Alpek SAB de CV

BMV:ALPEKA

Earnings Call Transcript 2022-Q2

[Antón Fernandez, executive]

Good morning. Welcome to ALPEK's Second Quarter 2022 Earnings Webcast. My name is Antón Fernandez, and I am honored to assume my new role as ALPEK's Investor Relations Officer. Today, I have the pleasure of being joined by our CEO, Pepe Valdez; and our CFO José Carlos Pons.

This presentation is divided into 2 parts. First, Pepe and José Carlos will comment on ALPEK's second quarter performance, recent events and updated guidance figures. Afterwards, we will move on to Q&A. Please note that the information discussed today may include forward-looking statements regarding the company future financial performance and prospects, which are subject to certain risks and uncertainties.

Actual results may differ materially, and the company cautions the market 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 would like to remind everyone that today's webcast is being recorded and will be available on our website at alpek.com.

I will now turn the call over to Pepe.

[Jose de Jesus Valdez Simancas, executive]

Thank you, Antón. We're happy to have you as the new IRO.

Good morning, everyone, and thank you for joining us today. I am very pleased to mention that in the second quarter, ALPEK continued to navigate 2022 successfully. Margins were more robust than expected across all key products in our portfolio, which supported the company in achieving second record quarterly high for both comparable and reported EBITDA.

Let's begin with a review of the main topics we will cover today. First, ALPEK significantly surpassed financial performance expectation for the second quarter, as José Carlos will review in greater detail later in this presentation. Then we will discuss the completion of the Octal acquisition and the added value to our portfolio. Third, we will give an update on Corpus Christi Polymers. Fourth, we will cover the recent SBTi approval. And finally, we will provide revised 2022 guidance per the earnings report released yesterday.

Let me provide some context for the second quarter results. These past few months have been marred by sustained inflationary pressures. Meanwhile, Asian integrated polyester reference margin had averaged $410 per ton for the quarter, higher than expected, and only 2% lower than the previous quarter with the spread between Chinese and Asian margins narrowing to $93 per ton.

North American polypropylene reference margin, however, experienced an unexpected quarterly increase, averaging $0.39 per pound, 3% higher quarter-on-quarter due to tight market conditions. Also in North America, EPS average reference margin declined by $0.14 per pound during the second quarter due to higher raw material prices but, nonetheless, remain at a strong levels. At this point, José Carlos will take over and go into more detail regarding the specific impact of these changes on financial results.

[José Pons, executive]

Thanks, Pepe, and thank you all for being here with us today. I would like to highlight some of ALPEK's main achievements during the quarter. Overall volume increased to 1.26 million tons, record quarterly comparable EBITDA of $369 million with both the Polyester and Plastics & Chemicals segments posting their highest quarterly figures ever. Leverage increased slightly to 1.2x due to the Octal acquisition.

Delving deeper into volume, ALPEK reached 1.26 million tons this period, 4% higher than in the previous quarter. This was due to the sustained high demand and, of course, the inclusion of the PET business from Octal. If we exclude the incremental volume from the recent acquisition, volume decreased slightly by 2% quarter-on-quarter and was flat year-on-year as a result of a scheduled maintenance at one of our sites.

In the Polyester segment, volume was 1 million tons, 5% higher quarter-on-quarter largely due to sustained high demand and the recently incorporated PET sheet and PET resin facilities from Octal. In Plastics & Chemicals, volume was 2% lower quarter-on-quarter due to the fact that the increase in EPS volume was offset by a slight decline in the polypropylene volume.

Moving on to raw material price dynamics. Average spot Brent crude oil increased to $113 per barrel, 16% higher than in the previous quarter, largely due to the effects of inflationary pressures. U.S. reference paraxylene prices increased by 41%, much greater than the rising crude oil. And in Plastics & Chemicals, propylene prices remained stable, averaging $0.61 per pound, a 4% decrease when compared to the previous quarter.

Switching over to EBITDA breakdown for the quarter. We can see that total comparable EBITDA reached $369 million, a record figure and was 11% higher than in the previous quarter. This was primarily due to better-than-expected margins from our main products as well as a strong volume across both segments.

Reported EBITDA was $507 million, 11% higher quarter-on-quarter. This result also included a noncash inventory gain of $80 million and a positive carry forward effect of $73 million. If we look at results by key segments, Polyester comparable EBITDA was $218 million, 13% higher quarter-on-quarter and 113% higher year-on-year, making this the strongest quarter ever for the segment. This was due to solid volume and resiliency of the Asian polyester reference margins, which remained higher than expected, averaging $410 per ton.

