and establish the best route to go forward, considering our groups of interest and customers,” Young added, according to the statement.

"It's not surprising that some projects are being paused. In fact, I'm surprised not to have heard of more deferrals and even cancellations," separately said by email Ken Simonson, chief economist with Associated General Contractors of America (AGC), citing some key construction material prices, labor and financing costs.

The producer price index (PPI) for concrete products (ready-mix, precast, prestressed, pipe) has risen for 32 of the past 33 months, Simonson said on Oct. 4.

Labor costs, as measured by average hourly earnings for production and nonsupervisory employees in construction (i.e., most hourly craft and office workers who aren't supervisors) rose 5.7% from August 2022 to August 2023, he added.

Financing costs have also gone up steeply as the Federal Reserve has raised its short-term interest rate target 11 times since early 2022 and long-term interest rates have gone up similarly, he said.

Construction had resumed in 2022 

Alpek had announced in June 2022 that the three partners in the polymer project, DAK Americas LLC, an Alpek Polyester business, and a subsidiary of Alpek, Indorama Ventures Corpus Christi Holdings LLC, a subsidiary of Indorama Ventures, and APG Polytech USA Holdings, were going to resume construction of an integrated PET-PTA complex in the Texan port of Corpus Christi.

“CCP will restart construction of the facility in August 2022 and expects completion by early 2025. It will have an overall annual capacity of 1.1 million tons and 1.3 million tons of PET and PTA respectively, which means Alpek would have approximately 367,000 tons of PET and 433,000 tons of PTA capacity,” Alpek said at the time.

Back in March 2020, Alpek had extended the “pre-construction period” through the end of 2020, also citing higher-than-projected labor costs.

“Ever since CCP acquired the assets from M&G, it has been working diligently on developing a plan that ensures the most cost-effective site construction,” it said at the time, announcing it was not going to make capital spending during pre-construction.

Mossi & Ghisolfi USA in 2018 filed for bankruptcy, and had to sell the $1-billion polymers project it was building in Corpus Christi. Corpus Christy Polymers at the time made a bid of about $1.125 billion.

Filament plant shut in Mexico

Alpek had announced in August 2023 the shutting down of filament facilities in Monterrey, Mexico, built in 1962 with an installed capacity of 100,000 tonnes of polymers.

“An excess of production felt worldwide in recent years in the filaments industry has significantly reduced its profitability, and since we do not anticipate that this situation will change in the near future, the company took the difficult decision to close its operations in those installations and to not replace its production,” the company had said at the time.

Alpek had also announced in early Augut the refinancing of the outstanding balance from the 2023 bond with new debt that included an ESG (environmental, social and governance) component.

“This represents Alpek’s first transaction with an ESG component, reiterating its commitment and progress toward its ESG strategy,” it said. The loan has a pricing mechanism to incentivize both carbon emission reductions, as well as a lower incident rate for employees and contractors.

Profitability challenges

Back in the second quarter the company had already reduced its earnings guidance for the year due to weakening consumer spending, as well as challenges coming from the arrival of bigger volumes of cheaper PVC (polyvinyl chloride) from Asia that were eating up the company´s market share.

During the two previous years, high-shipping costs and supply chain problems in part related to the Covid pandemic had prevented Asian imports from reaching Alpek´s main markets in the Americas, But the situation changed this year.

“From an industry perspective, as China’s economy continues to be softer than originally expected and ocean freight costs have returned to historical levels, there is currently greater influence from Asian imports in the Americas, mainly for the PET (polyethylene terephthalate) and EPS (expandable polystyrene) businesses,” Young said.

“Furthermore, North American feedstocks such as paraxylene (PX) maintain a disconnection versus Asian prices,” Young said.

Paraxylene is an intermediate for PTA (Purified Terephthalic Acid). Much of the PTA is used to make polyester and synthetic fibers for clothing and fabric bags, as well as PET bottles. About 65% of PTA is used to produce polyester or synthetic fibers.

Consumer spending softens

“From a market perspective, consumers primarily in the Americas are moderating certain expenditures impacting the packaged goods and construction industries, thereby affecting purchases during what is normally the start of the peak season. As such, we are adjusting our guidance for the year,” Young said. PVC has multiple uses in construction including roofind, siding, window frames, and even doors or fixtures while EPS can be used for purposes including insulation.

According to Alpek´s website, the company had in the second quarter 2023 some 7,000 employees and 35 plants in nine countries. 

Alpek is the leading producer of PTA in the Americas, and a leading producer of both PET and recycled PET worldwide, according to its website. The company is also the top expandable polystyrene (EPS) producer in the Americas.

Alpek is also exposed to the polypropylene market through Indelpro, a compay owned in a partnership with LyondellBasell. It is based in Tamaulipas, just south of the Texas border, along the Gulf Coast. The polypropylene market in the Americas has also seen profitability challenges as in 2023 new supply combined with receding demand, according to market sources.

By Renzo Pipoli