Alpek SAB de CV

BMV:ALPEKA

Earnings Call Transcript 2021-Q4

[Alejandro Elizondo, executive]

Hello, and welcome to Alpek's Fourth Quarter 2021 Earnings Webcast. I am Alejandro Elizondo, Alpek's IRO. And today, I have the pleasure of being joined by our CEO, Pepe Valdez; and our CFO, Jose Carlos Pons. This presentation is divided into 2 parts. First, Mr. Valdez and Mr. Pons will comment on Alpek's fourth quarter and full year performance, guidance figures for 2022 as well as relevant events, including our recent agreement to acquire Octal. Afterwards, we will move on to Q&A.

Please note that the information discussed today may include forward-looking statements regarding the company's future financial performance and prospects, which are subject to certain risks and uncertainty. 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'd 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 Mr. Pepe Valdez.

[Jose de Jesus Valdez Simancas, executive]

Thank you, Alejandro. Good morning, everyone, and thank you for joining us today. I hope you are all doing well. This morning, I'm very pleased to inform you that Alpek has completed 2021 on a very high note. Strengthening in global reference margins for our products helped the company achieve historical levels in terms of quarterly comparable and reported EBITDA. On an annualized basis, Alpek matched or exceeded company records for revenues, volume, reported and comparable EBITDA as well as leverage. Let's start by reviewing the main topics we will cover in today's webcast.

First, Alpek significantly surpassed financial performance expectations for the fourth quarter and 2021 overall. Jose Carlos will review this in greater detail later in this presentation. Second, we recently signed an agreement to acquire Octal, a major PET sheet producer. We will discuss the transaction overall and how it aligns with our long-term growth and ESG strategies. And third, we will provide insight into 2022 guidance figures and assumptions, which we released earlier today.

Providing some context for our latest results during the fourth quarter, increased demand for petrochemical products was combined with a tighter global supply, specifically from China, which resulted in sharp increases to reference margins for key products in our portfolio. During November, China implemented energy rationale measures at coal-based power sites in an effort to improve air quality in the region prior to the 2022 Winter Olympics as well as to meet their CO2 emissions reduction goals. As a result, output for both PET and EPS producers in the region was adversely affected, increasing Asian-integrated polyester reference margin to an average of $431 per ton for the quarter and $359 per ton for the full year. Both figures were far higher than Alpek's revised guidance figure of $315 per ton, which was based on the supply-demand balance expectations at the end of the previous quarter.

North American polypropylene reference margin also remained at near record levels, averaging $0.47 per pound, a 9% decrease quarter-on-quarter, as propylene prices came down to match the cost of Asian import alternatives.

At this point, I would like to turn the call over to Jose Carlos, who will go into more detail regarding the effect of these changes on our financial results.

[José Pons, executive]

Thanks, Pepe, and thank you all for being here with us today. I will first like to highlight some of Alpek's main achievements during the fourth quarter and for the year overall.

Alpek matched 2020's record annual volume of 4.8 million tons by setting a record high for its Plastics & Chemicals segment; also achieved record quarterly comparable EBITDA of $300 million, with both the Polyester and Plastics & Chemicals segments posting their highest figures ever for any fourth quarter; highest-ever annual comparable EBITDA of $962 million; recovered $8 million in guaranteed debt from M&G Mexico during the quarter; further reduced leverage to 1.1x and regained our investment-grade level rating with S&P.

If we take a deeper look at volume, Alpek reached 1.17 million tons this period, a small reduction of 2% quarter-on-quarter, as demand for all our products remained strong. In the Polyester segment, volume was 1% higher quarter-on-quarter, benefiting from a lessened effect from extraordinary weather events, such as drought in Altamira during the third quarter were affected due to plant maintenance at some of our production sites.

In Plastics & Chemicals, volume was 11% lower quarter-on-quarter, mainly due to a scheduled turnaround maintenance at our recently acquired EPS facility in Pennsylvania as well as normal fourth quarter seasonality effects.

On a full year basis, Alpek matched the record 4.8 million tons set in 2020, as the Plastics & Chemicals segment set a new annual record of 1 million tons, thanks to the successful operation of its EPS facilities in the United States offsetting the aforementioned effects related to the extraordinary weather in the Polyester segment.

Moving on to raw material price dynamics. The global economy has continued to show its strength despite the resurgence of the Omicron variant. Average spot Brent crude oil price increased to $79 per barrel, 9% higher than the same figure in the quarter. However, U.S. reference paraxylene prices only increased by 1% versus last quarter as margins for this product tightened globally. In Plastics & Chemicals, propylene prices averaged $0.66 per pound, a 20% decrease when compared to the previous quarter, to match the cost of import alternatives from Asia.

