You are now connected to Alpek's webcast presentation. I would now like to turn the call over to your host, Mr. Alejandro Elizondo. Thank you. You may begin.
Thank you, Rob. Good morning, and welcome to Alpek's first quarter 2021 earnings webcast. I'm Alejandro Elizondo, Alpek's Investor Relations Officer, and I have the pleasure of being joined today by our CEO, Pepe Valdez, and our CFO, José Carlos Pons. Please turn to slide two. This presentation is divided into two parts. First, Mr. Valdez and Mr. Pons will provide commentary on Alpek's first quarter 2021 performance and an update on relevant events. Afterwards, we will move on to the Q&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 risk and uncertainty. Actual results may differ materially, and the company cautions the market not to unduly rely 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. 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, 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 first quarter, in addition to achieving outstanding results, we also made important strides in terms of our financial initiatives. Let's turn to slide three to briefly review the main topics for today's webcast. First, Alpek has greatly surpassed financial performance expectations for the first quarter. José Carlos will review this in greater detail. Second, Alpek successfully issued a $600 million bond at a record coupon and spread for the company. Third, we will provide additional insight into our revised 2021 guidance, per the earnings report released yesterday.
Turning to slide four, and as context for these quarter results, we can see the result of the global economic [result] that is taking place as COVID-19 vaccines become increasingly available and are further distributed. This strong growth, which is driven partly by the Chinese economy, has caused demand for petrochemical products, including PET, to rise. In the first quarter, Asian integrated polyester reference margin improved to an average $330/ ton. This is much higher than Alpek's original guidance figure of $245/ ton, which was based on the supply-demand balance that was prevalent towards the end of 2020. Let's turn to slide five to discuss the unprecedented polar vortex that, as many of you know, hit the U.S. Gulf Coast this past February.
Increasing temperatures, which lasted for several weeks, crept across Texas and Louisiana, interrupting the supply of power, natural gas, and petrochemical feedstocks. Close to 90% of the petrochemical plants in this area were adversely affected by this phenomenon. However, Alpek operations continued mostly uninterrupted for three important reasons. One, our facilities are not located in the affected region. Two, we operate a small business unit that is specifically focused on commercializing natural gas from the U.S. into Mexico, thus helping guarantee our supply of natural gas. Three, we have worked diligently on developing alternative sources of raw material supply outside of the U.S. Gulf Coast. This polar vortex caused natural gas prices to temporarily spike for two weeks, peaking at over $400/MMBtu . It also caused an industry-wide reduction in inventory levels for various petrochemicals, leaving polypropylene average margins to increase to $0.32/lb .
As a result, Alpek was able to not only navigate, but capitalize on both effects. First, by operating throughout the crisis to capture these attractive polypropylene margins. Second, by commercializing part of our natural gas inventories at market prices to third-party buyers in Mexico. At this point, I would like to turn the call over to José Carlos, who will go into more detail regarding the positive impact these events had on our financial results.
Thanks, Pepe, and thank you all for joining us for today's webcast. Turning to slide six, I want to highlight the company's outstanding performance throughout the quarter. Alpek achieved overall volume of 1.2 million tons, a record high for any first quarter period in our history. Reported EBITDA of $324 million, Alpek's highest ever when excluding asset sales and the goodwill effects. Comparable EBITDA of $203 million as a result of record first quarter volume and higher-than-expected PET and polypropylene margins, as described by Pepe. A leverage reduction to 1.6x as last 12 months EBITDA rose significantly.
As we can see on slide seven, Alpek reached 1.23 million tons in volume, setting a record for any first quarter, and a 4% increase compared to first quarter 2020. In the polyester segment, PET volume remained at similar levels to those of last quarter, and 3% higher than the figures for first quarter 2020, due to the strong post-COVID demand experienced this 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 Expandable Styrenics 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 eight. As the global economy heads towards recovery, demand for refined products has risen.
