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Mexichem Plans Joint Venture With Occidental Chemical
August 17, 2012

Mexican chemicals company Mexichem SAB (MEXCHEM.MX) said it's considering a joint venture with Occidental Chemical Corp. to produce over half a million tons a year of ethylene to secure long-term supplies for its PVC plastics production.

Mexichem signed a memorandum of understanding with Oxychem, a unit of Occidental Petroleum Corp. (OXY), on July 30 to build a cracker with a capacity of 544,000 tons a year of ethylene. A feasibility study for the new cracker is expected to be ready in the second quarter of 2013, and if the project goes ahead, the plant would go into operation in 2016, Mexichem said.

Most of the ethylene would be used by Oxychem at its Ingleside, Texas, plant to produce 1 million metric tons a year of vinyl chloride monomer, or VCM, a raw material used in the production of PVC plastic, which it then would sell to Mexichem under a long-term supply contract.

Rafael Davalos, Mexichem's former chief executive who left that job in June to lead the current project, said in a conference call with reporters that securing the VCM supplies would complete the integration of the chlorine-vinyl chain, as the company expects to raise its PVC output from just over 1 million tons a year at present to 1.2 million next year and 1.5 million by 2016.

Mexichem said the agreements, along with a joint investment with Mexico's state oil company Petroleos Mexicanos, would guarantee the raw material supplies Mexichem needs for its PVC production at competitive rates. The deal with Pemex will raise VCM supplies to 400,000 tons from the current 220,000. "We need another million tons," Mr. Davalos said.

The official said the cracker would probably be around a $1 billion project, with investment split half-and-half between Mexichem and Oxychem.

"Oxychem is enormous, and we've been working with them for years," Mr. Davalos said. "What they haven't got is ethylene, they buy it to make VCM for us."

The official said the discovery and use of shale gas, which has raised production and pushed down natural gas prices in North America, has already prompted plans by others for five or six ethylene crackers.

Probably the only thing that could discourage Mexichem and Oxychem from going ahead with a cracker would be if someone else were to guarantee long-term ethylene supply at a preferential rate, he added.

Mexichem has grown through acquisitions in recent years to a company with sales of $3 billion a year, its most recent being Dutch pipe maker Wavin.

Mr. Davalos said that Mexichem currently has its eye on two further acquisition possibilities, but declined to go into detail except to say that the company is looking in Europe and the U.S.

Source: Dow Jones Newswires

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