have made MEXCHEM one of the most efficient PVC producers in the world.
Year-end results showed a tightness environment in ethane/ethylene chains during the last months,
which, albeit temporary, has led to take a more conservative approach on the Vinyl segment.
Several new crackers started production in late 2018 (and continue in 2019), extending ethylene supply
and pushing ethylene prices down. Meanwhile, a saturated ethane infrastructure (distribution and
fractionators) intensified in the winter season, squeezing crackers’ margins. Moreover, at the same
time, the start-up of some of the new PE plants was delayed, which lowered demand for ethylene,
further narrowing margins.
Ethane/ethylene spread got closer, tightening crackers margins including MEXCHEM’s. We expect
these dynamics to normalize towards the second half of 2019 as new US infrastructure kicks in
(distribution) and market takes in the ethylene new capacity.
US has ample ethane for coming crackers, however logistical systems like pipelines and fractionator
should continue limited in 2019. However, it is important to keep in mind that we do not expect this
commodity pressure to hold in the long run, as US Natural Gas infrastructure is scheduled to start
balancing the Ethane industry in mid-2019. We expect this infrastructure ramp-up to alleviate pressure
from 2H19 and a balanced industry by 2020, as more infrastructure is scheduled to start up. There are
340 MMb/d of Ethane fractionators capacity increase entering in 2019, while there will be 217MMb/d
in demand coming from new crackers. However, by 2021 the ethane market will be comfortably large,
with ethane supply doubling demand. Which is why our long-term thesis remains unchanged, as North
America should continue to be the most efficient region in the world to produce PVC.
Ethylene prices should remain pressured; however, a possible recovery could give our estimates
additional upside. Crackers start-upsin 2019 would add ~3.1 million tons of ethylene in a market that
will consume around ~1.4 million tons, moreover unlike 2018, in 2019 coming downstream capacity
(PE, MEG, & EDC) will require large amount of ethylene which, aided by the opening of an export
capacity of 1m ton/year (Enterprise Product´s Ethylene export terminal), will make the year have a
small excess supply, or even a balanced market, depending on downstream openings for the year.
Even as Vinyl’s short-term outlook might prove to be a challenge for MEXCHEM’s results in the first
months of 2019, it is important to keep in mind that MEXCHEM is one of the most efficient PVC
producers in the world. Furthermore, the firm has focused on building sustainable competitive