Bondalti eyes buying Spanish chlorine maker to diversify into European PVC market

Portugal's Bondalti is considering a Eur329 million cash acquisition of Spain's largest chlor alkali and PVC producer Ercros, which would allow the Portuguese chlorine manufacturer to compete in chlor-alkali and polymers segments, the companies said in separate statements.

"[Ercros'] board of directors meets [March 6 to discuss the offer]. Meanwhile, we are not making any statement," Argine Ortega Perez, Ercros' shareholder office legal advisor told S&P Global Commodity Insights March 6.

"The acquisition has not yet been approved but yes, it is true that this public offer has been sent to the Spanish authorities. The local authorities need to give their approval and then the decision will be with the final shareholders. Not sure how long it will take for the authorities to give the OK or the validity of the offer...," an Ercros company source said.

This deal would allow the merged company to more effectively compete in the chlor-alkali and polymers segments which have faced challenges of volatile energy costs and weak demand, with chlorine, caustic soda and PVC prices persisting at historic lows through most of 2023.

Ercros produces a total of 127,000 mt/year of chlorine and caustic soda at its Vilaseca I plant. The company also produces around 175,000 mt/year of vinyl chloride monomer at this site, which goes into its PVC plant nearby. It exports more than 50% of its products and produces more than 1 million mt/year across150 products in its portfolio across its three business lines -- chlorine derivatives, intermediate chemicals division and pharmaceuticals.

Meeting challenges in Europe

"The partnership with Ercros allows the creation of a group with the scale and financial strength required to meet the challenges facing the European chemical industry. We believe this is a very attractive offer for existing shareholders; as well as for the company itself, which will benefit from the expertise and financial strength of an industry partner such as Bondalti. This will strengthen the company's growth strategy and competitiveness in the markets, enabling it to gain scale and join forces with a first-class team of professionals such as Ercros," Joao de Mello, Bondalti's chairman said in the March 5 statement.

In an increasingly global market, size and specialization is becoming more and more important, Bondalti said in the statement. There has also been talk of rationalization or acquisitions within the ethylene derivatives markets in Europe, and in particular in the over-supplied chlorine and PVC segments, in order to mitigate against volatile naphtha-based ethylene costs which are at a feedstock disadvantage over US and Middle Eastern ethane-based producers.

"The union of Bondalti and Ercros will create an industrial company that will have the necessary size to compete in today's complex market, investing in continuous innovation and sustainability, anticipating the challenges facing the European chemical industry to respond to the growing demand for greener products and to be an active part of the energy transition," the statement added.

Spot chlor alkali, PVC prices remain at historic lows

Though spot caustic soda prices have increased since the start of the year amid tighter supply, a rise in European chlorine operating rates combined with weak demand has led to an oversupply of caustic soda keeping prices unchanged.

Platts, part of S&P Global, assessed caustic spot prices at $410/dmt FOB Northwest Europe March 5, unchanged since the start of 2024, with Southern European prices also staying unchanged at $530/dmt CFR Mediterranean.

With the construction sector subdued, demand for PVC also remained weak amid a cost-of-living crisis, persistently high inflation and interest rates.

Platts assessed free delivered Northwest Europe spot PVC prices unchanged on the week at Eur865/mt March 6. Platts assessed Germany PVC freely negotiated February net contract prices unchanged on the week and from January at Eur990/mt FD NWE.

Caustic soda, a byproduct of chlorine production, is a key feedstock for the alumina and pulp and paper industries.

PVC is a key application in the construction industry, and with the global economy still trying to recover from the cost-of-living crisis. PVC uses approximately 43% of ethylene in its monomer feedstock applications.