Switching over to EBITDA breakdown for the fourth quarter, we can see that comparable EBITDA was $300 million, 28% higher quarter-on-quarter. This was primarily due to higher-than-expected reference margins for our main products as well as solid volumes across both segments. Reported EBITDA was $269 million, 4% lower quarter-on-quarter, as this result also included: a noncash inventory loss of $11 million, a positive carry-forward effect of $6 million; and a onetime $25 million loss related to the footprint optimization, as our caprolactam site in Mexico and staple fibers facility in Cooper River were shut down after years of low industry margins and profitability.

If we turn our attention to results by key segments, we can see that Polyester comparable EBITDA was $160 million, 49% higher quarter-on-quarter and marking the highest fourth quarter ever for the segment. Result largely benefited from a strong Asian polyester reference margins, which averaged $431 per ton, after reaching peaks above $500 per ton at one point during the quarter.

In Plastics & Chemicals, comparable EBITDA also reached a new quarterly record of $138 million, an increase of 11% quarter-on-quarter and 109% year-on-year. This was mainly due to the higher EPS margins stemming from strong demand, coupled with lower supply coming from Asia and propylene margins, which remained higher than expected to the end of the year.

Moving on to annualized results. 2021 comparable EBITDA was a record-breaking $962 million, 60% higher year-on-year, and vastly exceeding our revised guidance figure of $850 million as strong volume and margins for our core products combined through the year.

With regards to free cash flow generation in the quarter, net working capital investment decreased by $51 million, largely due to declining price of propylene during the quarter. CapEx totaled $32 million and was mainly used for maintenance and minor asset replacements.

Positive free cash flow totaled $226 million, as a strong EBITDA and a decrease in net working capital more than offset other expenses. And Alpek paid a $56 million shareholder dividend based on these strong results in 2021.

Finally, regarding our financial position during the fourth quarter, Alpek's net debt decreased to $1.23 billion. The last 12 months EBITDA increased sharply, resulting in an improved leverage of 1.1x net debt-to-EBITDA. And if considering net debt to comparable EBITDA, we also see that Alpek further improved this ratio to 1.3x.

As a result of Alpek's improved financial position, but more importantly, after a thorough review of the company's business risk profile in December, S&P reverted Alpek's credit rating to BBB- on a stand-alone basis, equivalent to investment grade. As such, the company now holds stable investment-grade ratings across all 3 major rating agencies.

Thank you, everyone, and I will now turn the call back to Pepe.

[Jose de Jesus Valdez Simancas, executive]

Thank you, Jose Carlos. Turning our attention to recent events. As Jose Carlos mentioned, Alpek concluded 2021 with its lowest net leverage in 8 years, a strong financial position that allowed the company to consider additional growth opportunities. 2 weeks ago, we announced that Alpek has taken an important step forward in its long-term growth strategy after reaching an agreement to acquire Octal, a major PET sheet producer. The transaction is an ideal fit for Alpek for several reasons.

One, it incorporates PET sheet into our portfolio. A new high-value product, PET sheet is an easily moldable product used in diverse food and beverage applications that currently represents 13% of global PET demand, and it is expected to grow at a strong 6.4% per year.

Two, the addition of DPET proprietary technology, a PET sheet production process that eliminates several energy-intensive conversion steps resulting in the lowest cost production method for this product.

Three, PET sheet is 100% recyclable, and Octal production generates a product that has a 25% smaller carbon footprint than the rest of the industry. The addition of this product into our company accelerates Alpek's portfolio evolution towards even more sustainable products.

Four, transaction expands our geographical footprint, allowing Alpek to reach customers more easily on a global basis. Finally, the deal was attractive from a financial point of view, which we will disclose in more detail on the next slide.

With a purchase price of $620 million and a last 12 months EBITDA of $135 million, the deal has an implicit multiple of 4.6x. Moreover, the transaction is expected to close by the second half of the year, at which point, the asset would become immediately EBITDA-accretive to Alpek. Furthermore, giving Alpek's strong performance to date as well as the addition of Octal's EBITDA, Alpek expects to remain at reasonable leverage levels even after the acquisition is concluded, reaffirming its commitment to financial stability.

Finally, regarding guidance for 2022 and as announced in this morning's press release, Alpek's outlook remains positive. We expect the strong economy and positive changes to consumer behavior to continue supporting demand. As such, the company expects a continuation of strong financial performance across its core product portfolio throughout the next year.

