You may begin.
Thank you, Rob. Good morning, and welcome to Alpiq's Q1 2021 earnings webcast. I'm Alejandro Lisondo, Alpiq's Investor Relations Officer. And I have the pleasure of being joined today by our CEO, Pepe Valdez and our CFO, Jose Carlos Ponce. Please turn to Slide 2.
This presentation is divided into 2 parts. First, Mr. Valdez and Mr. Ponce will provide commentary on Alphic's Q1 2021 performance and an update on relevant events. Afterwards, we will move on to the Q and A session.
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 risks and uncertainty. Actual results may differ materially and the company cautions the market not to unduly rely on these forward looking statements. Alpiq undertakes no obligation to publicly update or revise any forward looking statements whether as a result of new information, future events or otherwise. Today's webcast presentation is being recorded and will be available on the company website at alpek.com. I will now turn the call over to Mr.
Pepe Valdez.
Thank you, Alejandro. Good morning, everyone, and thank you for joining us today. I hope you're all staying safe and doing well. Today, I am excited to share with you that Alpek has started off 2021 on an extraordinarily strong note. During the Q1, in addition to achieving outstanding results, we also made important strides in terms of our financial initiatives.
Let's turn to Slide 3 to briefly review the main topics for today's webcast. First, Alpek has greatly surpassed financial performance expectations for the Q1. Jose Carlos will review this in greater detail. 2nd, Alpek successfully issued a $600,000,000 bond at a record Coupon and spread for the company. And third, we will provide additional insight into our revised 2021 guidance Per the earnings report released yesterday.
Turning to Slide 4, And as context for this quarter results, we can see the result of the global economic result that is taking place as COVID-nineteen vaccines become increasingly available and are further distributed. This is strong growth, which is driven partly by the Chinese economy has caused demand for petrochemical products, including pet to rice. As such, in the Q1, Asian Integrated Polyester Reference Margin improved to an average $3.30 per ton. This is much higher than Alpek's original guidance figure of $2.45 per ton, which was based on the supply demand balance that was prevalent Towards the end of 2020. Now let's turn to Slide 5 to discuss the unprecedented polar vortex That as many of you know, hit the U.
S. Gulf Coast hit this past February. Crissing temperatures, which lasted for several weeks, Credit across Texas and Louisiana interrupting the supply of power, natural gas and petrochemical feedstocks. As such, close to 90% of the petrochemical plant in this area were adversely affected by this phenomenon. However, Alpek operations continue mostly uninterrupted for 3 important reasons.
1, our facilities are not located in the affected region. 2, we operate a small business Unit is specifically focused on commercializing natural gas from the U. S. Into Mexico, 4th, helping guarantee our supply of natural gas. And 3, we have worked diligently on developing alternative sources of raw material supply outside of the U.
S. Gulf Coast. The spoiler vortex caused natural gas prices to temporarily spike for 2 weeks peaking at over $400 per 1,000,000 BTUs. It also caused an industry wide reduction in inventory levels for various petrochemicals, leaving polypropylene average margins to increase To $0.32 per pound. As a result, Alteryg was able to not only navigate, but capitalize on both effects.
1st, by operating throughout the crisis to capture these attractive polypropylene margins second, by commercializing part of our natural Gas inventories at market prices to 3rd party buyers in Mexico. At this point, I would like to turn the call over to Jose [SPEAKER CARLOS ALBERTO PEREZ DE SOLAY:] Carlos, who will go into more detail regarding the positive impact this event had on our financial results.
Thanks, Pepe, and thank you all for joining us for today's webcast. Turning to Slide 6, I want to highlight the company's outstanding performance throughout the quarter. Alpek achieved overall volume of 1,200,000 tons, A record high for any Q1 period in our history. Reported EBITDA of $324,000,000 OpEx highest ever when excluding asset sales and the bad will effects. Comparable EBITDA of $203,000,000 As a result of record Q1 volume and higher than expected PET and polypropylene margins as described by Pepe.
A leverage reduction to 1.6 times As last 12 months EBITDA rose significant. As we can see on Slide 7, APEC reached 1,230,000 tons in volume, setting a record for any Q1 and a 4% increase compared to Q1 2020. In the polyester segment, pet volume remained at similar levels to those of last quarter and 3% higher than the figures for Q1 2020 Due to the strong post COVID demand experiences last year, volume would have been 28,000 tons higher Had it not been for a lack of energy, natural gas and acetic acid resulting from the polar vortex. In plastic and chemicals, volume increased year on year by 8%, mainly due to our acquisition of Nova's Sandoval's Terenex business. If we exclude this added capacity, volume would have been flat versus the comparable periods.
