Alpek SAB de CV

BMV:ALPEKA

Earnings Call Transcript 2019-Q2

[Operator]

Good morning, everyone, and welcome to Alpek's Second Quarter 2019 Earnings Conference Call. With us this morning, we have from Alpek, José Valdez, CEO; José Carlos Pons, CFO; and Alejandro Elizondo, IRO, who will discuss the company’s performance and answer any questions you might have.

As a reminder, today's conference is being recorded and will be available on the company's website, at www.alpek.com.

I will now hand the call over to Mr. Elizondo. Please go ahead, sir.

[Alejandro Elizondo, executive]

Thank you, operator. Good morning, and welcome. We very much appreciate everyone's participation today. This call will be divided into 2 parts. First, Mr. Valdez, our CEO; and Mr. Pons, our CFO, will provide a general overview of Alpek's second quarter 2019 performance and an update on relevant events. Afterwards, we will have a Q&A session.

Before we get started, let me remind everyone that the information discussed in today's call may include forward-looking statements regarding the company's future financial performance and prospects, which are subject to risk and uncertainties. Actual results may differ materially and the company cautions not to rely unduly on these forward-looking statements.

Alpek undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

I will now hand the call over to Mr. Pepe Valdez.

[Jose de Jesus Valdez Simancas, executive]

Thank you, Alejandro. Good morning, everyone, and thank you for joining us today. Alpek's second quarter results were marked by similar effects to those experienced during the first quarter '19. Specifically referenced Polyester margins grew a stronger quarter-on-quarter. Polypropylene margins remained above expectation, and paraxylene prices continued to decline. And crude oil prices increased on average throughout the second quarter, however, paraxylene price, which normally tracks crude oil, declined to its lowest levels since September 2017. As a result of new capacity additions in China, which reduced the margins of paraxylene to naphtha.

Polyester segment results were favored by both the highest reference margins seen since July 2018, as well as higher volume overall. Results were negatively impacted by the reduction in Px prices, which generated an inventory loss as well as a feedstock cost carryover effect.

Both of these negative effects can be considered temporary distortions to margins. It is important to note that Px prices appeared to have stabilized since the start of June. If these trends continues, both inventory losses and feedstock carryover effect would not be repeated in second half of 2019.

If Px prices were to increase, extraordinary year-to-date losses could be partially offset. The Plastics & Chemicals segment continued costing better-than-expected results in second quarter '19, driven mainly by solid polypropylene performance. Polypropylene volume increased during the quarter and reference polypropylene margins have remained at steady levels since fourth quarter '18.

These results were partially offset by Caprolactam’s performance, as CPL reference margins decline towards the end of the second quarter.

Regarding key development, we continue making progress towards finalizing the fare of our cogeneration generation plant, commission in work of the Altamira facility is near its completion.

On the commercial front, we have already contracted out more than 90% of total power. We expect that during the next month, we would finalize sale to ContourGlobal.

Alpek's results from adjusting for temporary distortions are reflective of strong operative performance, supported by positive market fundamentals. Given the current global margins for both Polyester and Plastics & Chemicals as well as the apparent stabilization of Px prices, we maintain our guidance for second -- for 2019.

Key factors towards meeting our projected financial results continue to be the evolution of paraxylene prices, Polyester margin and to a lesser extent Caprolactam margins.

At this point, I would like to turn the call over to the José Garza.

[José Pons, executive]

Thank you, Pepe, and good morning, everyone. Alpek's second quarter consolidated revenue was flat quarter-on-quarter. However, sales were down 7% year-on-year, even lower average consolidated prices across both business segments versus first quarter '19.

Volume was 3% quarter-on-quarter -- sorry, was up 3% quarter-on-quarter and down 3% year-on-year.

Sales in Brazil increased during second quarter '19. And average consolidated prices decline 4% year-on-year, given the results from feedstock cost.

Second quarter consolidated EBITDA was $161 million, including a $27 million noncash inventory loss; a $1 million nonrecurring legal fee as well as negative feedstock cost carryover effect.

Adjusting for the inventory loss and legal fee, comparable consolidated EBITDA was $199 million, up 28% versus last quarter, mainly from high reference Polyester margin and down [ 30% ] versus second quarter '18 due to the effects of lower feedstock prices and lower margins on a year-on-year basis.