Our guidance figures are based on the following key market and business assumptions: average Brent crude oil reference price of $81 per barrel; Asian integrated PET reference margin of $315 per ton, based on demand and high freight costs, combined with a normalization in the Asia versus North America PET spread, which was very low in 2021; a total volume increase of 4%, largely from the Polyester segment, as we do not expect a repeat in the adverse weather events of 2021 and only slightly offset by a reduction in the Plastics & Chemicals segment as our ongoing EPS maintenance concludes during the first quarter; as well as a gradual decline in North America polypropylene margins, which remain high in 2021 and still -- and are still expected to remain well above historical levels.

Based on these assumptions overall, comparable EBITDA for 2022 is expected at [ $1.031 billion ] in the year. It's important to note that this figure does not yet include the EBITDA contribution from the Octal acquisition.

Annual CapEx for the year is expected to be $830 million, which includes $620 million associated to Octal's purchase as well as $125 million for strategic projects and $85 million in maintenance CapEx.

In terms of dividends, Alpek is proposing $173 million for shareholder approval, in line with the amount it has proposed in previous years. Possibility for an additional dividend will be assessed later in the year, depending on the company's results.

Finally, from a financial standpoint, Alpek has kicked off 2022 with an extremely solid position of 1.1x net debt to EBITDA. We expect leverage to remain in line with our requirements as an investment-grade company and well below our target of not more than 2.5x.

As always, I would like to thank our team, customers and suppliers for helping Alpek reach new heights. I am confident that the records we broke in 2021 can be surpassed again this year. I would also like to thank you for your attention today. I'll now turn the call back to Alejandro to open the webcast for Q&A.

[Alejandro Elizondo, executive]

Thank you, Pepe. [Operator Instructions] We will attempt to cover as many questions as time allows.

Our first question comes from Leonardo Marcondes from Itau.

[Leonardo Marcondes, analyst]

Guys, can you hear me?

[Alejandro Elizondo, executive]

We got you, Leon.

[Leonardo Marcondes, analyst]

Okay. Perfect. I have actually 2 questions about the guidance. My first is, could you provide a bit more color on the supply-and-demand dynamics for polyesters that explain actually Polyester's margins for -- you guys expect for 2022? I mean, I believe that almost all the petrochemical spreads will normalize this year, right? But could you provide more color on what do you expect in terms of capacity addition or closing? Globally speaking, how demand should behave for PET this year?

My second question is on the risks of the guidance. With the guidance provided, Alpek will post another record annual EBITDA, right? So I would like to know from you guys, what are the biggest risks you guys see for 2022 besides lower spreads? Is there something else that could impact the company's expectations this year?

[Jose de Jesus Valdez Simancas, executive]

Leonardo, thank you for your question. In terms of the supply/demand, yes, I have to say that certainly increased in both demand and supply. And the, let's say, supply/demand or the operations rate globally perhaps are going to be similar to last year.

However, we do believe that there are some other factors that are playing a very important role this year. But let me start by saying, in the guidance, you probably noticed that we are assuming a margin in Asia of $315 per ton. And if you compare that to $431 in fourth quarter, that means we are assuming a very rapid normalization of margins in Asia. I have to say that, however, you have to take into consideration that in Asia and China, in particular, prices of energy have been much higher than normal. Prices of natural gas, at some point in time, around up to $30 per million BTU. And of course, that impacts the power cost as well in a significant way. So that is part, I think, of the explanation of why the margins in Asia remain at a higher level today than in the past. So keep that in mind.

So again, $315 per ton, Asia, I would say, normally, in a normal situation, we would be forecasting, let's say, perhaps $270 or in that range. But of this increase from $270 to $315, there is a considerable impact of the energy. So that's why we are keeping the margins higher than the normal year.

Okay. Now the other aspect has to do with, of course, the ocean freight rates, particularly for containers. We have seen, I think most of you are familiar with this issue, traditionally container cost from Asia to, let's say, North America, which is our main market at the end, West would be around $2,000 per container and to the East Coast, perhaps closer to $3,000, okay? So that's the normal range for freight rates.

Today, in our budget, in our guidance, and we didn't mention this, so this is an important clarification or addition. We are assuming a container -- an average container cost from Asia to North America and South America, again, which are our main markets, of around $6,500 per ton. As we speak, these freight rates are more in the $9,000 to $10,000 range, okay? So that, again, is a very important assumption.