Excluding incremental EBITDA from the new PET business, Polyester comparable EBITDA would have still been higher than the first quarter. In Plastics & Chemicals, comparable EBITDA also set a new quarterly record of $147 million, a 3% increase quarter-on-quarter and 22% year-on-year. This was mainly due to increase in polypropylene margins, stemming from limited supply, which led to tight market conditions as well as stronger-than-expected EPS margins.

With regards to free cash flow generation, net working capital investment increased by $238 million largely due to rising raw material prices during the quarter. CapEx totaled $678 million and was mainly allocated to the Octal acquisition. This resulted in a negative free cash flow of $535 million as record EBITDA was more than offset by strategic CapEx.

Finally, I want to discuss the company's financial position during the second quarter. ALPEK's net debt increased by -- increased to $1.78 billion, and last 12 months EBITDA also increased to $1.5 billion, resulting in a leverage ratio of 1.2x net debt to EBITDA. That concludes my comments, and I will now turn the call back to Pepe.

[Jose de Jesus Valdez Simancas, executive]

Thank you, José Carlos. Let us review the recent events. As per the announcement sent out in May, ALPEK concluded the Octal acquisition earlier than anticipated, this assuming operational control as of June 1 this year. This includes a main facility, with both PET sheet and resin plants in Salalah Free Zone in Oman, PET sheet recycling facility in Cincinnati, Ohio and a PET thermoform packaging facility in Saudi Arabia.

These assets bring ALPEK into the PET sheet market, which has an estimated annual goal rate of 6% and allow it to serve increasing demand for its PET resin business. The strategic locations I just mentioned also facilitate the lower cost procurement of raw materials as well as access to existing and new clients across the Americas, the Middle East, Northern Africa and Europe.

Furthermore, the addition of PET sheet to our portfolio brings opportunity for us to vertically integrate it into our existing PET facilities in the future. And very importantly, Octal DPET proprietary technology for PET sheet will generate a product with approximately 25% lower carbon footprint than the rest of the industry, which is very exciting to us as it brings us further along in our ESG goals. We are excited to welcome Octal's management and employees into our team.

Earlier this week, the company announced that the 3 partners of Corpus Christi Polymers, Indorama Ventures, FENC and ALPEK will resume construction of the PTA, PET site in August of this year with an expected completion date in early 2025. CCP will function as an independent tolling company, whereby each partner would procure its own raw materials and have access to 1/3 of the annual capacity, which is 1.1 million tons and 1.3 million tons of PET and PTA, respectively.

For ALPEK, this is equivalent to approximately 367,000 tons of PET and 433,000 tons of PTA. This is expected to be the most competitive side in the Americas and will allow ALPEK to continue supplying increasing customer demand. As a strategic location in the U.S. Gulf Coast, would also facilitate competitive raw material procurement and lower distribution costs as well as raise scalability across ALPEK sites in the Americas.

On July 7, ALPEK announced that it has received approval from the science-based target initiative, SBTi, for its ESG target related to carbon emissions reduction. The SBTi Target Validation Team has classified the company's Scope 1 and 2 target ambition and has determined that it is in line with limiting warming to well below the 2 degrees Celsius trajectory, which what guarantees the company's effort to combat climate change.

As part of the science-based target, the company has committed to reduce 1 -- absolute Scope 1 and 2 greenhouse gas emissions by 27.5% by 2030 from a 2019 base year; two, Scope 3 emissions by 13.5% within the same time frame. This reaffirms ALPEK emissions reduction target as feasible and will align with the Paris agreement. ALPEK is confident that by transitioning to fully renewable electricity sources, improving its energy usage and generating emission-free steam, among other initiatives, it will be well on track to meet its targets and continue its path towards carbon neutrality by 2050.

And finally, regarding the outlook for the remainder of 2022, and based on the stronger-than-expected margins that we have seen this year across the 3 products in our portfolio, the new PET business we just acquired, and our results thus far, particularly for Plastics & Chemicals, ALPEK has revised its guidance upwards. Our new guidance figures are based on the following key markets and business assumptions: Number one is average Brent crude oil reference prices of $100 per barrel, unchanged from previous guidance; Asian integrated PET reference margins of $370 per ton for the whole year, which considers an average of $330 per ton for the remainder of this year, based on expected normalization and solid demand of the product.

We also consider a slower decline than previously expected for North American polypropylene and EPS margins. Volume CapEx remain unchanged as both are currently in line with the original guidance. Based on these assumptions, guidance for overall comparable EBITDA for 2022 is now set at $1,475 billion.