If we add the continued enforcement of OPEC's oil production quotas, average spot Brent crude oil increased to $61/bbl , 36% higher than in the previous quarter. Correspondingly, U.S. reference paraxylene 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/lb , 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 nine, we can see the EBITDA breakdown for the first quarter. 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 million, 35% higher quarter-on-quarter, as PET and polypropylene margins were significantly higher than expected. Reported EBITDA was $324 million, 193% higher year-on-year, as this result also included a non-cash inventory gain of $63 million and a positive carry-forward effect of $58 million. Shifting our attention to results by key segment, we can see that polyester comparable EBITDA was $89 million, increasing by 10% quarter-on-quarter. Our results benefited from a rise in average Asian integrated PET margins to $330/ ton. Meanwhile, plastic and chemicals comparable EBITDA was $97 million, 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 million as a result of higher feedstock prices during the quarter. Financial expenses totaled $67 million. 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 million and was mainly allocated towards maintenance and minor asset replacements. Finally, on slide 11, and regarding our financial position, Alpek's net debt as of quarter end increased marginally to $1.22 billion, 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 1.6x net debt to EBITDA, well below our target of no more than 2.5x .
If considering net debt to comparable EBITDA, we can see that Alpek continues to stay within a leverage of 2.0x or lower. Thank you for your interest. I will now turn the call back to Pepe.
Thank you, José Carlos. Switching over to relevant events on slide 12, we made important strides this quarter in terms of our liability management. During February, Alpek successfully issued a 10-year, $600 million 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 nine times. The lowest coupon ever for a bond in Alpek's history at 3.25%. 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 years to 7.2 years, and annual interest expenses reduced by around $5.5 million 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/bbl , up from $48 under our previous guidance, as crude output has remained low and demand for refined products has increased. Asian integrated PET reference margin of $285/ ton, far higher than our original estimate of $245, as global PET demand 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 second quarter 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. 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 $675 million, and for reported EBITDA at $750 million, 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 a solid 1.6x 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. Ladies and gentlemen, for those of you joining by telephone, to ask a question, please press star one on your telephone keypad at this time. If you're using a speakerphone, please ensure that your mute function is turned off 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. Good morning, everyone, and congrats on the great quarter. I have three questions. The first question is on your guidance. You've guided for $675 million of EBITDA this year. We'll take off $200 million for Q1, that leaves you with $475 million 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 million per quarter, excluding Q1. If I add that up, that gets me to $450 million, and you're guiding for $475 million. 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? That's the first question.
The second question is on the balance sheet. You're at 1.9x leverage on comparable EBITDA, or 1.6x 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&A, and what options are out there? Finally, in terms of the Asian margin. The average was $330 for the quarter, up from $242 last quarter. Where is it right now, and what is the catalyst to actually bring it down? Or 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 million per quarter in terms of comparable EBITDA. Almost $145 million-$155 million. It is extremely consistent. Yeah, you are right. First quarter, we exceeded that significantly, and we are assuming we will exceed that also perhaps in second quarter, and this figure will normalize 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 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.
There is, let's say, an upside in terms of crude oil prices being higher. I would say there is potentially also an upside in terms of, we discussed here the Asian reference margins for PET. 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 in general, North America and South America. Those ocean freight rates today are significantly higher than they have been over the last years. Yes, if those freight rates were to remain in the levels where they are today, that could also represent an upside for us. Finally, I would say the other important upside would be if, for whatever reason, polypropylene margins continue stronger than we anticipated.
As 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, that could be another important upside. At this point, Ben, I would say you're probably talking an upside of $25 million, perhaps. We will be getting close to $700 million EBITDA. Again, in the spirit of being conservative and not disappoint analysts and investors, we are going ahead with the $675 million.
Great. Thank you for that.
Yeah. Question number two, is leverage too low? We have many times explained to you that our equilibrium long-term leverage, we want to be around the two level, okay? That continues to be. That has not been changed. When you look at the leverage today, in part, that leverage has been reduced by significantly stronger EBITDA in first quarter. On a, let's say, ongoing basis going forward, I think number two, a level of two will be what we are looking for. Of course, as we mentioned again several times, investment grade is very important for us. We are all the time watching that. Why two? For whatever reason, this is a feedback we have received from the rating agencies. That's why we're targeting 2x. Your third question was about PET margins forecast normalizing in second half of 2020.