So I think this would probably give you some -- a little bit more -- let's say, a little help in making your own predictions. I mean, basically, what we're saying is guidance in margins of PTA, $315. Right now, margins are closer to $400 than $315. And freight of, again, $6,500 per container. We're now closer to $9,000, $10,000. So at least from those 2 important assumptions, we are relatively conservative in our guidance. And of course, we are assuming trade rates will come down as the year goes by. We believe that probably we should start to see that second half this year.

Also, I tell you a lot of people, experts in the industry believe that the normalization of the freight rates will start more into next year. But we are assuming it starts earlier, and that's why we're reducing this number of $6,500.

And again, this freight rate is important, not only for polyester, but also for EPS. For both products, this is an important premise or assumption because in both cases, over prices in some cases are based on margins outside of margins in Asia [ plus rate ]. So that's one point.

And then you asked about the risks of our guidance. Look, the other important assumption in the guidance is that we are reducing our polypropylene margin so that we end the year, let's say, at a normal margin, at an average margin. And that reduction so far -- let me put it this way, so far, the margin reduction is not going down as rapidly as we have assumed in the budget, but perhaps, I mean it's only 2 months. So it's too early to say how it is going to end. But I just want to convey the fact that, I believe, we try to be conservative in our key assumptions for the guidance. If you ask me today, I see a higher probability of upsides than downsides to our guidance.

[Alejandro Elizondo, executive]

Our next question comes from [ Tasobas Consetos ] from UBS.

[Unknown Analyst]

Congrats on the results. My questions are regarding Octal acquisition and M&As. Other than the expansion in terms of portfolio, with the acquisition of Octal, there is obviously a strategic geographic positioning. Could we expect additional movements in the region with Alpek seeking to strengthen its competitiveness in either Europe or maybe Asia? And as you mentioned, leverage is still below 1.6x, relatively comfortable. So is there additional M&A on the pipeline in the short term?

And my second question is regarding what are the risks you're seeing with the Octal acquisition? Most of the M&As faced some challenge, not in terms of expanding its portfolio per se, but maybe integrating operations, different kind of cultures or even relationship with clients. Alpek has a solid track record with M&As. So maybe could you comment on the any challenge you faced with other acquisitions? And what are the biggest risks and challenge you have [ met ] after the closing of Octal? Those are my 2 questions.

[Jose de Jesus Valdez Simancas, executive]

Taso, well, first, of course, the Octal acquisition is very well aligned, as I mentioned, with our strategic pillars. First of all, we do believe this strengthens our existing business overall. Just -- I mean, if our capacity of PET today is close to 3 million tons, this would have almost 1 million ton additional in PET. And again, it provides a lot of synergies in procurement of raw materials and some other important aspects. So Octal complies with the first leg -- pillar of our strategy, which is strengthening the business.

Number two, which is sustainability and circularity. In that, I already explained, that's also very clear. I think this technology is certainly up to -- at least from what we know today, the most -- or the lowest carbon footprint to produce PET. And believe it or not, there are not many -- not so much capacity with this technology globally. So that is another important aspect that we consider in making this decision.

And in terms of the other pillar is we prefer to grow in products or businesses that have some sort of adjacency to what we do to diminish risk and to capture synergies. And again, this is -- this project of Octal also complies with that. Octal, you can see, in a way, as a geographical diversification for our products but also as an integration. I mean the sheet comes from PET. So it helped us integrate also our existing product line. So again, it's a very special situation with Octal.

Now when you ask me about new M&A, I would say, well, we will consider it. We will continue to look at new M&A, particularly in companies or sectors that comply with all these requirements. And in some cases -- or in many cases, we do have a relatively important presence in the regions where we are. So I would say, you have to expect some of these M&A could be in product lines that we already are in other geographical areas. That would be one possibility.

And of course, let me emphasize, the other very important priority for us is to continue to invest and to grow in circularity in recycled products and also not only circularity but also in sustainability, products that help improve our carbon footprint.

In terms of recycled products, well, of course, you know what we have done in polyester. We acquired last year what we consider to be one of the best plants for mechanical recycling in the U.S. It's very close, in our opinion, to a state-of-the-art facility. And also, we understand and accept the mechanical recycling has to continue to evolve to improve cost, the scale and quality. There is no question that this plan has -- provides a lot of opportunities. And that's part of the reason why we invested in that. We will continue to look for opportunities in M&A, in mechanical recycling as well as in chemical recycling. Also in chemical recycling, more than M&A is look for new technologies, alliances, new projects. Because chemical cycling is a little bit -- it's not, let me put it this way, as advanced as what you see in mechanical recycling. Mechanical recycling, we think is a mature technology, still has to improve, but it's closer.