Furthermore, it's also considering feedstock carryover as a temporary distortion to margins, comparable EBITDA would increase to $217 million in second quarter '19 and $384 million to 2019 year-to-date, which means that this comparable EBITDA is 4% higher than equivalent figures in both second quarter '18 and 2018 year-to-date, respectively.

With regards to Polyester, Alpek benefited from a favorable evolution of reference margins quarter-on-quarter, amid a declining feedstock price environment.

As such, comparable Polyester EBITDA was up 47% versus first quarter '19. Comparable Plastics & Chemicals EBITDA was also up 6% versus first quarter '19, driven mainly by steady polypropylene margins as well as higher volumes.

Alpek's second quarter profit related to the controlling interest totaled $56 million compared to $27 million last quarter. This is mainly related to higher operating income and lower financial cost.

Regarding our balance sheet, net debt was $2.1 million, down 5% versus last quarter and up 14% versus year-end 2018.

Debt decreased by $116 million during the second quarter '19, mainly from positive networking capital cash flow associated to inventory reduction and recovery of fiscal credits in the Brazilian operations.

Our net leverage ratio and interest coverage were 2.2x and 8.1x, respectively.

Alpek reference its plan to pay an extraordinary dividend of $143 million to shareholders, once its proceeds from the sale of its cogeneration power plants are received.

Alpek also plans to pay down short-term debt obligation, which would bring our net leverage ratio to below 2.0x.

Alpek's CapEx was $38 million in second quarter '19. Most of these funds were used in the Altamira power cogeneration projects along with the strategic asset replacements and minor capital projects.

This concludes my remarks. I would now like to open the call for questions. Operator, please instruct the participants on how to place their questions.

[Operator]

[Operator Instructions] Our first question is from Christian Landi with Scotiabank.

[Christian Landi, analyst]

I have 3 questions if I may. The first one is, I do believe that margin -- your integrated polyester margin have been above the guidance you gave beginning of the year $300 per ton. But still, margins haven't been quite there in part because of what you mentioned with paraxylene prices going down in this -- after first quarter.

My question is how do you see integrated Polyster margins in the remaining of the year and do you still see that, that's going to be enough. Those margins have about $300 per ton to deliver the full year EBITDA guidance. In Contour, it's more than $200 million in EBITDA for the quarter.

And finally, the last question is what are your expectations for the Plastic income tax segment in the second half of the year having seen that in the first half, those margins have been above what have been originally expected?

[Jose de Jesus Valdez Simancas, executive]

Christian, as I mentioned during my brief presentation. We're estimating that we are going to meet the guidance for the whole year. As you might recall or you might see in the numbers that implies that we're going -- we're expecting EBITDA for the second half of the year of approximately $380 million, $390 million, perhaps a little more.

So that's pretty much -- partly as a result of -- we do expect the Polyester margins will remain above the guidance.

I would say you mentioned that I think, probably, hopefully, above the $300 million -- $300 per ton range. And we also assume that the Plastics & Chemicals margins are going to remain similar to the first half. So that is part of the reason why we are sustaining the -- or maintaining the guidance, in spite of all the negative effects that we have in the first half of the year as a result of the devaluation of inventory and the carryover losses. So yes, we are assuming that these margins are going to remain higher than the guidance.

And okay, just as a reminder, Christian, I mean, these -- so for you not to make wrong calculations. The margins in Asia for Polyester are very important for us. But not all of our -- I mean, not all of our sales, not all of our volume is directly related to Asian margins in the short term. In the long term, all of our options or sales are related to that. But a lot of our sales, now had already margins that are fixed, a lot of them to raw material in North America. And probably, I guess around 20% of our sales that will be more than that, that are linked to the Asian margins in short-term basis.

So again, I just don't want you guys to overestimate the impact of these higher margins in the short term. Okay? Longer term, of course, they help because when we set prices normally on a yearly basis for the rest of our products, a key consideration for those prices, of course, is the margins in Asia.

So if we're negotiating prices for next year, margins in Asia are strong, that will, of course, help our volume for next year. But for the remaining of the year, perhaps only 20-something-like-that percent of our sales are related to these Asian margins.

[Operator]

Our next question is from Nikolaj Lippmann.