As always, I would like to thank our team, customers and suppliers for helping ALPEK reach new heights. I would also like to thank you for your attention today. I will now turn the call back to Antón to open the webcast for Q&A.

[Antón Fernandez, executive]

Thank you, Pepe. [Operator Instructions] The first question comes from Luis Carvalho from UBS.

[Luiz Carvalho, analyst]

Antón, can you hear me well?

[Antón Fernandez, executive]

Very well.

[Luiz Carvalho, analyst]

Okay. So 2 questions from my end. First of all, congrats on the results, very strong. The first one is with regards to the PTA and PET spreads looking forward, right? I mean during the third quarter, at least the first month, we're still seeing the companies being able to pass through the prices. We are seeing somehow a decrease in terms of the feedstock cost, so just trying to understand the dynamics now. And looking to the fourth quarter, I mean, seasonality plays a bit against in terms of demand. But just trying to get a better sense in terms of how you're seeing the supply/demand and the spreads for the remaining of the year and 2023.

And the second question is, if you can provide a bit more details about Corpus Christi project, what are the next steps and what we can expect in terms of potential impact on the spreads as well looking forward and, of course, the ALPEK participation in that.

[Jose de Jesus Valdez Simancas, executive]

Okay. Well, Luis, regarding your first question. As I mentioned, PET spreads in both in China and in Asia have been stronger than we anticipated for the original guidance and the budget. During the first quarter, and we would talk mostly about the Asian preference price more so than China because I do believe the Asian margin has more impact in our operations than the Chinese, since Chinese, in most of our markets, we have antidumping duties. So we will talk about Asian prices to simplify the discussion.

Well, during the first quarter this year, the Asian prices were $420. During second quarter, the Asian prices were $410. So a very slight -- 2% decrease, lower than what we were expecting. Now for the third and fourth quarters, we are assuming that this margin is going to go down to $330, okay? To $330, from $410 to $330. Again, as we start this month, margins are still higher than that, but -- which -- I believe we're just trying to be conservative.

Because, in terms of supply-demand, when you look at the numbers, there is, in theory, at least, enough supply to meet the demand at a global level. So that's why we are assuming this $330, which would be the normal margin that we have seen during the previous 4 or 5 years, that definitely really comes from that -- from those numbers.

There have been, as you know, restrictions based on the pandemic and things like that. But we still assume that, that's going to be the margin. Now of course, this is also held by logistics. Logistic costs are higher than previously, and that's helping a little bit.

On the other hand, we do have a challenge with the prices of raw materials, of paraxylene in particular, in North America. During the last couple of months, prices of paraxylene in the U.S., in particular, have been much higher than the prices of paraxylene in Asia. And that's due to the fact that gasoline prices, I mean, particularly, gasoline margins over crude have been very, very high. And that has increased the opportunity cost for the xylenes that are the main [ visto ] for the paraxylene.

So as a result of that, we have experienced very high prices of PX during the last 2 months. And although we believe that they are going to normalize during the next months, particularly as the summer driving season ends, we are also considering that factor for having those $330 margin just in case that these reductions in price in North America take longer.

So again, that's basically the reason that we are seeing the margins where they are. Next year, we still believe that the supply demand, particularly when you look at North America, are going to remain healthy. And we do hope that margins will be a little bit better than normal, still, for 2023, okay? So that -- I hope that answers your first question.

With regards to Corpus Christi, well, Corpus Christi, as I think, as we already mentioned, we are going to go ahead with the construction. We've taken significant time to finalize engineering, to make sure everything is ready to go without interruptions and without creating productivity issues in the project that were a factor why the high cost overrun were experienced in the last couple of years.

So we feel confident that we do have a budget that is very realistic and doable. And again, based on that, we've given the green flag to start next month. And we expect to finish, at least mechanical completion by the end of 2024.

Three partners are 3 parts, 33% -- 33.3% each. And well, the increase in capacity is going to be significant. But we have to remember that nowadays, there is close to 1 million tons of PET that are being imported into North America. So again, I think with the growth in the market plus the fact that some of those imports can be replaced, we do believe that the new Corpus Christi capacity will be allocated into the U.S. market without creating a big disruption in the market.

That's our perception today. From previous, I guess, also conversations with you, we have mentioned to you that we have been expecting, in the medium term, growth for PET in -- particularly in North America, somewhere between 0 and 1% per year. And I'm talking here of mostly virgin PET. And I think we have also increased our expectation a little bit. We now see virgin PET with perhaps a growth somewhere between 2% and 3% per year. So that would also help to accommodate the new capacity of the Corpus Christi plant.