In terms of chemical recycling, I think we're at the beginning of what's going to happen in chemical recycling. And as you know, in chemical recycling, just also to make sure we understand each other, there are several different processes for chemical recycling. One, which is the -- perhaps the most advanced today is what is called methanolysis, where you use -- well, where you import, let's say, use PET into the plant, and you get back MEG or glycol and you get back DMT. There's a couple of projects that Eastman is now proceeding with, one in Europe and one in the U.S. And I think this is a significant improvement, and these plants do have a scale that is required. But again, let us not forget that chemical recycling also needs feedstock. It also need the bottles. And again, on the one hand is to have good technology to convert bottles into PET or in this case, PET precursors. And on the other hand, there are other technologies that perhaps would make a little bit more sense to us because in our plants mostly, we don't consume PET as much.

And the other technology that is called glycolysis, which converts PET into the polyester monomer, normally called BHET. So that is, again, a feedstock that we could use in our existing PET plants to produce recycled [ PET ].

So that technology, in particular, will be also of great interest to us. And we are talking to different technology suppliers or different companies that are working in this area to see how we can advance, we can accelerate all of these processes.

And last, there's another process -- well, there are 2 more processes in chemical recycling. I think that the other one would be what is called hydrolysis, but that is technically a more complicated process. In that case, you go back from PET, I mean, plates or whatever. You go back to PTA and glycol. Again, it has significantly more challenges from a technological point of view.

And last, the other technology that is important is pyrolysis. But we're looking at that technology more than for polyester for other plastics. That technology is -- again, that's not a new technology as opposed to all these polymerization I was talking. The pyrolysis is a technology that has been known for many, many years. But that is, I think, very important, particularly for recycling of other plastics, mainly I would say polyolefins. Because that, again, converts those plastics into feedstocks or for crackers. So that's another possibility. But again, we look at that more from the polypropylene perspective than from the polyester perspective. But that's also an important technology that we're working with.

[Alejandro Elizondo, executive]

Thank you, Taso. Our next question comes from the line of Vicente Falanga from Bradesco.

[Vicente Falanga Neto, analyst]

I had 2 questions. With the Octal acquisition, Alpek, like you mentioned, take some steps towards the more value-added side of the chain, which could reflect in less result volatility in the future and therefore, possibly more premium valuation for the company. Could this be a motivator when analyzing future M&A? And could we expect the company to become more and more forward integrated?

And then my second question, this time last year, the Northern Hemisphere had a big polar freeze, which impacted the supply logistics of petrochemicals. We have had a few storms, I think, in the U.S. Do you think that these were in the same magnitude or was strong enough to potentially impact prices?

[Jose de Jesus Valdez Simancas, executive]

Okay. You were talking about the sheet business and asking whether there's more opportunities to forward integrate? I would say, in this sense, Octal was a unique opportunity for us because we do not have a lot of customers that are producing this product today. And again, they have a very differentiated technology. So that's what made this decision attractive to us.

In most of our other opportunities, PET markets or even polypropylene or EPS, we have consciously made the decision not to integrate forward because it would result in competing with our customers in many cases. And again, in many cases as well, these businesses are of a different nature. They are not so much chemical business. They are different business types and where it's not necessarily that our competence would be so important. So I don't see as a rule, the fact that we will not be looking at other integration.

What we're looking at is trying to add more differentiated products. And such an example we have, we are investing in our polypropylene facility in having copolymer capacity. We are investing in EPS, in the ARCEL product, as you well know, which is also a differentiated product. We are increasing our capacity or planning to increase our capacity there. We have just recently developed biodegradable EPS. We've tested this commercially. And again, as I mentioned before, we are right now relatively tight in terms of EPS capacity for a short period of time.

So once we -- because we are making some improvements to our plant, the plants were recently acquired. But once those improvements are finished, we will be able to also start to produce the biodegradable EPS in a more normal fashion.

Another very important product that we are going to start investing in, and I didn't mention before, we also have developed, together with another company, a technology to, again, chemically recycle EPS and PS back into styrene monomer. We have already tested this at the pilot level, and the results are very promising. We are now considering to build a commercial plant of a relatively small size so that we can test the technology and be ready to move ahead, but that's also an important opportunity for us to grow in the future.