Yes, I think again, we believe they're going to be normalized. In fact, they have started to normalize already. Still higher than the assumption for the guidance, but lower than what they were last two months. Let's put it that way. Yeah, we do believe there are going to be some normalization in that. As I mentioned before, the other factor that is very important is also the ocean freight rates. Even if the PET margins normalize, if the freight rates remain high, we still have an opportunity to beat the guidance.
That's great. Thank you very much for those answers. I appreciate it.
Our next question comes from Luis Yance with Compass. Please proceed with your question.
Hi, Pepe, José Carlos, Alejandro. Thanks for taking my questions, and congratulations on such a great quarter. Couple questions on my side. The first one's a follow-up from the previous question. Was wondering if you could share where are Asian PET margins at the moment, and also polypropylene margins at the moment. I guess a related question is, your new guidance assume Asian margins at $ 285. What does your new guidance assume for average polypropylene margins for the year? That'll be my first question.
In terms of Asian reference PET margins today, they're still higher than $300. They're still a little bit over $300/ ton. As you might have remembered, we are assuming $285 for the guidance. They're still, even today, they're still over $300. As I mentioned, we still seem to have a cushion. Again, on top of the ocean freight rates. 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/lb of polypropylene. The normal, I think the original guidance was considered a $0.16/lb-$0.165/lb . Today, we're still $0.30.
We are assuming, as I mentioned, that in second half, the margins will be based on the original guidance + $0.01/lb-$0.02/lb , okay. Pretty much fully normalized in the second half. Again, if this takes longer, that's 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 first quarter. In the case of polypropylene specifically, we already had a strong inventory valuation in March. Prices of propylene went down from $0.88 in February to $0.70 in March. We are expecting propylene prices going down to $0.55 /lb in April. Again, the important news for us is that this strong inventory devaluation is more than compensated by the margins that we're talking about.
This loss in devaluation, when you have margins in the spot market over 30%, they compensate the loss, again, in the value of the inventories. By the end of this month, we're going to be $0.55 /lb in propylene. We might still have another, we believe, a small reduction in prices of propylene, perhaps to around $0.50 /lb . Again, that inventory loss should not be that significant. Has been very important for us, that the propylene prices are coming down relatively quickly while margins are still high. Otherwise, you cannot compensate the inventory devaluation as we are doing in March, and I think April, perhaps even in May. That's important in our results. Well, you say you have several questions. This was number one.
Sure. The second question's 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 million per year.
A little bit lower than that, Pepe.
Even lower than that. Yeah, it is important. But it's certainly good that the profit-sharing was capped at three months. In companies like ours, which are very capital intensive, this profit-sharing law, which is extremely outdated. I think this profit-sharing law is coming from the 1920s. It doesn't make any sense. If not capped, the profit-sharing, you could have significantly higher impact. Again, it's not good. We honestly don't like the outsourcing, not only in terms of the cost it represents for the company, but in terms of the efficiency. The degree of specialization. As you know, all of the companies, we're all trying to, let's say, stay true to our core competencies and not try to do everything. There are certain things that other companies can do better than us.
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. My last question, Pepe, is if you can give us a bit of an update on some of the key initiatives 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'd be great. Thanks.
Yes. Well, again, I would say there are three sort of important initiatives going forward. One, as you mentioned, is the recycling. We are very committed to increasing recycling content or our recycling offer to our customers in the market. We are looking at opportunities to increase our capacity, be it by M&A or if not, by building new plants. Recycling is a very important part of our strategy. You mentioned 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. We are now restarting all of this. We should have information, I think, a clear cost estimate by the end of the year. If the cost estimate is adequate, we could start, I guess, construction beginning of next year.
Last but not least, the other initiatives that we are now working very hard is initiatives related to ESG, or if you want to call them, including our carbon footprint, which we include that as part of the ESG. Carbon footprint, we include water, we include a lot of other initiatives, safety. A lot of other initiatives are included within the ESG. I would say, in a way, the CO2 project is part of that. The CO2 project, first of all, how did we get there? Well, remember, we do have a cogeneration plant in Altamira. Then in that plant, we are venting a certain amount of CO2 into the atmosphere.
