Orbia, a Mexico City-based firm with global operations that makes goods including specialty PVC and plastic resins, will do its own research to understand the true supply outlook for this resin heavily used in home fixtures and water pipes, and mull the viability of an investment to expand its chlor alkali-PVC business with new capacity to be built between end-2024 and 2028 in Texas.

PVC curtains. Courtesy of Public Domain Pictures, Pixabay

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The intention is to meet possible PVC supply challenges later this decade, according to assumptions based on the installed global “nameplate” capacity levels available in industry reports, and also on the projections of the total new PVC capacity planned until 2030, Orbia´s top official recently said.

“Supply growth is expected to continue to lag demand growth over the course of the decade,” Orbia´s CEO, Sameer Bharadwaj, said in mid-2023 while discussing the strategy of Orbia in the PVC market, including plans for a new complex construction.

“We´re looking at up to one million ton potential expansion of an integrated chlor alkali PVC facility on the Gulf Coast. This is anticipated to be a four-year phased investment beginning at the end of 2024 until 2028,” Bharadwaj said.

Orbia´s Polymer Solutions unit is the “No.6 resins producer globally” with 2022 revenue at $3.7 billion and $804 million in earnings before interest, taxes, depreciation and amortization. In addition, the company has other chemical-related businesses ranging from agriculture services to refrigerants.

Orbia, founded seven decades ago, is traded in the Mexican stock exchange. Orbia currently has about 24,000 employees.

Research work ahead of possible spending

“Our fundamental thesis is that for the long term PVC is critical to the growth of the world. There are few substitutes for PVC in pipe fitting applications, and steel and cement aren´t sustainable solutions,” Bharadwaj said.

Industry data shows PVC-related operating rates will remain relatively flat between 2010 and 2025 and then grow to 89% by the end of the decade, he added.

“Demand is expected to grow 2.5% to 3% during the course of the decade. But let me spend a few minutes on supply. These operating rates, it´s important to note, are based in nameplate capacity. It´s very hard to tell how much of this nameplate capacity is truly available because if operating rates in 2021 were truly around 80%, then one cannot explain why prices went from $800 a ton to $2,000 a ton,” he said.

“The reality on the ground is the industry has been operating at pretty high utilizations and even the smallest of disruptions, and in 2021 we had significant disruptions affecting about 5% of world capacity due to unplanned shutdowns, or due to weather related events, and that was enough that in combination with the post-pandemic economic rebound, was enough to send prices soaring, “ Bharadwaj added.

PVC underinvestment

“The other point I would like to make here is that this industry has been underinvested over the last 20 years. Barriers to entry are pretty high and there are very few global players with the capability and appetite to invest on the far left of the supply curve,” he said.

For any company looking to access to cheaper feedstock, the U.S. Gulf Coast or the Middle East offer the best locations, he said.

“China is also an important part of the equation and much of the China capacity is tied to the more expensive and environmentally unfriendly coal-based production process and there has been a lot of discussion around some of this capacity coming out over the next several years,” he said.

“We will be spending time over the next several months with teams on the ground in China validating these pieces and understanding the supply-demand situation in China better so that we can take a more informed investment decision,” he said.

According to information shared in slides during the company strategy presentation, it would be a “capital efficient investment with anticipated annual EBITDA about $650 million and targeted investment over EBITDA multiple of about 4 x.”

Housing, water shortages will create demand

“The longer term outlook for building infrastructure is positive because there is low housing stock in many of the areas we operate,” Bharadwaj said. PVC demand is tied to construction activity as the material´s time and weather resistance allows for applications ranging from PVC doors and windows to PVC red tile roofs.

Then about “70% of PVC resin worldwide is used in pipe and fittings and keep in mind that today one in four people in the world don’t have access to clean water,” he said.

Then another “15% of the PVC goes in the wire and cable applications to keep buildings safe both for power cables and data cables, and about 7% to 8% shows up in medical applications,” he added.

Precision agriculture

Another area where the company sees future pull demand for PVC products is “precision agriculture.” 

“Significant water shortages around the world and the need to feed a growing population that is going to go from 8 billion to 10 billion in the next 20 years” will pull PVC resin demand, he said.

“Our solutions enable farmers to grow more with less water, less fertilizer, less energy, less labor, and this plays a critical role in ensuring a food secure future,” he said.

Other investments: PVDF and LIPF6

Solvay, a Belgian chemical company founded in 1863, and Orbia agreed on Nov. 2022 to a 51%-49% partnership in a planned $850 million investment from late 2023 until 2026. The plan is to build manufacturing capacity for battery grade PVDF, or polyvinylidene, a specialty plastic with resistance to hydrocarbons, acids and solvents.

Another Orbia investment outside plastics resins involves building the “first large scale” North American LIPF6 (lithium hexafluorophosphate)  plant. The planned investment is $325 million and construction is planned for 2023- 2026. The material is used in batteries for electronics and EVs.

Orbia, along with Alpek, is one of the biggest conglomerates based in Mexico and involved in plastic-related production.

By Renzo Pipoli