And again, the challenge with this recycling, polymer recycling or mechanical recycling anyway, is the challenge or the limitation for us to continue to grow there is the availability of used bottles or of used plastics. That is the key limitation that we are facing. If we have enough feedstock, we would be growing much more aggressively, but it's extremely important that we can develop more sources of feedstock.

And we're also -- honestly, we are also spending a lot of resources, time to make sure of that, to make sure that the collection of our products can be increased. We are working actively, I would say, in the recycling partnership, which is an organization in the U.S. that is precisely trying to find ways to increase the collection of our products in its final stage. So that's another area, again, where we're trying to continue to invest.

So as you can see, there's a lot of opportunities, but not only in our existing product line, but in areas related to that, recycling, circular economy. Eventually also, of course, we are also working with some people in the potential opportunities for bioproducts, not only biodegradable, but also bioproducts, meaning that the raw materials come from bio raw materials. In this case, it's not an issue of circularity, it's more an issue of improving carbon footprint. So again, as part of our, let's say, opportunities going forward, recycling, improving collection one way or another, biodegradable products and also mass -- biomass products, all of these, we are very much emphasizing.

We also have some bio-fertilizers and bio-pesticides that we are very advanced in terms of the development of the product. And that's a very interesting possibility. We have a very unique product there, and this product will be used for organic to produce -- or required to produce organic products, and we don't see anything like that in the market today. We're just waiting. The product has been fully developed. We are waiting for the approval of Cofepris, which is regulatory here in Mexico. And unfortunately, it has taken a lot of time. This agency, government agency, has been very busy with all of the COVID situations, and we have not yet gotten the approval. But again, I probably ask too much -- I mean, I probably answer too many things. But I want you to have an idea of all the things that we are looking at for the future.

[Vicente Falanga Neto, analyst]

That is very clear.

[Jose de Jesus Valdez Simancas, executive]

Let me just make a comment? Because -- and again, when we look at these products, we are not dreaming with a multiple of 14 or 15x EBITDA. We are doing this because we feel it's the right thing to do. If we happen to get those multiples, well, there's going to be an added bonus. That's going to be great. But again, this is something that we are doing with -- and we don't require those type of multiples to move ahead with these opportunities.

[Vicente Falanga Neto, analyst]

That's very clear. You have a lot on your plate.

[Jose de Jesus Valdez Simancas, executive]

Okay. Now you asked a question about the polar vortex. Look, this situation we lived last year was one in -- I mean, it was really a black swan. I think last 2 weeks ago, we were again -- the market once again going crazy because they were expecting a similar situation, which did not materialize. I think that we are all learning how to avoid these problems. And I'm sure there will be external factors that would impact our production and everything, but hopefully, I mean, they will not be the same. Hopefully, we're learning from what happened and try to reduce possibilities of these things happening again.

And let me just give you an example. As you know, because not only the polar vortex for us, the biggest impact last year in terms of our production was the drought in Altamira. And again, that was a combination of lack of maintenance from some of the facilities in that area, in the lagoon that has -- that is there and which are being addressed. What happened was the level of water in the lagoon was so low that the water from the ocean started to leak into the lagoon and made the quality of that water very difficult to use.

So what's now happened, first thing that was done is all of those leaks have been fixed. So hopefully, if we have a low level of water, at least the ocean -- the salt water will not come into the lagoon, number one. And number two, we also -- on our side, we have also invested now in some water treatment technologies that will significantly reduce our consumption of water and improve the quality. So again, another opportunity to get reliability in our plants and also to help our sustainability efforts, reducing water consumption.

[Alejandro Elizondo, executive]

Our next question comes from the line of Jean Bruny from BBVA.

[Jean Baptiste Bruny, analyst]

Just have a couple actually. The first one, I don't think -- I get that if you mentioned it already, but what the impact of Octal to the EBITDA guidance you have for this year, assuming for the second half, I believe? So if you can give us gross numbers for the contribution of that new business to your EBITDA guidance.

The second one is probably more on the dynamic of the markets. I think we're believing -- I believe we're seeing some scarcity of the product in some regions. In the U.S., it appears that it gets difficult to get access. So if you see a change of attitude of your customers, maybe they are committed to more of your volumes, more long-term volumes, in pricing as well.

And the question is also for recycling. We're seeing in some part of the world, like in Europe, the recycled PET trading at a premium to virgin. We're seeing this as well in the U.S. We've seen a lot of customers that are committed to include some recycling PET to the product. If they can get access, are they ready to pay more for the recycled product? You mentioned there's a difficulty to get access to the raw material as well. So -- and you mentioned in the past that maybe we can have a new formula to calculate the price of recycled products. So if you can just mention it broadly. And if within the recycling product, we can see different prices for mechanical, for pyrolysis, for monomer recycling as well.