[Nikolaj Lippmann, analyst]

Congrats on the numbers. I had 3 questions: 2 on sustainability and 1 on the cogen so if I may.

So first one on the whole sustainability. Could you help us understand your North American PET volumes in the second quarter '19. It appears that volumes were down in both the first and the second quarter, but we don't -- I mean, we don't have the full data, of course. But if you can provide any color on that? And also on the reasons why you think volumes could have been down in the first half or in the second quarter? So that's question number 1.

Question number 2, could you also update us on your sort of approach to the circular economy and recycling? And as importantly, how you're thinking about this in conjunction with the brand owners?

And then finally, if you don't mind, just provide a little bit of an update on when you think the cogen sale is going to close?

[Jose de Jesus Valdez Simancas, executive]

Okay, great. Let me perhaps start with the cogen sale. Nikolaj, I -- it look like we're finally in the last part of the process. We've approved most of the permits that were required for the sales. As we explained in the previous quarters, we had some of the permits that were delayed as a result of the CRE, not having enough grow because they're not having enough commissioners.

So most of the critical permits from CRE to go ahead with the process have been already obtained. So that's very good news for us.

Number 2. We are right now, as we speak, in the, let's say, perhaps most important test for the Altamira plant to interconnect with the CENACE. And this test, it's a lot of test actually. We have already passed a lot of them. And we are basically in the last part -- in the last test. This test is called the reliability test, and it can say that we have to produce in the plant at capacity for 10 days out of 15.

So we are, as I speak -- as I said, we start this test last Friday at very early morning. And we have -- as of this morning, we have already completed 6 of the 10 days.

The good news, again, is 6 is the first 6, so we still have a certain room for any problem because we have, let's say, 9 more days to go. And we only need 4 more days to operate the plant at capacity.

So if we continue to run the plant successfully, by the end of Sunday -- Sunday midnight, I mean, if there is no problem, we should -- have completed this test, which is also critical. Without that, we cannot interconnect with CC.

So once we do that, we're going to be able to start commercial sales from the -- from this unit. So again, very critical for the closing of the deal. There are some other situations that we have to still resolve. But I would say -- I would feel now -- I mean, a bit more optimistic that this time we're close to the closing of the deal.

As I mentioned, also we have contracts. I mean another very important condition is while the -- to be able to have at least 90% of the capacity on their contract, on their long-term contract, and we have pretty much done that. I would even say that if we wanted, we could close 100% of the capacity at this time. We have more demand than we can supply.

So it looks also very good from that front. So what if -- where are we looking at is pretty much there is another test that is required, not between us and the governments or CFE or CENACE, but it's just a test, which is very important for us to accept the plan from our EPC suppliers. And that is basically a 5-day operation, in which the plan has to meet not only the capacity but also certain efficiencies that have been pre-agreed.

So that is another test that would be -- I mean, again, this is not necessary to start commercial operations. But this is necessary to close the transaction. So that would be another important test that we have to conduct in the next days.

We would hope that before the end of the month, all of these test will be concluded in a satisfactory way. So again, we're close, but then it's going to be a matter of some other, let's say, accounting and other negotiations to be ready to transfer the assets all of those issues.

But in principle, I would say, we're optimistic that we are close. I would say, hopefully, within the next couple of months, we should be able to finalize now the transaction. But the key factors so far are going very well. So that takes care of the cogen sale.

And now with respect to the volume in North America, the volume in North America has been slightly lower than last year. But the most important reason is that last year we didn't have any shutdown of our PET facilities.

This year, we have -- we had, I'm sorry, we had the mid and the beginning of June, a 45-day shutdown of one of our various plants, which is one of those scheduled shutdowns that we had to do for maintenance every couple of years.

So that was the most important reason why volume has been a little bit lower than last year. I have to say also when you compare with last year, remember last year the market was very strong in terms of lower imports. So also I would say, we have experienced perhaps higher imports this year than what we had last year, so that's also partially a reason for lower volume. I would say those 2 would be the most important reasons for the reduction in volume.

[Nikolaj Lippmann, analyst]

And if I may, so you believe that the -- so you're down a bit in North America, but you believe the market as such was still flat to up? And you let go of a bit of share because of renewed imports and the shutdown on the plants but not the course the market is contracting. Is that correctly understood?