Moving on to raw material price dynamics on Slide 8. As the global economy heads towards recovery, Demand for refined products has risen. If we add the continued enforcement of OpEx oil production quotas, Average spot Brent crude oil increased to $61 per barrel, 36% higher than in the previous quarter. Correspondingly, U. S.
Referenced peroxylene prices also increased by 30% versus last quarter. In plastic and chemicals, the polar vortex in the U. S. Gulf Coast drove propylene prices to an average of $0.73 per pound, a 77% increase when compared to the previous quarter. Both effects generated a positive inventory adjustment And a carry forward effect across both of our business segments.
On Slide 9, we can see the EBITDA breakdown for the Q1. I want to take a moment to mention that as of this year, we will be simplifying our report with comparable EBITDA now excluding extraordinary items, Inventory adjustments and also carry forward effects, which we will continue to break down for the market's benefit. Under this definition, comparable EBITDA was $203,000,000 35% higher quarter on quarter as PET And polypropylene margins were significantly higher than expected. Reported EBITDA was $324,000,000 193 percent higher year on year as this result also included a non cash inventory gain of $63,000,000 And a positive carry forward effect of $58,000,000 Shifting our attention to results by key segment, We can see that polyester comparable EBITDA was $89,000,000 increasing by 10% quarter on quarter. Our results benefited from a rise in average Asian integrated pet margins to $3.30 per ton.
Meanwhile, Plastic and Chemicals Comparable EBITDA was $97,000,000 an increase of 48% quarter on quarter As polypropylene margins increased by 43% due to the polar vortex adversely impacting local producers and reducing inventories. With regards to its free cash flow and on Slide 10, Alpek registered the following results. Net working capital investment increased by $192,000,000 as a result of higher feedstock prices during the quarter. Financial expenses totaled $67,000,000 This figure is higher than usual as it includes expenses related to the issuance of Alpek's new bond And subsequent tender for its 2022 bond. CapEx remained low at $30,000,000 and was mainly allocated towards maintenance and minor asset replacements.
Finally, on slide 11 and regarding our financial position, OpEx net debt as of quarter end Increased marginally to $1,220,000,000 resulting from an investment in net working capital, which should be recovered over the remainder of the year, Improving net debt. Last 12 months EBITDA increased this quarter, resulting in an improved leverage ratio of 1.6 times net debt to EBITDA, Well below our target of no more than 2.5 times. If considering net debt to comparable EBITDA, we can see that Alpe continues Thank you for your interest. I will now turn the call back to Pepe.
Thank you, Jose Carlos. Switching over to relevant events on the Slide 12. We made this important strides this quarter in terms of our liability management. During February, Alpek successfully issued a 10 year $600,000,000 bond in the international market. The proceeds were used in a concurrent tender offer for Alpek's 2022 bond.
Some key highlights from the transaction included very strong market interest as the bond was oversubscribed by 9 times, The lowest coupon ever for a bond in Alpek's history at 3.25 percent and the participation of High quality investor base with strong geographic diversity as well as large orders from ESG dedicated funds. As a result of the offering, Alpek's already strong debt profile was further improved with average debt life increasing from 4.4 To 7.2 years and annual interest expenses reduced by around $5,500,000 per year. Finally, regarding our outlook for the remainder of the year, based on the one time benefit generated by the Polar vortex as well as the stronger than expected PET margins seen so far in the year, Alpek has revised its EBITDA guidance. Our new guidance figures are based on the following key assumptions. Average Brent crude oil reference Price of $63 per barrel, up from $48 under our previous guidance.
The crude output Has remained low and demand for refined product has increased. Asian integrated Price margin of $2.85 per ton, far higher than our original estimate of $2.45 as global pet demand Hands has been strong and which we expect to normalize during the second half of the year. A strong North American polypropylene margins are expected to carry over into the Q2 as inventories remain low. At that point, they should begin to decline in the second half of the year, but still finish stronger than originally expected. And overall volume and CapEx should remain unchanged as both are currently on track with our original guidance.