[Luiz Carvalho, analyst]

Okay. Now clear, and if I may, just a quick follow-up. How do you think that this may impact your -- the dividend plans, I mean, for 2024 because of the CapEx related to the project?

[Jose de Jesus Valdez Simancas, executive]

Well, as we -- the total investment we mentioned for this project is going to be around $300 million, our share -- $300 million over the next 2.5 years. And to be honest, that, of course, it's going to be an important investment, but I don't think that will have -- that will imply any restriction on the dividend payments that we have planned. I think we will be able to go ahead, financing the project and, at the same time, pay dividends, particularly if the results remain as strong as they have been and the leverage is also at the 1.2 level after the Octal acquisition.

So I've shared with you that we feel comfortable over, so to say, or so to speak, our target level for leverage is more around the 2.0, and we are at 1.2. So we believe there is room to go ahead with this project and to pay dividends without exceeding this 2.0 net debt-to-EBITDA figure.

[Antón Fernandez, executive]

Thank you, Luis. The next question comes from Nikolaj Lippmann from Morgan Stanley.

[Nikolaj Lippmann, analyst]

Congrats one more time on these absolutely incredible numbers. Now I have 2 questions pertaining to recycling and ultimately, sort of entry barriers to the industry. Number one, to what degree are you working on trying to establish a recycling standard for the industry, together with both your peers and brand owners?

And number two, very much for you, Pepe. I really appreciate your comments in the past pertaining to the different alternatives in chemical recycling. I was wondering if there's anything new to share in respect to that. And also, when we think about the Corpus plant, it's so big that if you decide with your partners to have a standard of chemical recycling baked into part of that, it almost becomes the industry standard.

So my question is, one, there, do you have a -- do you plan to have any kind of recycling capacity as part of that nominal capacity, one? And two, would you prefer to have a proprietary technology? Or would you want to work with your partners like you're doing with IntegRex, to have a similar standard between you and your partners in the project?

[Jose de Jesus Valdez Simancas, executive]

Well, I think in terms of recycling, our main objective really, more than having a proprietary technology and trying to take advantage of the market or -- I think our most important or biggest concern is to make sure that we recycle as much product as possible. And I do not believe that today, that you're going to have standard recycling. I think you're going to see a lot of very different technologies coming into the market. Eventually, when the dust settles, you might all converge into a sort of standard technology, which hopefully will be the most effective.

But right now, there are many ways of recycling mechanical, chemical. Even in chemical, there are several different routes. And I think all of them work. To be very honest, what I see is the biggest constraint for increasing, in a significant way, the recycling content of our products is the collection of used bottles, the collection of bales of bottles. That's the most, again, challenging task. You can have the best technology, chemical, nonchemical, but the real difficulty lies, how are you going to get the basic -- the feedstock to run those plants. And that is something which we are working with different groups to try to make sure that we increase that.

If you do have enough feedstock, I would dare to say that even with the technologies that are existing today, I mean, we should do a very good job at increasing recycling content of somewhere between 25%, even 50%. So again, our concern is not so much to develop -- at this point, to develop a technology that would separate us from the rest of the industry. And in fact, we are very open to cooperation with other -- with our peers, as you mentioned, and other parties. I mean, in some cases, cooperation with companies that have nothing to do in the PET business. A lot of the new ideas or the new players have nothing to do -- are not existing players into the virgin PET arena.

So that's, again, not our priority, Our priority is to make sure that this works. And again, from my perspective, of course, we are working in different technological routes with different people. But the key for me is how are we going to make sure we can collect more bottles. That's -- and I will make an important point now. And now after we acquired the Octal business, it's now not only the challenge to collect more bottles. How do we collect also more Thermoform, so that we can also recycle those. So we continue to work in that. And as I say, I'm a little bit less concerned with technology than with the fact that we do have to significantly increase the collection if we want to make an important change for the industry.

[Nikolaj Lippmann, analyst]

That's very clear. Just -- I'm sorry if I missed it, but are you planning to have a recycling part to that Corpus plant? Or will that be 100% virgin? Or as -- you -- have you -- do you have -- you are yet to have -- sorry, do you yet to have -- to make that decision?