At the same time, some of our long-term customers have asked us to be able to provide purified CO2 for their operations, since their existing supplier, or the traditional supplier's plan, has been shut down. In response to our customers' request, we started to put together this project. We are at this stage, on the one hand, trying to sign long-term contract with our customers. Number two, also assessing the value of the investment to be able to proceed. We hope we will be able to solve the two 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 Luiz Carvalho with UBS. Please proceed with your question.
Thank you. Hi, Pepe. Hi, José Carlos, Alejandro. Congratulations for the strong quarter. I'd like to make two questions, and maybe if we come 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. Lastly, in terms of what your strategy, in terms of the value chain integration and potentially product innovation. That would be my first one. The second one, it's related to capital allocation. You mentioned during the call that you might reach something close to $700 million on EBITDA. You got it to $675 million. Your debt should come down.
What are the main usage of the cash generation that you foresee right now will be, I would say, for the debt reduction or, I know we can see some dividends by, I don't know, by year-end? 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 in the year, depending on the results. Yes, if we significantly exceed the results of the guidance, there might be some of that in dividends. The rest, yeah, we would use that to reduce debt and/or for M&A projects or strategic CapEx. 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 on their way and will consume some capital. We have other investment for improvement of production, increasing capacity of higher value added products as well. Those investments will be materializing within the next year, two years. Of course, the cash flow will be used for that.
Hopefully, we have enough to pay dividends to finance those projects and also to reduce debt a little bit. As one of your colleagues asked, I think it was Ben first, debt reduction at this stage is not as critical. We are already at a reasonable level.
Okay, in terms of the long-term strategy?
Well, the long-term strategy, I remember we have talked to you about these three pillars of 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, increase capacity for value-added products, footprint optimization, cost reduction. It's a lot of projects in that category, let's say. Then we have all of the circular economy part, which we already mentioned. I don't want to repeat again. Then we have the strategic and focused growth, which again, is some of the project I mentioned, like Corpus Christi. We are also looking all the time at potential integration, value chain integration. I think in particular at this time, we are always looking for alternatives to integrate backwards to either ethylene or propylene.
Those are feedstocks that we're consuming in a growing consumption of those feedstocks. The reality is, particularly in North America, the raw materials for these feedstocks are very attractive. 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, good day. A couple 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've been at somewhat lower level. Second, in terms of cash flows, I was wondering if you could just comment. Obviously, working capital was a big negative in the first quarter, h ow you see that in the upcoming quarters. Third, just in terms of Corpus Christi, you mentioned a decision potentially could be made by year-end, and you might start construction sometime in 2022. If that were to be the case, when do you think startup of the plant could occur?
Let me answer your questions in reverse order. Okay. Well, if you see a startup, assuming we give the go-ahead at the end of the year, beginning of next year, then it would take two years for construction until the start of commercial operations. If we were to start early 2022, you talk about starting production early 2024. That's the best estimate that we have at the moment. Okay? Your second question, you mentioned about strong investment in cash flow during the first quarter. 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, b elow 60 days. Below 60 days, which would be our normal target. We are doing a little bit better than target in terms of days. We did increase a lot in terms of value. I think a significant portion of this increase is going to be reduced during the second quarter. Particularly as prices of propylene come down from the $0.88 in February to eventually $0.50 in the second quarter. That part of working capital, I think we will recover. We will recover, I think, very soon, over the next three months.
In terms of paraxylene, polyester, paraxylene glycol, we do tend to believe that prices of paraxylene and glycol are going to remain pretty much where they are. I don't see a big reduction going forward. I think working capital on that part of the business should remain similar. In the case of styrene, I think the same applies as to polypropylene. They are starting to come down, and we will see some reduction also. I assume second quarter or the latest by third quarter. The styrene monomer prices are not coming down as quickly as the propylene prices are. That will take a bit longer probably. It's actually not that relevant in the scheme of things. I mean, in terms of relative importance for Alpek. They will also come down.