Based on these assumptions, guidance for overall comparable EBITDA in 2021 is now set at 6 $75,000,000 and for reported EBITDA at $750,000,000 As we expect to have a net positive inventory adjustment and carry forward effect. Leverage at the end of the year should remain at a similar level to the current one, which stands at Solid 1.6 times net debt to EBITDA. Thank you for your attention. At this point, I would like to open the call to your questions. Operator, please instruct the participants on how to place their questions.
Thank you. Elizondo. To allow your signal to reach our equipment. For anyone joining via webcast, questions can also be submitted to our speakers. To the left of your screen, you'll see the Ask a Question button under your webcast player window.
One moment please while we poll for questions. Our first question comes from Ben Isaacson with Scotiabank. Please proceed with your question.
Thank you very much and good morning everyone and congrats on the great quarter. I have three questions. The first question is on your guidance. So you've guided for $675,000,000 of EBITDA this year. We'll take off $200,000,000 for Q1, so that leaves you with $475,000,000 left.
You've talked about Q2 being strong and then some weakness in the back half or some Normalization in the back half of the year. When I look at what you've earned over the past year, you've averaged around $150,000,000 per quarter, Excluding Q1. So if I add that up, that gets me to $450,000,000 and you're guiding for $475,000,000 So
it just Gives me
the sense that you may be guiding very conservatively. Is that a fair assessment? And could there be more upside to your guidance From here, so that's the first question. The second question is on the balance sheet. You're at 1.9 times Leverage on comparable EBITDA or 1.6 times on reported EBITDA.
What do you think of that level of leverage? Is that starting to get a bit too low? Do you want to start to use your balance sheet a little bit more aggressively for M and A? And what options are out there? And then finally, in terms of the terms of the Asian margin, so the average was $330,000,000 for the quarter, up from $242,000,000 last quarter.
Where is it right now? And what is the catalyst to actually bring it down? Are you watching inventory days? And if so, where does that stand right now? Thank you.
Okay. Let me start with your first question. In terms of the guidance, you are right. Last year 2020, we averaged very close to $150,000,000 per quarter In terms of comparable EBITDA, almost $145,000,000 to $155,000,000 is extremely consistent. Yes, you're right.
1st quarter, we exceeded that significantly. And we are assuming we will exceed that Also perhaps in Q2 and this figure will not be normalized in the second half of the year. Is there upside to the guidance? I think that was your question. I do believe there is Probably a little bit more upside than downside to the guidance.
Where do I see upside? Well, I mean, I think crude oil prices could continue to be stronger than the $63 that we are assuming. As you probably are aware, today crude oil prices are $66 So there is, Let's say an upside in terms of goodwill prices being higher. I would say there is potentially Also an upside in terms of we discussed here The Asian reference margins for pet, but there is another factor that is having an important impact or that is playing very strongly in the markets Today, which has to do with ocean freight rates from Asia to Europe and to America to America in general, North America and South America. And those ocean freight rates today are Significantly higher than they have been over the last years.
So yes, if those freight rates were to remain in the levels where they Today, that could also represent an upside for us. And finally, I would say the other important Upside will be if for whatever reason polypropylene margins continue stronger than we anticipated. We are I mentioned we are pretty much normalizing those margins starting in second half of the year. If they were to remain a little bit higher than our Original guidance, then that could be another important upside. But I mean, at this point, Ben, I would say, you're probably talking an upside of $25,000,000 perhaps.
So we will be getting close to 700 $1,000,000 EBITDA. But again, in the spirit of being conservative and not disappoint Analysts and investors, we are going ahead with the 675.
Great. Thank you for that.
Yes. Now question number 2, leverage is leverage too low? Well, we have Many times explained to you that our equilibrium long term leverage, we want to be around the 2 level. Okay. That continues to be that has not been changed.
When you look at the leverage today, in part, I mean, that leverage has been reduced by significantly stronger EBITDA in Q1. So we on a, let's say, ongoing basis going forward, I think number 2, a level of 2 will be It will be what we are looking for. And of course, as we mentioned again several times, Investment grade is very important for us. And we are all the time watching that. And why to I mean, For whatever reason, this is a feedback we have received from our from the rating agencies.
So that's why we are targeting 2x. And then your third question was about Pet margins forecast normalizing in second half of twenty twenty. Yes, I think, again, We believe they're going to be normalized. And in fact, they have started to normalize already. Not to the I mean, it's still higher than the assumption for the guidance, but Lower than what they were last 2 months.