[Jose de Jesus Valdez Simancas, executive]

Okay. With regards to your first question in terms of Octal EBITDA, we believe that perhaps second half of EBITDA from Octal, I would say, will be estimated to be around $80 million. And that's the number we have in mind, and it's not included in our guidance.

Number two, again, you're coming back to the circularity issues, recycle. What I just mentioned to you, the unavailability or the scarcity of recycled bottles, or bales as we call them, has driven the price of the bales. The bales themselves higher than the price of the virgin products.

So just to give you an example, here in Mexico, the bottles, you want to buy a bottle bale, PET, I'm talking now, you have to pay $1,100, $1,100 for the bale itself, out of which, you're going to have a yield, I don't know, perhaps 65%, 70%. So once you yield a bale, it will give you a price of $1,500 only for the raw material. And then on top of that, you have to add the conversion cost to convert those bottles into rPET, into pellet or into flake, whatever, whatever route you go.

And then that's the reason why our pricing in -- and again, this price of bales, this price of the bales is very volatile. It changes a lot, up and down depending on different situations. But that's why our pricing policy for rPET is absolutely based on a cost pass-through. So we have cost of bales and then we add the conversion cost to that. And that's the way we sell the product. It has nothing to do with the price of the virgin product, completely independent.

And the good news is that the customers, our customers, brand owners, they agree on that. They accepted that, and they believe it's a fair way to go. And that's the only way we can continue to invest in that business. So that I think a solution has been filed for that. And again, this is for mechanical recycling, chemical recycling, whatever. That's the new, let's say, formula or pricing formula that is being used by most of the industry today.

[Jean Baptiste Bruny, analyst]

Perfect. Very clear. And just maybe a last one on Corpus Christi, if you can give us an update on the timing you're thinking for the follow-up project.

[Jose de Jesus Valdez Simancas, executive]

Yes. Corpus Christi is progressing. We have done -- we have advanced on the, let's say, cost estimate to finalize the plan. And we still have -- let me put it this way, we still have some work to do there. But I would say that I would expect that by April this year, we should be able to -- we should be ready to make the final decision to go ahead.

[Alejandro Elizondo, executive]

We're going to get our next question now from Andres Cardona from Citi.

[Andres Cardona, analyst]

Pepe, Jose Carlos, maybe following up with the question -- the previous question about Corpus Christi, just to clarify. So the CapEx guidance, does it have any budget for Corpus Christi? And then the question that I have been like preparing is, over the last 18 to 24 months, we have seen -- or at least in my view, several structural positive impacts for your business with demand growing very fast. And so my question is about what are the structural impacts you see for the business? And in particular, I care about if you think the industry is developing enough capacity to keep serving the market, in particular in the Americas. Because it seems we are seeing a kind of a reliability premium, which seems to be -- or at least to me, to be a pricing signal to develop more capacity.

And the second is still associated to the changes that we have seen in the industry over the last couple of years, if your long-term view about the integrated PET margins have changed along this period of time, and if so, how it has changed.

[Jose de Jesus Valdez Simancas, executive]

Well, your first question, I get this for the investment of CapEx with CCP included. We are including some amount of CapEx in there. Again, if the decision is made at the end of April, beginning of May, then, of course, first months is going to be getting the site ready and everything. So it's not -- we're not expecting a lot of CapEx this year. The biggest CapEx will be '23 and '24, but we are including a certain amount of CapEx for CCP in our CapEx budget, okay?

In terms of capacity in America in PET, well, I think you are right, demand has grown faster than we anticipated. So that's why certainly, that's -- it goes for Corpus Christi going ahead. Having said that, we also see that rPET is going to continue to increase. So that should also help fulfill the demand. And in a way, also our Octal acquisition would also allow us to import or bring more PET into the U.S.

And change in PET margins, that question, Andres, if I know the answer. Look, there are some reasons where you would consider that they have to improve going forward, the margins for PET in Asia. I mean one of those, some people say that margins are going to go back, but perhaps not going to go back all the way, that they want to remain, at least for a while, a little bit higher than what they were before the pandemic. So that's one reason why even if the margins in Asia remain the same, then still, the margins overall could improve in the Americas. That's one possibility.

The other aspect, I think, I mean, we are -- in our internal assumptions, we are assuming that the margins in Asia are going to remain the same. And we are assuming that the freight rate is going to remain the same. But I see your point. There is a possibility that they could move a little bit higher.