Yeah, there is going to be a significant reduction in working capital in second quarter, which will allow us to improve our cash flow. In terms of the freights, I would not like to give you an answer now because I am afraid that it would not be accurate. What I can tell you is that, and this is a discussion that we and everybody's having right now. We do believe that freight rates should start to normalize probably by the end of the year, around November timeframe. Even in that case, we believe that they will not go back to where they were before, before they started to come up. I think there will continue to be some increase over the levels that we used to see before. Where would that be? I mean, I don't know.
If freight rates you're talking before of $80/ton , $100 / ton, depending from where to where, but let's say $ 80-$ 100. Remember, we're talking here freights mostly on containers, products that use containers, which are the ones that have been mostly affected. If you were talking of $80/ ton for us before the situation, $ 80-$100. I think right now they are more than double, certainly. In some cases, much more than that. It really depends on whether you are using spot rate 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 spot market are having to pay four, five, six times. Again, it's different. It's difficult to pinpoint that.
Again, if rates have increased now, let's say $100/ ton, average contract versus spot, then I don't know, perhaps we estimate $ 20, $30 could be retained in what I would call the new normal. Again, take those numbers with a lot of care, because actually, 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 question comes from Nikolaj Lippmann 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. It sounds like the probability of you guys doing Corpus has increased. Would that be conditioned upon an extension of anti-dumping, or do you think it might make sense even without that? Should we think about it as an integrated PTA, PET facility as it was originally laid out, or could you lower some of the more expensive PTA capacity and make room for more sort of recycling feedstock? That's on question number one. Also related to that, question number two, I understand you don't want to give much sort of numbers on sort of CapEx M&A for recycling. Should we think about it as sort of buying non-food grade facilities and converting them?
You mentioned M&A, how should we think about that in a more sort of concrete term? Still on rPET, 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 providers 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. Nik, I think your first question, CCP going forward, I would say, in our opinion really, the key for CCP going forward are two things. Number one, making sure we get to a competitive investment, a cost per ton of investment being really competitive. That's number one. Number two, we're also reviewing the OpEx, the conversion cost of the plant. We also have to make sure that we will get to a very competitive number. Why is that? Because honestly, we don't know what's going to happen with the demand for virgin PET in North America. Our estimate is that we will be increasing, or going forward, it will probably be flat to a 1% increase per year virgin, and perhaps 10% increase per year of recycled.
Those are the numbers that I think those are the consensus numbers in the industry and the numbers we have in mind. Okay, again, if you are increasing 1% per year, you have to make sure. It could be 1%, it could be negative a little bit, you have to make sure that the new facility that you are building is going to be extremely competitive. 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 is not the base case. The base case is that a little growth in the industry will help. The other base case is that imports, once you have, again, Corpus Christi, you will be able to again reduce imports of PET into North America.
Again, this thesis becomes even stronger when you look at having ocean freight rates higher going forward. It is a combination, but in both cases, the plan has to be extremely competitive to be successful. Otherwise, you are not going to be able to replace imports, or it's not going to make sense to reduce all the capacity. The key for going forward are those two aspects, investment, competitive investment, and very competitive OpEx. Again, as I mentioned, we are working very hard in achieving that within the rest of the year. We are ready for a decision at the end of the year. In terms of CapEx for rPET, I would say that is a good question. There are not too many M&A options in North America at least. There will be some of that.
We have to probably engage in M&A, because otherwise it takes a long time. If you plan to do it without M&A, and you build plants from scratch, in a sense, it could be better because you can have the best latest technology, but it will take a long time. Yeah, it will have to be a mixture of new investment and some M&A. I think we mentioned last quarter or last month, maybe 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. That's brand-new investment. Even in that case, we need flake to feed it. We still have to invest in that capacity. Again, I think it's going to be a combination of both.