Let's put it that way. So yes, we do believe there's going to be some normalization But as I mentioned before, the other factor that is very important is also the ocean freight rates, Because that even if the Pet margins normalize, if the freight rates remain high, We still have an opportunity to meet the guidance.
That's great. Thank you very much for those answers. I appreciate it.
Our next question comes from Luis Jans with Compass. Please proceed with your question.
Hi, Pepe, Jose Carlos, Alejandro. Thanks for taking my questions and congratulations on such a great quarter. A couple of questions on my side. The first one is Follow-up from the previous question. I was wondering if you could share where are Asian Pet margins at the moment and also polypropylene Margins at the moment, and I guess a related question is your new guidance assume Asia margins at $2.85 What does your new guidance assume for average polypropylene margins for the year?
So that will be my first question.
Okay. Look, in terms of Asian referenced spread margins today, they're still higher than $300 They're still a little bit over $300 per ton. And as you might have remembered, we are assuming $285,000,000 for the guidance. But still even today, there's still over 300. So as I mentioned, we still seem to have a cushion.
And again, On top of the ocean freight rates. Okay. So in terms of polypropylene margins, I think polypropylene margins are for the and I have to make this important consideration. For the spot market, we still are seeing margins a little bit over $0.30 Per pound of polypropylene, the normal I think the original guidance What's considered a $0.16 per pound. So today, we're still 30.
We are assuming, as I mentioned, that in second half, the margins will be Based on the original guidance, plus $0.01 per pound. Okay. So pretty much Fully normalized in the second half. Again, if this takes longer, this is going to be good. If this comes faster, well, that should be a problem.
Very important to mention that we did have, as you have seen in the report, a significant Inventory revaluation during the Q1. In the case of polypropylene specifically, We already had a strong inventory devaluation in March, because prices of propylene Went down from $0.88 in February to $0.70 in March. And we are expecting propylene prices going down to $0.55 per pound In April. And again, the important news for us is that This is strong inventory devaluation is more than compensated by the margins that we're talking about. So this loss in the evaluation, when you have margins in the spot market over 30, They compensate the loss in the again, in the value of the inventories.
And by the end of this month or this month, we're going to be $0.55 per pound in propylene. We might still have another, we believe, small reduction in prices of propylene, perhaps To around $0.50 per pound. But again, that inventory loss should not be that significant. So very important for us, It has been very important for us that the propylene prices are coming down relatively quickly, while margins are still high. Because otherwise, you cannot compensate the inventory devaluation as we are doing in March and I think April, Perhaps even in May.
So that's important in our results. And well, you said you have several questions. This was number 1. You want
to Sure.
And then the second question is pretty quick. If you have already quantified the impact of this new outsourcing law in Mexico To your operations, how much would that be and whether that's kind of embedded in the guidance?
Okay. We have I cannot remember exactly, but I think it's around let me double check. I think it's around $8,000,000 per year,
it will be lower than that, please.
Or even lower than that. Yes, it is important. But It's certainly good that the profit sharing was capped at 3 months. In companies like ours, Which are very capital intensive. This profit sharing law, Which is extremely outdated.
I think this profit sharing is coming from the 1920s. It doesn't make any sense. I mean, you could have if not got The profit sharing, you could have significantly higher impact. So again, It is not good. We honestly don't like the outsourcing, not only in terms of the cost, it could It represents for the company with the terms of the efficiency and the degree of specialization.
As you know, All of the companies, we're all trying to, let's say, to stay true to our core competencies And not try to do everything. There are certain things that other companies can do better than us. And with these outsourcing Restrictions, it's going to be more difficult to be able to capture that and compete with other companies in the rest of the world That do not have this restriction.
Great. And then my last question, Pepe, if you can give us a bit of an update on some of the key Long term, the Corpus Christi project in terms of timing and CapEx, also what you're doing in terms of recyclable pet and also this new JV for CO2 capture and liquefaction facility. That'll be great. Thanks.
Yes. Well, again, I would say there are 3 sort of important initiatives going forward. 1, As you mentioned is the recycling. We are very committed to increasing recycling content Our recycling offer to our customers in the market, and we are looking at opportunities Increase over capacity, be it by M and A or if not by building New plants. So recycling is a very important part of our strategy.