And on the Asian side, China, of course, the energy issue that I mentioned before is likely. I think China has been depending a lot on their coal for energy to supply power. So as we move forward and they are cleaning -- they are reducing their emissions, perhaps they have to convert some of those plants that -- power plants that use coal to other feedstock, natural gas or whatever.

So again, I think, yes, that might be -- that might have an impact on the margins, some increase in margins going forward. But again, our assumptions in our plants is that they will continue on a similar level. I think that, that forces us more to continue to improve our cost and our operation efficiency.

[Alejandro Elizondo, executive]

Thanks, Andres. Our next question comes from Vanessa Quiroga from Credit Suisse.

[Vanessa Quiroga, analyst]

Pepe, Jose Carlos, I entered a bit late on the call, but I understand that you are representing the premium that you're getting for PET in Americas or North America as a normalization of prices versus Asia. But I want to understand that better because -- what year you are taking as that target then for normalization?

[Jose de Jesus Valdez Simancas, executive]

We -- I mean, the margins that we are using, I think I mentioned this before, for margins in Asia long term, are going to be $270 in Asia. And in the guidance that I just mentioned, we are using -- for this year, for 2022, we are using $315. So we are assuming that this year, 2022, is going to be slightly higher than the equilibrium margin in the future due to, again, some of these energy issues that I was just mentioning that have created increased -- an increased margin. And also, we are assuming that this year, perhaps we're going to start -- at least the first quarter, we are assuming that the margins will be higher. Again, all of these energy prices are going to remain high at least until the first quarter, and then perhaps, they will start to normalize. But that's why we are using $315 this year versus the $270 normal figure in -- let's say, starting 2023 onwards.

[Alejandro Elizondo, executive]

That concludes our questions to be submitted orally. We have a few questions via text. We'll get to maybe one or a couple because we are running out of time.

The first one -- some of them have already been answered. So [ Liliana de Leon ] asked about Octal figures for EBITDA in guidance. As Pepe already answered, that's around $80 million if the transaction concludes in the second half.

[ Lucila Gomez ] and [ Federico Galassi ] both asked about where Asian margins are currently at and in January and February to get a better understanding of how fast the normalization is happening. Pepe already answered that they are currently around $300 to $310 per ton.

[Jose de Jesus Valdez Simancas, executive]

No, no, no. That will be China, not Asia.

[Alejandro Elizondo, executive]

I'm sorry, yes. Chinese -- yes, $400.

[Jose de Jesus Valdez Simancas, executive]

Around the order of $400.

[Alejandro Elizondo, executive]

Thank you. Thank you for the correction, $400 to $410 per ton.

And we have a question from [ Andres Antonio ], who asks if greenhouse gas emission reductions are expected to be positively perceived by investors, Pepe?

[Jose de Jesus Valdez Simancas, executive]

Well, that's a very good question and a very important question. I think you are all familiar with our ESG press release. And we committed ourselves to reduce our greenhouse -- well, our CO2 emissions 30 -- I think 27.5% for 2030 from '18 to 2030 according to the guidance of the United Nations and the Paris accord and all of that.

[Alejandro Elizondo, executive]

It sounds very [ good ].

[Jose de Jesus Valdez Simancas, executive]

And I'm glad to tell you that this year, 2022, we're going to get close to 20% reduction already. So by the end of '22, I think we're going to be 20% lower than '18. So we still have another 7.5% or, let's say, 10% to go. But we are very advanced in meeting this emission reduction. And we do have, of course, plans to get to the 30%. And basically, I think the biggest -- some improvements in technology, which will reduce energy intensity in our products, and also some switching from [indiscernible] to renewable power that we can do from now to 2030. And then on top of -- yes, I would say those are the 2 major opportunities.

Beyond 2030, I do believe that at that point in time, this bioproduct opportunity will help us to continue to reduce. And we do have more opportunities to change to renewables after 2030 because we have a contract with clean energy, but still not renewable that goes all the way to 2031, I think. So we do still have some opportunities to continue to reduce our emissions after that. And we're working, we're working as we speak in opportunities, carbon capture, green hydrogen. We are looking at all of those technologies, which today, they are not mature enough, and they might even be expensive, but we're looking at those opportunities. Hopefully, those will materialize in -- after 2030 to allow us to go to the neutral or to the zero carbon emissions in 2050. So we see opportunities to continue making progress.

[Alejandro Elizondo, executive]

Thank you, Pepe. 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 a video 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 and have a great day.