[Jose de Jesus Valdez Simancas, executive]

That is, of course, my assessment of this situation. Yes. We don't see the market being reduced, and in fact, we have seen some forecast from different analyst that assume that the total market going forward will not continue growing at 3%. It has seen a little bit higher, including both virgin and recycled, okay?

And part of the reason for that is also that so much -- again, some analyst estimated that because of PET being 100% recyclable, PET has some opportunities to substitute some of the other plastics in different packaging applications.

So again, as of now, we believe the -- we estimated total demand to continue to move forward or to improve, but the key question then comes to -- okay, how much of this growth in demand is going to come not from virgin material but from recycled material.

And that is the number that is a little bit more difficult to pin down. Again, depending on who you talk to, some people say perhaps, well, recycle will take traction, most of that will, and perhaps, virgin PET will grow 0%, 1%.

Those are numbers that will be imploding around, and I just mentioned these -- something that is -- still is very much ongoing.

I think we have to do our own analysis in more detail to be able to come up with a forecast, but that is the feeling of the experts in the market. Because I assume that's what you wanted to hear a little bit, okay?

Now in terms of circular economy, I do believe that -- if I say, the positive of PET is number one, it does have significantly better or lower carbon footprint, that is competitive or alternative material. So PET in that sense from sustainability point of view has a very big advantage.

Now on the other hand, PET is truly a very recyclable. And I think the key for the circular economy to work better is, of course, it's improving the collection rate, collection of bottles, which are -- a lot of bottles are not recovered, particularly in North America, different story for Europe, different story for Mexico, but particularly, North American has very low collection rate.

So collection -- improving collections is going to be important so that we can offer -- increase our offer of recycled products.

And again, the other challenge that we do have is that ideally, we have to supply those recycled products at prices which are similar to virgin products, and that can be a little bit challenging.

So we're working in different technologies to be able to have a good position depending on the country, depending on the situation, we're looking at producing flake from bottles. We're looking at producing pellet from bottles as well. Pellet meaning product that can be blend with the virgin product.

And we're looking also at chemical recycling, which are supposed to producing PET, producing the feedstock of PET, DMT or PTA, and then you can polymerize again.

So we're looking at different alternatives in several cases, when one technology is better than the other. So we do want to have a full portfolio of technologies. So we have the flexibility to allow in the different regions, different countries, different locations, what is best for the customer. Keeping in mind what I was telling you that there is pressure to produce the recycle product at parity, nearly at parity with virgin. And that's the situation.

But again, good news is PET is very recyclable, has very low carbon footprint. And then, of course, it's going to require a lot of work in improving collection. It's going to require a lot of work in again reducing cost of the recycled products.

[Operator]

Our next question is from Rodrigo Verduzco from GBM.

[Rodrigo Verduzco Reynoso, analyst]

I have a couple of questions. First one is also regarding volumes. It was very helpful what you said. Can you provide maybe a little more color if possible on the imports? Is there any new developments in the antidumping for the Asian countries in the PET case?

And the second part of the question is regarding the cogen sale. Do you see any adjustments on the purchase price on -- regarding, well, after the CapEx made this quarter?

[Jose de Jesus Valdez Simancas, executive]

Okay. Well, first regarding antidumping, as you know, we are challenging the decision. We are again appealing. It's the -- I think the right legal word. We appealed the decision, and we are expecting results. I'm not sure in which month, but I think -- perhaps, I think, I heard November this year. But we'll check that, and perhaps get back to you on that. But we do still believe, I'm convinced, that we have a very strong case. We don't understand why the ruling was against the antidumping.

And perhaps, in a way, I don't know -- to a certain way, it has to do with this first question about the volumes. As I explained, last year, imports were very scarce, were very difficult to get. So imports -- we've put imports of PET into the U.S. were relatively low. And this year have increased significantly. I don't have right in my head the number of the running rate of imports, but I will guess...

[José Pons, executive]

We can check that.

[Jose de Jesus Valdez Simancas, executive]

I will guess it's in the 700,000-ton range on a yearly basis, okay?

So that's a relatively high number. And again, largely, it was much lower than that. So I think the biggest impact in terms of fuel. If you're going to call it losing market share, it has been those imports.