You Corpus Christi, Corpus Christi. We are again reassessing and looking for ways of reducing the investment. In a way last year, we couldn't really make a lot of progress given the pandemic situation. So we are now restarting all of this. We should have information, I think, a clear cost estimate by the end of the year.
And if the cost estimate is adequate, we could start, I guess, construction beginning of next year. And last but not least, I mean, the other initiatives that we are now working very hard Is the initiative related to ESG or you want to call them I mean or Including carbon improving our carbon footprint, which is we include that as part of the ESG. Carbon footprint, we include the Guarher, we include a lot of other initiatives, safety and a lot of other initiatives are included Within the ESG part of our and I would say, in a way, the CO2 project is part of that. And CO2 project, first of all, how did we get there? Well, Remember, we do have a cogeneration plant in Altamira.
And then in that plant, we are Venting certain amount of CO2 into the atmosphere. And at the same time, some of our Long term customers have asked us to be able to provide CO2 purified CO2 for their operations Since the existing supplier has not been has not or the traditional supplier's plan has been shut down. So in response to our customers' request, we started to put together this project and We are at this stage on the one hand trying to sign long term contracts with our customers. And number 2, also assessing the value of the investment to be able to proceed. We hope we will be able to solve the 2 issues in a positive way because That's a good project for us.
I think, again, on the one hand, we support our customers and also we improve, Again, our carbon footprint.
Great. Thanks a lot Pepe for the answers and congrats on the quarter again. Thank you.
Thank you, Luis.
Our next question is from Luis Calvajal with UBS. Please proceed with your question.
Thank you. Hi, Pepe, Mr. Carlos, Alejandro. Congratulations for the strong quarter. I'd like to make 2 questions and maybe if we can back to this last one in terms of the long term strategy.
Pepe, perhaps if you can comment on how you plan to strengthen to the core business. You also have been mentioning about fostering the Circular economy, with this recycling promotion and sustainable product portfolio. And lastly, in terms of what's your strategy, in terms of the, let's say, the value chain integration and potentially product innovation. So that would be my First one. The second one, it's related to capital allocation.
You mentioned during the call that you might meet something Close to $700,000,000 on EBITDA. You guided to $675,000,000 That I mean should come down. I mean, what is the main usage of the cash generation that you foresee right now Would be, I would say, for the debt reduction or debt, I would say, yes, debt reduction or I know we can see some dividends by I don't know about year end or do you foresee any potential acquisitions? How can we think about capital allocation? Thank you.
Well, of course, there's possibility Of dividends that might be assessed by the Board of Directors later on the year depending on the results. Yes, If we exceed significantly exceeding results of the guidance, there might be some of that in dividends. And In the rest, yes, we will use that to reduce debt And or for M and A projects or CapEx, strategic CapEx. And again, as I mentioned, perhaps not for this year, but for next year, we do have The Corpus Christi project, we have already, let's say, authorized Some recycling projects, which are underway and will consume some capital. We have other investment For improvement or production, increasing capacity of higher value added products as well.
And I mean those investments will be materializing within the next year, 2 years. And Of course, the cash or the cash flow will be used for that. And hopefully, we have enough to pay dividends, To finance those projects and also to reduce debt a little bit. But as one of your colleagues I think it was when first, the reduction at this stage is not as critical. We are already At a reasonable level.
Okay. And in terms of the long term strategy?
Well, the long strategy, I remember we have talked to you about these three pillars of On the strategy, the first one being to strengthen our core business, which means Continue to reduce costs, debottleneck plants whenever there is market. One of the things I mentioned, increased capacity for value added products, footprint optimization, cost reduction. So it's a lot of projects in that category, let's say. And then we have all of the secular economy part, Which we already mentioned, I don't want to repeat again. And then we have the strategic and focused growth, Which again is some of the project I mentioned like Corpus Christi.
And we're also looking all the time at potential Integration, value chain integration. I think in particular at this time, We will be we are always looking for alternatives to integrate backwards to either ethylene or propylene, Which are those feedstocks that we're consuming growing consumption of those feedstocks And the reality is in particularly North America, the raw materials for these feedstocks Are very attractive. So we're starting to look at that as well as a potential opportunity to improve the margins of Alpek.
Okay. Thank you.
Our next question is from Frank McGann with Bank of America. Please proceed with your question.
