Orbia Plans to Halt Investments in PVC Production

Mexico's Orbia has decided to put a pause on the expansion plans for its polyvinyl chloride (PVC) production capacity due to a challenging market situation that adversely impacted its profits in 2023. The company's polymer division, which includes PVC, faced a substantial setback in the fourth quarter of the previous year, reporting a 54% year-on-year decline in earnings before interest, taxes, depreciation, and amortization (EBITDA), amounting to USD47 million. Additionally, sales within this division experienced a 21% year-on-year decrease, reaching USD577 million.

The overall decline in total revenue for the October-December 2023 period was primarily attributed to reduced sales volumes and prices for both specialty PVC and caustic soda. This downturn was a consequence of weak demand and oversupply prevailing in the market. Notably, PVC production also witnessed a decline due to planned repairs and associated delays at the ethylene joint venture during this timeframe.

In 2022, Orbia's CEO, Samir Bharadwaj, had previously indicated the company's contemplation of expanding PVC production. The expansion project was expected to be completed either in 2027 or 2028, following the conclusion of the design phase at the end of 2023. However, the unfavorable market conditions and the significant drop in earnings from the Polymers division, constituting approximately a third of Orbia's total sales, prompted a reevaluation of these expansion plans.

The challenges faced by the Polymers division, especially the decline in PVC production and earnings, had a cascading effect on Orbia's overall financial performance in the last year. The company's consolidated net loss in the fourth quarter widened to USD71 million, marking a substantial increase. Furthermore, the net profit for the entire year witnessed an 89% decrease, reflecting the broader impact of the challenging market dynamics on Orbia's financial health.

The decision to suspend the expansion of PVC production aligns with Orbia's strategic response to navigate the current market uncertainties and optimize its resources for sustained profitability. By reevaluating and pausing expansion plans, the company aims to reassess market conditions, address operational challenges, and strategically position itself for future growth opportunities.

Orbia's proactive approach to managing its PVC production capacity reflects the resilience and adaptability required in a dynamic market environment. As the company recalibrates its strategies, it remains focused on enhancing operational efficiency, responding to market fluctuations, and making informed decisions to safeguard its financial well-being. This strategic pause underscores Orbia's commitment to responsible business practices and its dedication to ensuring long-term sustainability in the face of evolving market challenges.