But again, we don't want to fight those -- or we could not fight those imports at this point because we didn't have the capacity because, over time, it was -- we had a shutdown.

So I assume that going forward we will try to recover some volume. Also I warn you if you remember fourth quarter is seasonally low in volumes. So it's not that we are expecting that the volume, the fourth quarter is going to be bigger because of that. We do have a seasonal slowdown. But I would say that's the most irrelevant part, I haven't seen -- we haven't seen or experienced a big change in term of market share really.

A little bit also, remember -- and it's important, and I didn't mention before, and perhaps also for the Nikolaj's question, remember that last year, the plant -- the Apple Grove plant, originally owned by M&G, now owned by FENC, was down. So they were not -- for quite some time, they were not supplying in the marketplace, okay? And they, of course, since the -- since last -- since the second half of last year, they're operational. So that is also another added capacity.

Again, what I'm trying to say is perhaps last year, our sales volume in North America was, let's say, higher than it should have been because of all these issues, lower imports, no shutdowns and some of the other plants in North America being down, mostly the M&G plants. It was Apple Grove; and to a certain extent, it was Altamira as well. So all of those factors, I think, have had some impact in the volumes. But nothing adds on that. I mean we don't see any other, really, issue.

And then your second question, I couldn't hear very well, but you're asking me about the price adjustment in cogen? And I didn't really understand...

[Rodrigo Verduzco Reynoso, analyst]

The second question was do you like to do the sale fair price of the cogen assets. We were wondering since retail CapEx in this quarter still going to cogen, and we were wondering if the final price will move to adjust to this CapEx? Or it will remain...

[Jose de Jesus Valdez Simancas, executive]

Those CapEx -- no, this CapEx was already considered in the negotiations. And the -- so the price will not change as a result of that.

It might have a small adjustment based on the value of the contracts that we signed recently, but we don't expect a significant change. And in fact, I think the margins -- well, not the margins. Again, remember the -- most of our PTA, or our power sale contract are cost loss.

So I mean, they'd again -- they don't change based on changes in power rate in Mexico. If anything, and this explains perhaps the very high demand for power sales, has to do with the -- as rates in Mexico have increased, our offering has become more competitive.

So that's why we have exceeded the over expectation of the 90% volume -- contracted volume. So remember, last year, beginning of the year, we had the opposite. We had a very hard time selling because the rates went -- at a very low level, which, of course, was not sustainable as we saw later. But no -- there is -- we're not expecting any change in adjustment in the price.

[Operator]

Our next question is from Alejandro Chavelas with Actinver.

[Alejandro Chavelas, analyst]

Congratulations on the results. Just one question. Could we have an estimate of the volumes of the Brazilian operation for the second part of 2019?

And just to understand, my second question would be how much of the quarterly CapEx fee was just in the cogen asset? It was substantially everything? Or do you have a breakdown of that?

[José Pons, executive]

So maybe just to clarify the questions. You're asking about how much did we invest is cogen. That was the second question. The first one was related to volume, but if you could just repeat it a little bit better?

[Alejandro Chavelas, analyst]

Yes. The first one is if we could have volumes in -- from the Brazilian operation in the quarter? And second one was CapEx on cogeneration assets in the second quarter as well?

[Alejandro Elizondo, executive]

Okay, thank you. So regarding Brazilian volume, as we mentioned during the report, volume is up quarter-on-quarter. And in fact, we posted some of our best production results under possession of the asset. The growth of the Brazilian volume quarter-on-quarter was 7%. So we'll continue to grow.

[Alejandro Chavelas, analyst]

Do you have any follow-up?

[Jose de Jesus Valdez Simancas, executive]

No. In terms of the CapEx for cogeneration everything has been according to the plan. Remember we have EPC contract. So we do have like a sort of fixed price -- a fixed cost of these assets.

[José Pons, executive]

So we have CapEx in the quarter for $38 million and the majority of that proceeds were either the maintenance or to the cogen -- or finishing the cogen operation.

[Jose de Jesus Valdez Simancas, executive]

But only the CapEx has been according to the original numbers.

[Operator]

Our next question is from Luiz Carvalho with UBS.

[Luiz Carvalho, analyst]

I basically have 3 questions here. The first one is on continuing the Polyester business and the Brazil operations?

