Asian action

22 November 2004 00:01  [Source: ACN]

The last ten years have been eventful ones for the Asian petrochemicals industry not only because of its achievements but also because of its failure to realise many of its dreams. Continuing from last week, we present some business and project stories that appeared in ACN during 1999-2004, highlighting the transformation of the industry over the years

January 1999

Thai Paraxylene (Thai PX) has stopped construction of its aromatics facility in Si Racha, Thailand, because its major shareholder, Thai Oil, is unable to inject the capital required to complete the project.

Work on the project will only resume when new partners for the project are secured, said a Mitsubishi Oil source. Mitsubishi Oil is the other partner in Thai PX.

 

Reliance Industries is likely to be one of the frontrunners in the race to acquire a 25% stake in Indian Petrochemicals Corp Ltd, which is being divested by the Indian government.

Another strong contender is Dow Chemical. Other names being mentioned are Montell, Sabic, Mitsui & Co and Nissho Iwai.

‘However, Reliance with its strong production and distribution network and familiarity with the Indian market, has a good chance of emerging the winner,’ said a source close to Reliance.

March

BP Amoco has postponed its 290 000 tonne/year joint venture purified terephthalic acid project in Zhuhai, China, by two years even though the project started initial construction work two months ago.

The company cited poor market outlook as the reason for the delay. The project was originally scheduled for completion in January 2001.

 

Daelim Industrial and Hanwha Chemical took the South Korean industry by surprise with their announcement that they will swap polymer operations and form a joint-venture company to run their combined 1.2m tonne/year cracker capacity.

The two majors will also seek foreign equity participation in the joint-venture company. The deal is expected to be completed by 1 October.

Daelim will acquire Hanwha’s polypropylene asset, while Hanwha will take over Daelim’s low-density polyethylene and linear low-density polyethylene plants.

May

The Hyundai group plans to exit petrochemicals by selling its entire stake in the new company which would be formed from the proposed merger between Hyundai Petrochemical and Samsung General Chemical.

The sale would follow the completion of the merger, the target date for which has been delayed by six months until end-1999.

The decision to exit petrochemicals is a stunning turnaround for the Hyundai chaebol which only last year brought onstream a 550 000 tonne/year second cracker and new downstream plants.

June

National Petrochemical Co and its major shareholder Petroleum Authority of Thailand have confirmed they are in discussions with Bangkok Polyethylene for a merger of the two petrochemical operations.

The move is the latest to emerge in the Thai petrochemicals sector where the priority since the onset of the Asian crisis has been to streamline operations and optimise production costs.

August

Montell is in advanced negotiations to take a stake in Daelim Industrial’s PP operations, said sources close to Daelim.

An agreement is expected to be signed in two months. Montell is likely to take at least a 50% stake in the joint venture.

September

The Hyundai and Samsung chaebol have agreed to key points in Mitsui & Co’s proposal for Mitsui’s participation in South Korea’s first petrochemical Big Deal.

The South Korean government has started discussions with local creditor banks on a debt-for-equity swap, said sources close to the talks.

Despite the steps forward, the two producers expressed concern over the slow progress. Several core issues have yet to be resolved before a final agreement can be reached.

October

China expects to clear the approvals process for the six major cracker projects involving foreign partners so that construction can start by 2001, said a source from the China National Chemical Planning Institute.

The source added that the government would only approve new cracker projects in stages to avoid requirements for huge borrowing from arising at the same time.

November

Petronas, BP and Shell Chemicals are conducting studies for cracker projects listed under National Petrochemical Co’s (NPC’s) Phase 3 development plan in Iran, said MH Peyvandi, NPC’s director for planning and development.

ACN was told that Petronas is interested in Olefin No 8 and No 9 while Shell is keen on Olefin No 8.

January 2000

Mitsui & Co will not compromise on key conditions contained in a proposal for Japanese companies to invest in the Daesan Big Deal which South Korean negotiators insist are unacceptable.

The two most contentious proposals are that the proposed US$1.2bn loan from the Japan Bank for International Co-operation must be channelled through the Korea Development Bank and the Japanese consortium must be given 100% export rights.

A source close to Mitsui said there was a ‘wide and probably unbridgeable’ gap between the South Korean and Japanese positions.

March

Thai Petrochemical Industry (TPI) has been declared insolvent by Thailand’s Central Bankruptcy Court, raising fears within the company of asset sales and staff lay-offs.

The court ruling effectively strips the company of its management and financial independence. Creditors are expected to vote within a month of the court ruling on which administrator they will appoint to manage the restructuring of TPI’s US$3.2bn debt.

May

Sabic has confirmed that it is to build two more crackers – one at Yanbu and one at Al-Jubail – which will come onstream in 2005 and 2004 respectively. Each cracker will have a capacity of some 800 000 tonne/year.

Pre-engineering work on both projects has been completed and construction is scheduled to begin at end-2001.

June

Japan’s Fair Trade Commission (FTC) has launched investigations into suspected price fixing by all seven domestic PP producers.

