Pipes, food security and energy transition: Orbia's growth expands beyond its Mexican roots

In 1953 Mexican and American investors formed a Mexico-based company that handled high carbon steel wire ropes. By 2005 the company became MexiChem, buying up dozens of smaller companies that handle industrial chemicals, including polyvinyl chloride.

In 2019, MexiChem changed its name to Orbia to reflect its global footprint focused on water and food security, energy transition and information connectivity -- more than just PVC pipes, fittings and compounds.

What was a $200-million largely regional business in the mid-2000s emerged in 2022 as a $9.6-billion company.

"It's a story of growing from its roots in Mexico that they were very proud of to becoming a large regional company, and then eventually a truly global corporation," CEO Sameer Bharadwaj said in an interview. He said the name change was intended to reflect that growth. "Orb" means global while "bia" means force.

Three main segments going forward

Bharadwaj, joined by Nick Ballas, president of Orbia's polymer solutions business, said the company's three segments may seem complicated, but they are not.

Water and food security starts with salt and ethylene to make polyvinyl chloride, a construction staple used to make pipes and fittings, window frames, vinyl siding and other products.

Downstream, that segment provides drip irrigation systems and city-scale water management that includes tackling stormwater as climate change leads to increasingly severe storms and flooding worldwide. Those irrigation systems aim to allow farmers to grow food with less water and energy and reduce their carbon footprint.

"Almost 60% or more of Orbia is what I call the water and food chain," Bharadwaj said.

The company's connectivity and information access segment focuses on its Dura-Line business of passive network infrastructure and software.

And the energy transition and decarbonization segment is largely linked to Orbia's fluorine business, which Bharadwaj expects to grow exponentially in the next decade.

Demand growth for fluorine, a chemical element, is seen driven largely by lithium-ion batteries and semiconductors as well as computing and artificial intelligence, Bharadwaj said.

In November Orbia and Solvay finalized their joint venture to build the largest polyvinylidene fluoride (PVDF) production plants in Louisiana and Georgia to start up in 2026.

Orbia will supply minerals and intermediates for Solvay to manufacture PVDF, which is a lithium-ion binder and separator coating in electric vehicle batteries.

"It's a large project," Bharadwaj said. "It's the first of its kind and will scale exponentially as demand for lithium-ion batteries grows over the next decade."

Orbia also aims to build the first lithium hexafluorophosphate, or LiPF6, plant in North America at the same Louisiana site that will house the PVDF unit. The LiPF6 plant will produce electrolyte salt used in lithium-ion batteries.

"These are transformational efforts that enable the energy transition, and both of these materials will grow significantly over the course of the decade as demand for lithium-ion batteries increase with the transition to electric vehicles," Bharadwaj said.

The company's upstream PVC operations also play a role. Chlorine, the first link in the PVC production chain, is another raw material in the fluorine chain.

US PVC expansion planned

Orbia also has plans to expand its PVC operations with new units on the US Gulf Coast to produce up to 1 million mt/year of integrated chlor-alkali and PVC. A final investment decision is expected by the end of 2024 on the project to be phased-in through 2028.

Global PVC demand was strong from mid-2020 to mid-2022 when COVID-19 shutdowns created appetites for more home construction. That demand began falling amid rising interest rates and high inflation.

Despite the current PVC demand trough, Bharadwaj and Ballas see long-term demand growth and benefits of the polymer business' integration with Orbia's building and infrastructure and agriculture segments.

Bharadwaj said up to 70% of the company's PVC output ends up in pipes and fittings, much of that for agriculture. Another 10% to 15% goes into wire and cable compounds, and a smaller percentage goes into medical uses.

High-density polyethylene can also be used to make pipes for agriculture use, but PVC's chlorine content provides UV resistance while carbon black must be added to HDPE to get the same protection, "which is not a very sustainable thing to do," Bharadwaj said.

Ballas noted that PVC demand is seen driven by population growth, urbanization, affordable housing needs, food and water security and city-scale water maintenance.

"We think that long-term growth is good on its own," Ballas said.

The company remains committed to its US Gulf PVC expansion plans, but recently said they were taking "a hard look" at the project timing and scale given current market conditions. Those include interest rates expected to remain higher for longer and continued sluggish domestic demand in China which has prompted elevated its exports of PVC and other polymers.

"We are seeing softness today for sure in our markets," Ballas said. "There is growth in demand, it's important to note it's just much lower than we saw in 2021 and 2022."

China's domestic demand was expected to rebound after its COVID-19 restrictions were lifted at the end of 2022, but that rebound has yet to emerge. High interest rates and soft demand can lead to major project deferrals, which can lead to pent-up demand that eventually will need to be met, Ballas said.

Bharadwaj said the plan for a final investment decision at the end of 2024 gives Orbia time to refine the project's timing and scale.

But in the coming decades, "the world needs PVC," Bharadwaj said.

"In the short term it may affect our timing from a decision-making standpoint," he said. "And so a two- or three-year horizon versus a 30-year horizon when you think about these projects."