[Jose de Jesus Valdez Simancas, executive]

No. Nikolaj, I think we all want to have a recycle -- I mean, recycling capabilities there. We -- I think there -- technologies that are available for that are relatively developed already. But again, until we have more collection, we cannot commit to a specific project there. I think that the science is there to utilize the plan for recycled product. But again, we do have to have the collection first.

And remember, remember something. You can do recycling -- I mean you can recycle PET going through the plant or you can recycle PET without interfering with the operation of the plant. And we are really working very hard with our customers. Believe it or not, some of our customers are telling us that they probably prefer our pellets than SPT, okay? So because they want to have the flexibility.

The problem with the -- our pellet, I mean the SPT technology is that, so far, there's some sort of limit to process 25%, something like that. And in some cases, our customers want to have the flexibility where they can produce certain products with 50% of recycled content or even more, even 100%.

So they do want to have that flexibility. It might be that they want to do certain products 100% and certain other products 25% or even less. So we have to also align this very well with the needs from our customers. But yes, I mean, the point is, yes, the plant, of course, is capable of recycling. And all of the partners certainly agree that we would like to do that.

[Nikolaj Lippmann, analyst]

Congratulations, Pepe, and everyone.

[Jose de Jesus Valdez Simancas, executive]

Thank you. Thank you, Nick.

[Antón Fernandez, executive]

Thanks for your question, Nick. The next question comes from Alejandro Zamacona from Credit Suisse.

[Alejandro Zamacona Urquiza, analyst]

Couple of questions here. The first one on Octal. In the press release, you mentioned that the revised guidance includes USD 120 million for EBITDA contribution from Octal. That's roughly $205 million annualized EBITDA and much higher than the 85 mentioned in the last conference call. So the question is what would be a normalized figure for Octal's contribution going forward? And also, if you can mention what was the mix between cash and debt to pay for this acquisition.

[Jose de Jesus Valdez Simancas, executive]

Well, Alejandro, I think you're right. I think we mentioned in the original press release, like, what was it, 1.5 months ago when we announced the acquisition, yes, the guidance -- we were increasing our guidance, like, $120 million. I think since we have revised that a little bit higher. And part of the difference versus the 85 that we originally mentioned, part of the reason has to do with the fact that the acquisition came 1 month ahead of time. We were assuming that the acquisition will be finalized by the end of June. It was finalized, as you know, by the end of May. So we have 1 more month, so that increased the guidance by itself.

And the other reason was that, of course, the margins that we are seeing now are higher than we expected. And in fact, I will tell you that the contribution from Octal in second half of this year is going to be more important than the $120 million. I think, in a word, new guidance, we are assuming, like, $140 million for Octal. And I have to say that we still see a significant upside.

[Alejandro Zamacona Urquiza, analyst]

Okay, Pepe. And going forward, what would be a normalized EBITDA contribution from this...

[Jose de Jesus Valdez Simancas, executive]

Well, the number we based our valuation on was the EBITDA gradually going down to, I think, to a little bit over $100 million. But again, I mean, the latest -- and this is not the guidance, but the latest estimate we're having this year, the EBITDA of this company could be -- could surpass the $300 million.

[Antón Fernandez, executive]

Thank you, Alejandro. Thank you for your question. Our next questions come from Luis Gomez from Compass -- Luis Yance, sorry, for Compass.

[Luis Yance, analyst]

Can you guys hear me?

[Antón Fernandez, executive]

Yes, very well. Thank you.

[Luis Yance, analyst]

I mean congrats, as Nick said, on another great quarter. Just 2 questions there. I mean, 1 is, I guess, a follow-up on what Luis was saying about normalized margins for the second half. Just wondering on the Asian side, I mean, you mentioned kind of your assumption is $330 per ton. But as I go beyond this year, and if I think about normalized, whatever that means, because it's tough to have a normalized number ever, but as we move forward in terms of Asian margins, in terms of polypropylene margins, in terms of freight cost, I mean, at some point, they will obviously normalize.

And just wondering, as you look forward, what is that number in terms of margins and freight cost that you use going forward? And what does that mean in terms of potential normalized EBITDA now that you kind of include -- just to get a sense, because this year, I guess, you're going to do $1.5 billion almost EBITDA, but there's a lot of additional EBITDA that comes with the cycle. So just to get a sense on the new format, everything you have, how does that number look like perhaps for 2023 and beyond? That will be my first question.

