Bloomberg News

Pemex CEO Says Venture With Mexichem Ready for Next Week

September 17, 2012

Pemex CEO Says Venture With Mexichem to Start Next Week

Gas is flared off on a Petroleos Mexicanos offshore platform in the Gulf of Mexico. Pemex, based in Mexico City, expects to boost vinyl chloride production to more than 400,000 tons annually, which represents a 138 percent increase from this year’s output. Photographer: Susana Gonzalez/Bloomberg

Petroleos Mexicanos, the world’s fourth-largest oil producer, is poised to begin a petrochemical joint venture with Mexichem SAB (MEXCHEM*) after receiving final board approval this week, its chief executive officer said.

The venture will start “immediately” after Pemex board approval expected Sept. 21, CEO Juan Jose Suarez Coppel said today in an interview after participating in a Bloomberg CEO Roundtable in Mexico City. Growth will come after a “few months with the necessary investments,” he said.

Mexichem, the Latin American chemical producer that has bought more than 15 companies since 2007, will contribute about 60 percent of the $556 million investment required to create the new company. Pemex, based in Mexico City, expects to boost vinyl chloride production to more than 400,000 tons annually, which represents a 138 percent increase from this year’s output. The deal, announced in June 2011, has been waiting for Pemex board backing since it got antitrust approval in October.

“This a model that we can use from now on in other petrochemical projects,” Suarez Coppel said. “We’d like to, and we need to, grow in the petrochemical sector.”

Mexichem erased earlier losses after Suarez Coppel’s comments to trade at 60.87 pesos in Mexico City at 2:13 p.m. The stock has gained 41 percent this year.

‘Equal Footing’

Mexichem, based in Tlalnepantla, Mexico, wants to reduce its dependence on third-party vinyl chloride producers such as Dow Chemical Co. (DOW:US) Vinyl chloride, or VCM, is a raw material used to make plastic pipes.

“This kind of integration with Pemex will allow us to compete on more equal footing with foreign chemical makers,” said Enrique Ortega, Mexichem’s director of strategic planning and investor relations. The companies will invest about $200 million to increase the capacity of facilities in the eastern state of Veracruz, he said today in a telephone interview.

Mexichem, the largest plastic pipe manufacturer in Latin America, is lowering costs after acquiring suppliers or joining them to create lower-cost projects. The company paid about 470 million euros ($581 million) in May to buy 92 percent of Wavin NV, its largest purchase as it expands overseas to diversify revenue sources. Mexichem said last month that is in talks with a unit of Occidental Petroleum Corp. (OXY:US) to build a $1 billion ethylene facility to fulfill the Mexican chemical maker goal for its own guaranteed supply of polyvinyl chloride.

Mexichem also is considering making two more acquisitions, said Rafael Davalos on Aug. 16, who headed part of the negotiations with Pemex and Oxychem.

To contact the reporter on this story: Carlos Manuel Rodriguez in Mexico City at carlosmr@bloomberg.net

To contact the editor responsible for this story: James Attwood at jattwood3@bloomberg.net


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