Okay. Thank you very much and good day. A couple of questions if I could. One, I was wondering if you could just comment on how or where freight rates are right now per Ton versus where you see them in a normalized context that you might have seen in the past that would have been at Somewhat lower level. 2nd, in terms of cash flow, I was wondering if you could just comment, obviously, working capital was a big negative in the Q1.
How do you see that in the upcoming quarters? And then 3rd, just in terms of Corpus Christi, you mentioned Potentially could be made by year end and you might start production or construction sometime in 2022. If that were to be the case, when do you think startup of the plant could occur?
Okay. Let me answer your questions in reverse order. Okay. Well, CCE startup, assuming we give the go ahead at At the end of the year, beginning of next year, then it would take like 2 years for construction until the start of Commercial operations. So we were to start early 2022, you talk about starting production Early 24.
That's the best estimate that we have at the moment, okay? Your second question, you mentioned about the investment, the strong investment in cash flow During the Q1, you're right. I mean, with such significant increases in raw materials, I think we mentioned 30% In paraxylene, up to 77% in propylene, styrene also increased significantly. We've increased our investment in working capital in terms Of value in terms of dollars. We've been quite disciplined that we've been able to maintain the days of Working capital or the turnover working capital very similar to where we were at the end of last year And below $60 60 days, I'm sorry, below 60 days, which will be our normal target.
So we are doing a little bit better than target in terms of days, but we did increase a lot in terms of value. I think a significant portion of this increase is going to be reduced during the Q2, particularly as prices Of propylene come down from the $0.77 from the I'm sorry, dollars 0.88 in February to eventually $0.50 in the Q2. So that part of working capital, I think we will recover and we will recover, I think, very soon over the next 3 months. In terms of paraxylene polyester, paraxylene glycol, we do tend to believe that prices of paraxylene and glycol We're going to remain pretty much where they are. So I don't see a big reduction going forward.
So I think Working capital on that part of the business should remain similar. And in the case of styrene, I think same applies as Polypropylene, they are starting to come down and we will see some reduction also. I assume 2nd quarter or the latest by Q3, the starting monomer prices are not coming down as quickly As the propylene prices are. So that will take a bit longer probably, but it's actually not that relevant The scheme of things, I mean, in terms of relative importance for Alpek, but they will also come down. So So yes, there is going to be a significant reduction in working capital in the second quarter, which will allow us to improve our cash flow.
And in terms of the freights, I would not like to give you an answer now because I am afraid that it will not be accurate. But what I can tell you is that and this is a discussion that we and everybody is having right now. We do believe that trade rates should start to normalize Probably by the end of the year around November timeframe. But even in that case, we believe that they will not Go back to where they were before, before they started to come up. So I think there will continue to be some increase over the levels that we used to see before.
And Where would that be? I mean, I don't know if freight rates you're talking before of $80 per ton, $100 per ton depending from where to where, but let's say $80 to $100 And remember, we're talking here, Fraights mostly On containers, products that use containers, which are the ones that have been mostly affected. Well, again, if you were Talking of $80 per ton for us before the situation $800 I think right now they are More than double, certainly. In some cases, much more than that. And it really depends on whether you are using spot rates Or you have contracts.
If you have contracts, people that have contracts are doing much better in terms of the increase. People that are just going into the Both market are having to pay 4, 5, 6 times. So again, it's different difficult to pinpoint that. But Again, if rates have increased now, let's say, dollars 100 per ton, average contract close to spot, Then I don't know, perhaps we estimate $20,000 $30 could be retained in what I would call the new normal. Again, take my those numbers with a lot Of course, because actually, I mean, we're trying to find that out, but really nobody seems to know.
Okay, fantastic. That's really helpful. Thank you very much.
Our next comes from Nikolay Lippman with Morgan Stanley. Please proceed with your question.
Thank you. Good morning, everyone. Congrats on the fantastic numbers and thanks for taking my questions. Three quick questions, if I may. First, just going back on the CapEx.
So it sounds like the probability of you guys doing Corpus has increased. Would that be conditioned upon an Extension of antidumping or do you think it might make sense even without that? And should we think about it as an integrated PTA PET facility As it was originally laid out or could you lower the more some of the more expensive PTA capacity and make room for more Recycling feedstock. So that's on question number 1. And also related to that question number 2, I understand you don't want to give much Sort of numbers on sort of CapEx M and A for recycling, but should we think about it as Sort of buying non food grade facilities and converting them?
