Assessing Asia's Petrochemical Power

Asia's petrochemical producers look towards a period of growth as chemical majors move ahead with production plans. Muriel Axfor reports.

A sense of cautious optimism perhaps best sums up the mood of Asia's petrochemical producers as they look towards the end of 2010. During May, delegates attending the 2010 Asia Petrochemical Industry Conference, held in India, heard that growing regulatory requirements along with the emergence of large volumes of new material, particularly from producers in the Middle East, were set to accompany the projected growth in the region. It was also generally agreed that there was an ongoing need to adopt technologies that would mitigate emissions of carbon dioxide along with continuous improvement in existing petrochemical processes to improve efficiency.

Driving the industry

But with the prevailing sense of caution there are some bright spots. Figures from the China Association of Automobile Manufacturers indicated that car sales rose more than 56% during the first quarter of 2010, compared with the same period during 2009. While according to the Indian Automobile Manufacturers Association car sales in the country were 25% higher in the first quarter of 2010 compared with the same period in 2009.

The car industry is among Asia's largest consumer of petrochemicals, which are used in a wide range of car parts such as dashboards, bumpers and seats. Increasing affluence is set to see this trend continue for some time.

The positive sentiment in China is backed up by chemical majors such as BASF-YPC moving ahead with plans to expand production capacity at its joint venture petrochemical complex located Nanjing, Jiangsu Province China. The venture was first established during 2000 with the partners investing $2.9bn to build an integrated petrochemical complex.

"The car industry is among Asia's largest consumer of petrochemicals, which are used in a wide range of car parts."

Ground-breaking for the expansion project took place in September 2009, and May 2010 saw the signing of a finance agreement for the expansion. The progress of such a project is indicative of continued confidence in the growth potential in China's markets. The expansion will take an existing 600,000tpa cracker to 740,000tpa along with ten new petrochemical plants. The partners are investing $1.4bn in the new capacity.

Too much, too quickly?

With China's gross domestic product forecast to be in the region of 9.5% for 2010, there should be all-round excitement, but the strong outlook is not entirely welcomed. During April 2010, Guo Shuquing, chairman of China Construction Bank, was reported to have expressed concern about the rate of growth.

He said that the rate of growth was "too rapid" and that the high growth would lead to "more duplication of construction more excess capacity and higher waste of capital".

Even with such concerns, growth across Asia moves ahead steadily. Figures from Singapore's Economic Development Board indicated that output from the island state's chemical cluster rose 7.4% year on year in June 2010. The petrochemicals segment expanded 30%, which was mainly attributed to new production capacity and the low base of 2009. On a year-to-date basis, output from the chemicals cluster was 16.9% higher than in the same period the previous year.

Singapore is seeing rapid development in its petrochemical manufacturing base. During May 2008 Lanxess, a leading producer of synthetic rubber, began construction of a butyl rubber production facility. Located on Singapore's Jurong Island, the 100,000t/y unit is due to come on-stream during the first quarter of 2013. Investment costs are put at €400m ($575m). Output from the unit will be used to meet demand for butyl rubber in tyres driven by the strong demand for cars particularly in China and India.

New production capacity has also come to Singapore in the form of Shell Eastern Petrochemical's second world-scale petrochemical project. The complex, which was officially opened in May 2010, comprises an 800 000tpa cracker and downstream plants. Along with the planned start up of Exxon Mobil's cracker in 2012, and indications that Singapore is keen to build more cracker capacity, the island state is positioning itself to become a petrochemical powerhouse in Asia.

Indian expansions

Prospects in India are no less bright. Refining capacity in the country is set to reach 210-224 million metric tons a year by 2012, up from 135 million metric tons a year in 2006/2007. The extra capacity translates into eight to ten million metric tons a year of naphtha. This has prompted chemical majors to pencil in substantial expansion of naphtha crackers. Olefins capacity in India could double to ten million metric tons a year in the coming years.

"Singapore is seeing rapid development in its petrochemical manufacturing base."

According to a recent report, "India Petrochemicals Report Q2 2010", produced by Business Monitor, average GDP over the next ten years is forecast to run at 7.6%. Continuing strength and growth in the petrochemical sector will, in part come from strong demand for cars and packaging materials. Echoing what many analysts have said concerning not just India, but much of Asia, the Business Monitor report says "The main downside for the Indian petrochemicals industry is the massive increase in global capacities that will push down prices at a time of rising feedstock costs, thereby putting pressure on petrochemical margins.

However, oversupply should only create problems if demand growth falls below expectations and crude and naphtha values are higher than envisaged. In addition, a heavy cracker turnaround schedule in China could mitigate the decline in polymer prices."

But in the short term, the impact of spending cuts, as many economies get to grips with their debt issues, coupled with the impending tax increases will have an impact on Asia's petrochemical sector. According to the "Quarterly Business Analysis Quarter 2 2010", from consultant ChemSystems¸ slowing demand for petrochemicals in Asian markets was a "particularly ominous development in quarter two". But with so many major petrochemical producers pouring their investment dollars into the region, the focus is very much on the future and meeting the needs of a new generation of consumers across Asia. Perhaps the outlook is best summed up by Shell's CEO Peter Voser. Speaking as Shell Eastern Petrochemical opened it petrochemical complex in Singapore, Voser commented "This project clearly demonstrates Shell's strategy to focus on growth markets and to integrate oil and chemicals manufacturing to gain efficiencies."