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Orbia scoping potential PVC acquisitions, expansions: CEO

Petrochemical Alert

Orbia scoping potential PVC acquisitions, expansions: CEO

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PVC demand seen remaining strong as record-high prices ease

Supply to remain constrained amid few expansions

Mexico's Orbia is scoping out potential debottlenecking and expansion opportunities for its polyvinyl chloride segment given expectations of continued robust demand, CEO Sameer Bharadwaj said July 29.

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He said the company expects demand for the construction staple to remain strong through the rest of 2021 and in the coming years with global capacity remaining constrained, given how few expansion projects are in the works globally.

"Most assets out there are very old and falling apart, which is why you've had so many supply disruptions," Bhawardwaj said during the company's second quarter 2021 earnings call.

He said such disruptions, caused by weather or operational issues, can ease, allowing supply availability to normalize, but lack of significant expansions will keep overall output fairly tight given annual demand growth.

"Nobody can add capacity overnight, including us," he said.

Vestolit, Orbia's PVC subsidiary, operates three PVC plants – one in Cartagena, Colombia, and two in Altamira, Mexico – with a combined capacity of 1.4 million mt/year. The company's main suppliers of vinyl chloride monomer, the direct precursor to PVC, are OxyChem, the chemical division of Occidental Petroleum, and Westlake Chemical in the US.

PVC supply has been tight since August 2020 when the first of two hurricanes hit Lake Charles and Formosa Plastics USA had an upstream supply squeeze at its Texas complex. Supply had not yet normalized by early 2021, when a deep freeze hit the US Gulf Coast in mid-February, forcing weeks-long petrochemical production shutdowns.

Subsequent turnarounds and operational issues have maintained that output squeeze, sending prices to all-time highs.

US export PVC prices in April reached $1,800/mt FAS Houston, the highest level since S&P Global Platts began assessing the market in 1983. Prices retreated to $1,450/mt FAS in July, but were last assessed July 28 at $1,525/mt FAS when further operational issues siphoned export supply for August.

Upsets and operational issues have kept European PVC supply tight for months as well.

Shintech, the largest US PVC producer, has an expansion across the PVC production chain slated to come online in Q4 2021, but other producers have not moved forward with expansions beyond debottlenecking PVC output.

PVC is used to make pipes, window frames, vinyl siding and other products, and a push for new housing since COVID-19 restrictions eased has fed that demand.

Bharadwaj said the company expects PVC prices to ease as supply availability normalizes later in 2021, but prices would likely remain historically high.

Orbia reported net income of $222 million for the quarter, up from $42 million in Q2 2020 at the height of COVID-19 shutdowns. Net sales reached $2.24 billion, up 59% from $1.4 billion in the year-ago quarter.