And then, I guess, somehow related to that, it goes to the discussion about the dividend. Because as you correctly pointed out, I mean, you guys would like to be closer to 2, but you're closer to 1 now, actually, and it might go even a little bit lower than the 1.2 you have now. So just walk me, how do we reconcile that and the fact, as you mentioned, CapEx for Corpus Christi doesn't seem that much if you spread it out in 2.5 years. And also, that kind of [ values ] the needs of your majority of shareholder who have kind of lost 1 avenue to delever with -- [ accel ] really, the likes more. You kind of did it. So how do we put all that together and whether we can expect an extraordinary dividend again this year, or that's something that's hopefully, more for next year.

[Jose de Jesus Valdez Simancas, executive]

Look, first, your question is about normalized EBITDA. Normalized EBITDA, I think if you look at the history, I mean, I think you could expect that the Asian margins that today are over $400 could eventually come back to, I would say, to $270, $300. I don't know how long we will take later, but it could. So that's a possibility. And that is a number that sometimes we use in our financial projections.

So in the high 200s, I would say, is a normalized for PET resin in Asia, which would be low 200s for China, okay? Today, again -- and that's why your question is so difficult. Today, and today means today, the margin in China is $369, the margin in Asia is more than $450. So -- but eventually, I mean, that's a number that we could say that Asia could go back to sort of high 200s from where it is today.

The -- in terms of the I mean, impact in our EBITDA, which, this year, as you said, is going to be around 1,500 -- I mean $1.5 billion. I mean the numbers could tell you -- we could go down if everything goes back, I mean, not only PET but also polypropylene and also EPS. If all the margins go back to historical levels in difficult times. I mean, to the lower level of historical levels, if margins go back there. Well, we could probably say that our EBITDA with existing business we have could go back down to like $1 billion, okay? Those are the numbers we see, assuming no Corpus Christi, assuming no new projects. So that's the range that we consider that could eventually get there.

So that -- to say, okay, if that is the case, well, yes, we do the low leverage, close a relatively strong EBITDA even after normalization. And I will add something else that is very important for you. I mean when you look at our leverage ratio today of 1.2, you have to consider that we do have, right now, a very high level of working capital. Our working capital, as you talk of normalization where EBITDA would normalize, let's say, 1.5 to perhaps 1, but if that does happen, most likely, we're going to be able to reduce our investment in working capital by around $600 million.

So the debt you have today, which is $1.77 billion, would go down to $1.1 billion. So again, EBITDA goes down, but debt goes down significantly also because of lower working capital. And then you have room because you have very low leverage. So that is to say that yes, we do believe that we -- I mean, that the Board, not we, are going to are going to declare an extraordinary dividend in the October Board meeting, or at least, I think the management, we are going to recommend to do that.

[Luis Yance, analyst]

That's a great answer, Pepe. And I guess my last question, kind of also a follow-up on the incorporation of the 1 million tons coming from Corpus Christi. I know you mentioned there's about 1 million tons roughly, to begin, that are coming from in first, but do you think -- is it going to be 100% of those imports being displaced and going somewhere else? Or do you feel that in order to accommodate that extra capacity, there will be some high-cost capacity in North America that will probably stop producing? Or how do you see that rebalancing as you bring it on?

[Jose de Jesus Valdez Simancas, executive]

I do believe you're right. I think some of these new capacity will come from natural growth of the market. Some of it will come from replacing imports and some of it, you're right, might come from shutting down, how you say, very high cost capacity. I think it's going to be a combination of those 3 factors: growth, lower imports and perhaps some of the least efficient plants being shut down.

[Luis Yance, analyst]

Congratulations again.

[Jose de Jesus Valdez Simancas, executive]

You're welcome. Thanks for your question.

[Antón Fernandez, executive]

The next questions come from Pablo Ricalde from Santander.

[Pablo Ricalde, analyst]

I don't know if you can hear me now?

[Antón Fernandez, executive]

Yes, we do.

[Pablo Ricalde, analyst]

I have 2 follow-up questions on Luis' questions on the Corpus Christi project. I don't know if you can remind us your CapEx credit you have for the project. And the second one is, I believe you had an agreement with Jacobs to manufacture the plant that was ahead of the pandemic. I don't know if that agreement continues?

[Jose de Jesus Valdez Simancas, executive]

Well, Jacobs became a new company. It's a new company now. It's not called Jacobs. It's called Worley. But yes, they are the construction manager of the project. They are very familiar with it, and they are very involved, okay? And on your first question, I will ask José Carlos to answer that.

[José Pons, executive]

Thank you, Pepe. Pablo, yes, you're right. We have a credit on the CapEx. It's still finalizing the numbers, but it's got between $25 million and $30 million.

[Antón Fernandez, executive]

The next question comes from Jacob King from Scotia.