Or is it you mentioned M and A. How should we think about that in a more sort of concrete trend. And then on still on RPT, in terms of there's an explosive growth in that part of the market. What should we think about in terms of branding and certification for the industry? I know we have something, but it's the industry brand owners And feedstock right is working to make it more clear what different levels of recycling would be?
And if so, how could that Potentially impact the industry. Thank you very much guys and congratulations.
Okay. Nick, I think your first question, CTP going forward, I would say in our opinion, really, the key for CCP going forward, there are 2 things. Number 1, making sure we get to a competitive investment, Cost per ton of investment being really competitive. So that's number 1. And number 2, we're also reviewing the OpEx, I mean, the conversion costs of the plant.
And we also have to make sure that we will get to a very competitive number. And why is that? Because I mean, honestly, we don't know what's going to happen with the demand for Vision Bet, in North America, our estimate is that we will be, I mean, increasing Going forward, it will probably be flat to a 1% increase per year version and perhaps 10% increase per year of recycle. Those are the numbers that pretty much I think those are the consensus numbers in the industry and the numbers we have in mind. Okay.
So again, if you are increasing 1% per year, again, You have to make sure, I mean, it could be 1%, it could be negative a little bit, but you have to make sure that the new facility that you are building It's going to be extremely competitive. So that as you mentioned, in the worst case, okay, it could make sense to perhaps Reduce capacity in some of the less competitive facilities. Having said that, that is not the base case. The base case is that a little growth in the industry will help. And the other base case is that imports, I mean, once you have, again, Corpus Christi, you will be able To again reduce imports of pet into North America.
And again, this thesis becomes even stronger When you look at having ocean freight rates higher going forward. So it is a combination, but in both cases, The plan has to be extremely competitive to be successful because otherwise you are not going to be able to replace imports Or you are not going to it's not going to make sense to reduce all the capacity. So the key for going forward are those two aspects, Investment competitive investment and very competitive OpEx. And again, as I mentioned, we are working very hard in achieving that Within the rest of the year, so we are ready for a decision at the end of the year. And then We in terms of CapEx for ARPA, I would say that it's It's a good question.
There are not too many M and A options In North America at least, but there are I mean, but there will be some of that. We have to probably engage in M and A, Because otherwise, it takes a long time. If you plan to do it without M and A and you build plans from scratch, In a sense, it could be better because you can have the best latest technology, but it will take a long time. So yes, it will have to be a mixture Of new investment and so many M and A. We have I think we mentioned last Quarter or last month, I mean last quarter, I don't remember.
We already authorized the investment in one of our facilities, What we call single pellet technology, we already did that and that's brand new investment. But even in that case, we need flake to feed it. So we still have to invest in that capacity. So again, I think it's going to be a combination of both. And In terms of certification, I think it's going to be difficult to have sort of certification.
But I do believe it's like in PET, I mean, it's not that you have certification. I mean, if you have approval from your customers and each customer is different. I mean, again, You're going to have to quantify, so to speak, your problem, your ARPAD with all of your customers individually, More than having a standard certification for everybody. I think that's going to be the case. And again, the other part that I believe, I believe, yes, I think our customers, in general, are very committed To increasing their ARPED content.
And by the way, now that we're talking also carbon footprint and all of those things, Another good aspect about ARPET is ARPET also has a lower carbon footprint even than PET. Pet has a very low carbon footprint related to other alternatives, packaging alternatives. But ARPET is even better. So that will also investing in ARPET will also help our carbon footprint.
Thank you very much, Pepe, and congrats On the strong numbers.
Thank you, Nick.
Our next question is from Vanessa Quiroga with Credit Suisse. Please proceed with your question.
Hi, everybody. Thank you for taking my question. The first one is About the PED margins, can you explain Pepe a little bit More in detail, what led to the much better PET margin that we are seeing? And the second one is another one regarding Corpus. What are you considering for the PTA capacity at this point?
Is it possible to consider not operating not developing the PTA capacity at all? Thanks.
Okay. Look, BP Pet margin increase in Asia. I think as we mentioned, China and Asia in general have been growing very strong. Demand has increased a lot. And I think it's a matter a little bit matter of supply demand.