In terms of certification, I think it's going to be difficult to have sort of certification. I do believe it's like in PET. It's not that you have certification. It's you have approval from your customers, and each customer is different. Again, you're going to have to qualify, so to speak, your product, your rPET with all of your customers individually, more than having a standard certification for everybody. I think that's going to be the case. Again, the other part that I believe, I think our customers in general are very committed to increasing their rPET content. By the way, now that we're talking also carbon footprint and all of those things, another good aspect about rPET is rPET also has a lower carbon footprint even than PET. PET has a very low carbon footprint related to other alternatives, packaging alternatives.
rPET is even better. Investing in rPET will also help our carbon footprint.
Thank you very much, Pepe, and congrats on the strong numbers.
Thank you, Nik.
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 PET margins. Can you explain, Pepe, a little bit more in detail what led to the much better PET margin that we are seeing? 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 developing the PTA capacity at all? Thanks.
Look, 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. I think it's a little matter of supply and demand. We have seen this 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 purified terephthalic acid as well. They have increased in caprolactam. They have increased in a lot of other products. I think, again, PET is not the exception. Again, I think it has to do with a significant improvement in the demand in that part of the world, and obviously lower inventories. That, I think, is the explanation. Is it going to be permanent? We don't think so.
At least we are prepared to deal with different sort of margins going forward. Now that you ask this question, I think it's important for all of you guys to understand that the increase of these margins in PET has not been taken advantage of in North America, meaning U.S. and Mexico. Our margins in Mexico and the U.S. were set before the beginning of the year, were set last year in the last quarter of 2020, when the margins in Asia were much lower, were around $200. I'm sorry, I'm using a different metric, but around the $245 that we use in the guidance. The margins in North America were set based on the $245 that were prevalent at the end of last year. These stronger margins are helping us in markets where we have pricing of PET related to Asian prices.
These would be mostly our South American operations, Brazil and Argentina. A little bit of our North American operations are related to that, but for the most part, in North America, we operate under a cost-plus basis normally for one year, with some cases two years, three years, but normally for one year. That's something that I wanted to share with you. The improvement in margins has only impacted, I would say, what? 20%, 30% of our volume. The largest volume is still under the $245 sort of reference. Okay? In the Corpus Christi PTA capacity, well, again, we're now looking at all options, I guess, but the base case is to also include a PTA plant.
Okay. Perfect. Thank you very much for the clarification, and congrats.
Our next question is from Leonardo Marcondes with Itaú BBA. Please proceed with your question.
Hi, guys. Thanks for taking my question. My first question is regarding Corpus Christi. You mentioned in the release that the attractiveness for the plant has increased as demand for PET has also increased over the past few years, right? Could you elaborate a little bit more on this front, please? How do you see PET demand evolving going forward, and what is the impact you guys expect on PET and PTA prices once Corpus Christi starts up? Would you mind sharing with us the reason on why the consortium decided to extend the pre-construction phase? Was it due to delay on the cost aspect? 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. You are right, Leo, in a sense that, yes, the industry in North America is now operating at close to capacity in PET. Of course, that makes the project more attractive when you are operating at capacity in your existing lines or the existing plants. Yeah. 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 if some of it is going to go back. For the time being, what I have shared with you is that demand for PET, again, particularly in North America, remains firm.
It's strong. This is also, I guess, I assume, a precondition to facilitate the decision to go ahead with investment. 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. The pre-construction phase, why did we extend? Look, we've learned that in the projects, front-end loading is extremely critical. Sometimes when you try to rush into a project, I mean, CapEx goes off in a very significant way because you start to go into change orders and things like that. 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 front-end loading.
Also, it's very important to have contracts 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 risk. To put those in place takes a lot of time. Again, last year it was extremely difficult because you couldn't find people. It was not the right time to do it. That's why we're doing it now.
Okay, fine. Thank you.
Thank you, Leo. We also received some questions via the webcast chat from Alejandro Gardea, private investor, from Liliana De León from GBM, Rodrigo Salazar from AM Advisors, and from Kevin from Ninety One. 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 expectations related to Corpus Christi Polymers, and finally, any debt-fueled acquisitions or M&A, as we already discussed. We thank you for your questions. If there's any need to follow up, we will do so with you prior to this call. 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.