[Jacob King, analyst]

Hell, can you hear me?

[Antón Fernandez, executive]

Very well.

[Jacob King, analyst]

Yes, congratulations on the results. I just had a few questions. So across your different business lines, I guess, where are you seeing strength and weakness in end-user demand? And I guess, as we enter a period of macro weakness, what areas of your business has the most potential to surprise to the downside?

[Jose de Jesus Valdez Simancas, executive]

Well, that's a great question, Jacob, and I'm very happy to answer your question. When you look at the fine -- at the end user of our products or the products in the ALPEK portfolio, including pretty much everything, you will find that, I think, somewhere between 80% and 90% of our sales go to consumer markets. And out of those, a significant majority of those consumer markets are either food or beverage.

So if anything I can say about our company, our ALPEK, is that we have a very stable volume. And we have demonstrated, over the last 10 years, even more, that we are relatively, I would say, immune to downturns in the overall economy. We demonstrated that in the 2009 period. We demonstrated that at the beginning of 2000. In many occasions, we have -- I mean, I think in 2009, our volume went down somewhere, I think it was 1% in the year, 1%. And similarly, in previous recessions, in '95, Mexico was very difficult in the 2000, similar situation.

Our volume is very, very stable. It's not really correlated to the GDP growth in that respect because, again, it's beverage and food. And now, again, with the acquisition of Octal even more so, because all of Octal products are going to either beverage or to food, food packaging. So again, that's not a concern.

What those -- what is not as stable as we would like, of course, are the margins. The margins can fluctuate depending on supply, mostly, I would say, on supply additions. The balance between supply and demand changes significantly. But in terms of demand, the stability of demand for our products is very, very stable. So that -- again, we don't lose sleep over that.

[Jacob King, analyst]

Understood. Awesome. Just a couple of more questions. So as we see the petrochemical company valuation levels, they seem to be moving lower, at least on the public equity side. Given your low leverage, do you see any further M&A opportunity this year perhaps by region or chemical chain?

Or how do you foresee spending the balance -- the remaining balance of the year? And just last question is, can you talk just a bit about freight availability and volatile rates and how that's impacting your margin outlook and logistics management? And I guess, what are the risks to the business and how you're mitigating those?

[Jose de Jesus Valdez Simancas, executive]

Well, look, in terms of M&A opportunities, I would say we're always looking at that, regardless of whether the valuations are lower. Because you see in our valuations or the companies are -- or the multiples are low. Yes, the multiples are low, but perhaps the EBITDAs are high. So the fact that the multiple is low with a very high EBITDA does not necessarily mean that the value of the company is attractive.

So we have to look at both. We have to look at, not only multiples, but really, we have to look at the cash flow generation of the company or the replacement value of the company as well. And so it doesn't mean that there are -- what m trying to say, it doesn't mean there's a lot of opportunities there right now. I don't think that's the case. I think most of the companies, chemicals are fairly valued. The opportunities in the chemical industry normally come when times are very hard, which is not the case now in general. That's the best time to buy -- to acquire companies.

And in that sense, we are not -- I mean we're looking at things, but we are not convinced that we're going to find something attractive very soon. And the rest of your question of volatility, I don't know if José Carlos can help me with it.

Well, the freight rates. Freight rates, we do believe and in all of our projections, even in our original guidance, we are assuming that those are going to normalize. And our assumption was that, that would be happening -- at this point in time actually, we thought that this second half of 2022 will be sort of normalizing. But as you know, they're coming down, but -- I mean, gradually. And I believe that for the time being, we still see the ocean freight rate higher, at least until the end of the year, will gradually decreases.

It's confusing. And in particular, like, freights to -- from Asia to South America, they were coming down very quickly the first half of the year. And then recently, they went up again. So very difficult. Honestly, I don't feel we are able or willing to forecast that. Just to understand, this is something that is outside of control, we monitor that. And what we are seeing today is that, yes, they're coming down but still in a very gradual way. So I think they're still going to be higher than normal for the remaining and -- at least of this year.

And the big question -- and I don't have an answer by the way, the big question is, at what level are they going to normalize? Are they going to go back all the way to where they were? Or they're going to normalize at a higher level? That's something we -- that will also be very important for us. And normally, in our projections, again, just as I said about the margins, we also assume in our projections that those freight rates, eventually, are going to go back to the historical level.

[José Pons, executive]

I don't know, Jacob, if that was the sufficient answer to your volatility question or do you have anything else there?

[Jacob King, analyst]

No, that was great. Yes. And just congratulations once again.