We have seen these sort of margins increase In Asia or in China, in a lot of different products, it's not only pet that margins have increased. Margins have increased significantly in paraxylene as well. They have increased in caprolactam. They have increased in a lot of other products. And I think, again, Pet is not the exception.
And again, I think it has to do with A significant improvement in the demand in that part of the world and obviously lower inventories. So That I think is the explanation. Is it going to be permanent? We don't think so. But at least we are prepared To deal with different sort of margins going forward.
And the other now that you asked this question, I think it's important for all of you guys to understand The increase or the increase of these margins in Pet has not been taking advantage of in North America, Meaning U. S. And Mexico, because our margins in Mexico and the U. S. Were set Before the beginning of the year, we said last year in the last quarter of 2020 when the margins in Asia were much lower, We're around $200 Well, I'm sorry, I'm using a different metric, but around the $245 that we use in the guidance.
So the margins in North America were set based on the 245 that were prevalent at the end of last year. So these stronger margins are helping us in markets where we have pricing of PET related to Asian Prices. And this will be mostly our South American operations, Brazil and Argentina. A little bit North American operations are related to that. But for the most part, in North America, we operate under a cost plus Base is for normally for 1 year, with some cases 2 years, 3 years, but normally for 1 year.
And that's something that I wanted to share with you. So the improvement in margins has only impacted, I would say what, The 20%, 30% of our volume, the largest volume is still Under the 245 sort of reference, okay? Now In the Corpus Christi PTA capacity, well, again, we're now looking at all options, I guess, but the base case is to do with to also include a PTA plan.
Okay, perfect. Thank you very much for the clarification and congrats.
Our next question is from Leonardo Macondas with Atul BBA. Please proceed with your question.
Hi, guys. Thanks for taking my questions. My first questions are regarding Corpus Christi. You mentioned in the release that the attractiveness for the plant has increased As demand for PEP has also increased over the past few years, right? So could you Elaborate a little bit more on the front, please.
I mean, how do you see P and T demand evolving going forward? And what is the impact you guys expect on PT and PTA prices once Scott's first team starts up? Also, would you mind sharing with us the reason on why the Contarsio decided to extend the preconstruction phase? It's not very clear to delay on the contract. Thank you.
Well, your question related to Corpus Christi, I do believe, as I mentioned, the key for that is competitiveness of investment and OpEx. That's the key factor for making the decision. And but you are right, Leo, in a sense that yes, the industry in North America is now operating at Close to capacity in bed. So of course, that makes The project more attractive when you are operating at capacity in your Yes, the existing lines or the existing plants. So yes, and that has happened since last year, I guess.
Last year, really, it was after COVID that we started to see that increase. We still have to be careful and watch and See if that is permanent or some of it is going to go back. For the time being, what I have shared with you Is that demand for pet in again, in particular in North America remains Firm, strong. And again, this is also, I guess, I assume a precondition To facilitate or to the decision to go ahead with investment. But at this point in time, again, I'm thinking More investment costs and operating costs as the keys to the decision at the end of the year.
And the preconstruction phase, quietly withstand look, We've learned that in the projects, front end loading is extremely critical. Sometimes when you try to rush into a project, CapEx goes off in a very significant way because you start to go into change orders and things like that. So as opposed to rushing into a decision, which could later impact the cost of the project, We're trying to make sure that we have a very well finalized engineering and For the loading and also it's very important to have contracts with your with all of The engineering companies that are going to help us make sure you have contracts. In some cases, we are looking at EPC to reduce the risk. So to put those in place takes a lot of time.
And again, last year, it was extremely difficult because you couldn't People, I mean, it was not the right time to do it. And that's why we're doing it now.
Okay, fine. Thank you.
Thank you, Leo. So we also received Some questions via the webcast chat from Alejandro Garda, Private Investor from Liliana Elion from GBM Rodrigo Salazar from AM Advisors and from Kevin from 91. I believe all questions were already answered as they pertain To the reduction in debt, our estimates related to free cash flow, conversation around an extraordinary dividend as well as CapEx Related to Corpus Christi Polymers and finally any debt fueled acquisitions or M and A as we already discussed. So we thank you for your questions. If there's any need to follow-up, we will do so with you prior to this call.
So with that said, I would just like to thank everyone for participating in today's webcast. Please feel free to contact us if there are any follow-up questions or comments. Have a great day.
This concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation and have a great day.