I mean, -- you have been operating this plant for quite a year now. Could you give us a breakdown on the operations and what's the strategy in terms of expectation, in terms of the sustainable EBITDA generation and also utilization rate? So that's the first one.

The second one is about capital allocation. I mean, Corpus Christi, for sure, it's the main project today in terms of capacity increase. But in the past years, you acquired Citepe/Suape, recently depreciated perpetual recycling solution. So I just would like to understand now that you have -- I mean you already announced it somehow a dividend is up from the receivables from the cogeneration sales.

How should we expect year-to-year capital allocation looking forward in terms of dividend payment/potential acquisitions.

And the last one is just a quick update on the Corpus Christi. In the previous call, you mentioned an agreement with the construction management -- construction manager, sorry. There was expectation to have the total cost of PET facility in the third quarter and the PTA in the fourth quarter.

Do you have an update on the timeline, the potential timing for the ramp-up of Corpus Christi? That will be helpful.

[Jose de Jesus Valdez Simancas, executive]

Okay. Let me start with Corpus Christi. Look as we mentioned last quarter, we are expecting the information from these engineering management company by, let's say, end of August or beginning of September, we should have all these numbers. At least for the PET. And then, as we mentioned, fourth quarter will be for PTA.

I think before we have those numbers, we don't want to comment on the cost or timing of those projects. Just be a little patient, we are almost there.

We -- as I said -- I think very soon we'll have those numbers. And as you know, you have these numbers, and then you have to do some negotiation and everything, but we will have more information relatively soon.

And I do not like to share that result without having those numbers being efficient. And remember also, we're having a joint venture there, so we're not at liberty of disclosing the numbers without previously having all the partners agreed to make those public. So that's the -- regarding the Corpus. But we are basically, as we mentioned in time and in terms of third quarter PET, fourth quarter PTA, I can confirm that.

In terms of capital allocation, yes, for sure, it's going forward. The most important investment is Corpus Christi. That's very clearly the situation.

And that's the cogeneration sales. I do believe that we're going to have a relatively -- more flexible balance sheet that will allow us to look at the new M&A opportunities. And I would say, probably, we will, I mean, have to wait and see. We are looking at many different projects. And at this point in time, I think we have marginally the capital allocation that you're requesting.

But we're looking at projects to improve our facilities. We're looking at projects of vertical integration. We're looking at projects of sustainability. But again, for the time being, the Corpus Christi is the most relevant.

And in terms of the Brazil operation, I think the Brazil operation is proceeding as suspected. I think the main change has been that we've reached the EBITDA -- let's say, the expected EBITDA sooner than expected in -- when we made the acquisition. The plant, as Alejandro mentioned, is operating very well. Particularly, PTA is running at capacity. We have had, as we mentioned in last call, a lot of issues due to backlogs in maintenance. We have gradually been making improvements, and the plan is operating in a more reliable -- over the last 3 or 4 months.

So we are relatively happy with that. And we -- as I said, we operated PTA at capacity. PET, for the time being, we -- I would say, we're probably operating at quite low capacity, market limitations.

But the plants are operating well, and cost is better and efficiency [indiscernible] deal also improve a lot. So we are, again, I think results for Brazil have been better than what we originally considered in our investment proposal.

[Luiz Carvalho, analyst]

Okay. And if you allow me to make the, let's say, last one. And then -- you have a guidance of something close in terms of CapEx for this year $300 million, right. And so far into the mid of the year, you sense something close to 1/3 of it, right, I mean, 30%. So -- is there any potential review in your number downwards, or I mean how should we think in terms of CapEx remaining of the year?

[Jose de Jesus Valdez Simancas, executive]

Look, I think, basically, we are -- our CapEx are going to be below the guidance, I know that. And the -- perhaps, the most important factor for that is the delay in Corpus in this type of reconstruction of the Corpus...

[Operator]

Our next question is from Jose Vazquez with GBM.

[Jose Vazquez, analyst]

My question relates to the paraxylene prices. You said that at the beginning of June, they started to stabilize. And do you see that there's much more recovery in the second half that would benefit that prices on the Polyester chain?

And my second -- I have a second question. The second one is related to -- sorry, just one for the time being.