[Jose de Jesus Valdez Simancas, executive]

Thank you.

[Antón Fernandez, executive]

Thank you, Jacob. The next question comes from Leonardo Marcondes from Bank of America.

[Leonardo Marcondes, analyst]

Can you hear me?

[Antón Fernandez, executive]

Pretty well.

[Leonardo Marcondes, analyst]

I have 2 questions on my side here, and I'm sorry if you have already answered those, because I got disconnected from the call for a bit. But my first question is regarding the EBITDA guidance. We see an increase of around $100 million when compared to the last guidance when we exclude the effect of Octal, right? Just wanted to understand the contribution of the Plastics & Chemicals segment on this change.

And my second question is also regarding CCP. I would like to know if you guys have already developed the procurement strategy for the plant. I mean, from where do you guys plan to store paraxylene and MEG? And if there is capacity for these petrochemicals in the U.S.? And also if a part of the storage should come from the spot?

[Jose de Jesus Valdez Simancas, executive]

Relative to the EBITDA guidance, yes, I do believe, yes, the Plastics & Chemicals division has an important contribution mostly as I explained before. Because the -- although we do believe the margins are going to decrease somewhat from what we saw in the first half of the year, they are decreasing more gradually than we have anticipated in the original guidance. That's the explanation. And so that's an important part of the, let's say, additional $100 million.

As I mentioned, there's also some contribution from Octal. We have estimated Octal at $120 million. We raised that to $140 million. So it's contribution from Octal. But yes, most of it is coming from -- the rest, from Plastics & Chemicals division, yes, versus the original guidance again. And in the CC procurement strategy, I would say that we are -- I mean, the companies are going to buy independently the raw materials, okay?

In the case of MEG, there is plenty of capacity of MEG in the U.S. Actually, there is a large MEG plant in Corpus Christi, just miles from Corpus Christi plant, which will cover more than the requirements of the plant. So that capacity is at least twice the requirements of the new plant. And it's -- as I say, it's only a few miles from the site.

And in terms of paraxylene, in paraxylene, there's also a paraxylene plant in the area. And in fact, the plant has a pipe connected to this -- to that plant. But in case of paraxylene, yes, the situation looks tighter in North America. So yes, we will -- I think we will have to import paraxylene into North America from Middle East and perhaps Asia into the future.

[Antón Fernandez, executive]

The next and last question comes from Vicente Falanga from Bradesco.

[Vicente Falanga Neto, analyst]

Just to dig a bit deeper on maybe the timing for normalization of margins in Asia, when Xi Jinping gets supposedly reelected in November and China reopens its economy, right, at least that's what the market sees in terms of base case, that the lockdown decisions are political, do you see that as more positive or negative for PET margins in terms of demand that should bring -- incremental demand for PET?

But on the other hand, in terms of supply, we would expect some Chinese plants that might have been operating with limited capacity will also come back, so what would be your views on the margin impact with the reopening of China?

[Jose de Jesus Valdez Simancas, executive]

I think we could concur with your idea. I mean, I think that there should be some normalization going forward from the perspective of plants operating, but you also have to remember that a big change over the last months has been the cost of energy, cost particularly, in some cases, power, but particularly coal and natural gas. Coal and natural gas are very important energy feedstocks in that part of the world. And I think you're familiar with the prices that they're having right now. Prices of natural gas, LNG in China and Asia, I mean, you can see prices around $30 1 million BTUs and at some point in time, even higher.

And same thing happens in Europe. In Europe, we see -- we've seen prices going up to $50 million per -- $50 per 1 million Btu. So I do believe that, that is also restricting the capacity to reduce margins as quickly as you would think. So it's very difficult really to say when are they going to come down.

And as I mentioned, I mean, our position is that we are -- assuming they're going to come down any time, and that's where we build our guidance. But the same thing with the freight, but the good news is that they are taking longer, both of them. But I couldn't really give you an accurate estimate of when are they coming down.

[Vicente Falanga Neto, analyst]

No, that's super helpful, Pepe. And meanwhile, you are deleveraging, right, so it's always good news.

[Jose de Jesus Valdez Simancas, executive]

You're right. Yes.

[Antón Fernandez, executive]

Thank you, Vicente. That was the last question we have time for today. Rest assured we will follow up via e-mail if we did not get to your question on this call. As always, I'd like to remind you that you can find both the new recording of today's webcast as well as a transcript on our website at alpek.com. Thank you all for participating in ALPEK's webcast. Have a great day.