[Jose de Jesus Valdez Simancas, executive]

Okay. Look, forecasting Px prices is very difficult. And although, we put a lot of effort and time trying to do that because of -- it's very relevant for us. The truth is so -- I would say, our track record was not very good. And I will explain to you why it's so difficult. On the one hand, what are the factors that influence the Px price. Number one is prices of crude oil. So -- and that's still the most important one normally. Normally, that's the most important component of the Px price, which is the crude price. And then, that's the number one. Number 2 is naphtha price. Naphtha price is normally related to crude prices.

So normally, naphtha would be crude price close $70 per ton or $80 per ton normally. But it's very volatile, the naphtha price. And the naphtha price changes seasonally and changes depending on prices of all the alternatives like LPG and other products.

As I mentioned, normally the naphtha price will be crude price to $70. And right now, this year, just to give you an example, and this is part of the reason we have missed the prices, this year the average has been $28 or $29. So naphtha has been $29 higher than crude prices. While normally, it's $70.

So this has been a factor that has been helping a little bit our forecast. That's why Px, we were not forecasting it to go that low. So at the time being it's $29, and crude price is what it is. I'll let you make your own judgment if you believe it's going go up or down.

And -- but then, naphtha price is $28, $29. The average over the last 2, 3 years has been $70.

So my guess is that if anything, naphtha prices -- naphtha margin relative to crude oil is more likely to go up than down.

And the other comment I will make, normally, in the wintertime, naphtha price is normally -- our naphtha margins over crude are a little bit better because the LPG, which is a product that naphtha competes against for the crackers is higher because of energy because of the winter heating system. So again, I will try to say, I think naphtha margins should go up in the remaining of the year. We've already said that the value is related to that.

And then, let me now explain the most interesting part, and the ones that we really missed this year, which is paraxylene margins: paraxylene margins to naphtha. So originally, this paraxylene margin to naphtha is around $400 per ton, $400, $450. The normal range would be $350 to $450, okay?

Last year, in September, the paraxylene margin to naphtha was above $600, and it remained very high for quite some time. And all of a sudden, this normalized during the -- say, the last part of the year and then the first part of the year. But recently, like April or something like that, then we saw another very big decrease as a result of some paraxylene plant in China starting off. And then the margin of naphtha -- of paraxylene to naphtha reached like $300 at a point in time, okay?

But it was like -- again, I told you, $350, $450 will be like normal. It went below $300 at some point in time this year. And right now, I think it's like, today -- specifically today, it's at $339.

So again, those are the important factors. So I would assume that paraxylene to naphtha is going to remain on the low side, so perhaps, not that much of an upside there. I think the biggest upside might come from -- actually from naphtha to crude oil.

And -- but for sure, what I can tell you is that it's difficult for us to see that it's going to go lower. We see more upside than downside after a very long...

[Jose Vazquez, analyst]

Okay. Perfect. And my second question is a quick one. Are you looking to expand your recycling capacity going forward -- I would say, in U.S., Mexico or all these geographies?

[Jose de Jesus Valdez Simancas, executive]

Yes. Yes. Yes. I think our customers are asking us to do that. Of course -- I mean that's the polite way of putting it. They're putting a lot of pressure on us to do that. That's the -- that's what's happening. So yes, we're looking at different alternatives to satisfy their requirements.

[Operator]

[Operator Instructions] Our next question is from Andres Cardona with Citi Group.

[Andres Cardona, analyst]

Most of my questions have been done already. Just one from my side. Is there any update about the M&G situation process?

[Jose de Jesus Valdez Simancas, executive]

Well, the process is underway. I think I'm not aware of anything being out of track. I think everything is proceeding according to schedule.

Remember, we told you last time that this is, unfortunately, a very long process. We believe that we're going to have perhaps -- it is going to take completely, perhaps, the fourth quarter or beginning of next year for this bankruptcy to be finalized for the company to be out of bankruptcy.

So we still believe it's some 6 months ahead of us for the process to be finalized.

[Operator]

As there are no more questions in the queue, I would like to turn the conference over to Mr. Elizondo for any additional or closing remarks.

[Alejandro Elizondo, executive]

I would just like to thank everyone for participating in today's call. Please feel free to contact us if you have any follow-up questions or comments.

[Operator]

Ladies and gentlemen, that does conclude today's conference. Thank you all for joining us.