On 30 May, the FTC raided more than 20 offices belonging to Sumitomo Chemical, Tokuyama Corp, Japan Polychem, Grand Polymer, Idemitsu Petrochemical and Montell Sunrise SDK.

 

The Chinese government has banned South Korean PE imports in reaction to the imposition of a 317% duty on imports of frozen Chinese garlic by South Korea in late April.

The decision, which also included a ban on South Korean exports of mobile phones, sent shock waves through the South Korean petrochemical industry.

The value of direct PE exports to China was US$459m in 1999 while Chinese garlic exports to South Korea totalled only around US$9m. ‘The government’s policy is to hit hard where it hurts most,’ said a Sinochem International source.

August

Kohap Corp could sell its 1m tonne/year PTA plant at Ulsan, South Korea, as part of its debt-reduction strategy, said Kenneth Park, the company president and ceo.

Also planned is the sale of other Kohap assets such as its polyethylene terephthalate, nylon film, and nylon yarn plants.

‘I still need full agreement for the sale from my creditors, but do not anticipate insurmountable difficulties as the divestments will bring in more than enough cash to relieve Kohap of its excessive liability,’ said Park.

September

The Formosa Plastics group is in discussions with the Ningbo authorities to set up a cracker project in Ningbo, Zhejiang, China. Formosa has several downstream plants in and around Ningbo and so it would be logical to build a cracker, said two company officials.

However, Formosa will not be able to proceed with its project immediately because of a ban imposed by the Taiwanese government on refinery and cracker investments on the mainland.

November

Share prices for both Mitsui Chemicals and Sumitomo Chemical rose following media reports that the two were close to signing a deal on a merger.

According to a Japanese media report, Sumitomo and Mitsui are already in the final stages of agreeing to a merger and plan to set up a 50:50 joint holding company in 2001.

March 2001

NPC of Iran has raised the ethylene capacity of its proposed Olefins No 10 project to 1.32m tonne/year which would make it the world’s largest greenfield cracker. The project, which was originally expected to have a capacity of 780 000 tonne/year, will be implemented by Jam Petrochemical.

April

China will pump in US$1.1bn to build infrastructure and centralised utility facilities at the Shanghai Chemical Industry Park (SCIP). These projects will be completed by 2005.

The government aims to develop the SCIP into an industrial chemical park of world class standard in an effort to compete with similar industrial parks in other parts of China as well as in neighbouring countries.

June

Preliminary agreements have been signed to confirm Japan Polychem’s proposed polyethylene (PE) merger with Japan Polyolefins (JPO) and planned PP alliance with Chisso Petrochemical. Final agreements are expected to be signed by the end of this year.

A joint-venture company will be formed by Japan Polychem and JPO in Q3 2002, at which time they will merge their PE operations, said a source close to the talks.

July

LG Chem is the latest contender for all of Hyundai Petrochemical’s assets, said a senior Hyundai source.

Hyundai is also in talks with Honam Petrochemical to sell all its assets and with Borealis on the sale of 90% of its assets.

Hyundai has been set a deadline of 31 October by its creditors to sell all its assets.

October

Petrochemical Commercial Co, the marketing arm of NPC of Iran, has initiated moves to form a mega-alliance among Middle Eastern petrochemical players.

The alliance would cover production, marketing and technology which will promote regional co-operation and enhance their competitiveness.

November

The South Korean Fair Trade Commission (KFTC) has fined 12 polyester fibre producers for price fixing.

This is the first such case for the country’s fibre industry. The KFTC decided to fine the 12 companies a total of US$392 000 for collectively increasing domestic polyester fibre prices by 2-5 cents/lb in July-September 2000.

December

Atofina is looking at new petrochemical investments in Asia in the next few years as part of a strategy to enlarge its presence in the region, said a senior company source. The proposed investments may include acquiring a cracker or setting up a new cracker.

Polystyrene has so far been the centrepiece of Atofina’s Asian expansion.

March 2002

Foreign companies investing in China from 1 April can hold a 100% stake in all petrochemical projects except crackers with a capacity of 600 000 tonne/year of more.

The government has also expanded the list of ‘encouraged’ projects to include polyvinyl chloride, vinyl chloride monomer, ethylene dichloride, fine chemicals, chemical fibres, and their raw materials.

Under the old rules, only crackers of more than 300 000 tonne/year and engineering plastics projects were encouraged.

Projects that are restricted in the new investment regime include oil refineries, caustic soda plants using the mercury process, benzedrine and barium salt projects and titanium dioxide produced by the sulphuric acid route.

May

The Indian government has sold a controlling stake of 26% in IPCL to Reliance Petroinvestments Ltd (RPL), part of the Reliance Group, for US$304.7m.

RPL was the only bidder among three competitors to quote above the reserve price.

The IPCL acquisition will further improve the Reliance group’s global ranking in the field of polymers as well as widen and deepen its presence in the petrochemicals sector.

But ever since the Reliance group first expressed its interest in IPCL in 1998, there have been fears that the acquisition would result in market domination and that the company would have more muscle to seek protection under antidumping regulations against low-priced imports.

October

BP Chemicals has decided to sell its 75% stake in Indonesian PE producer Peni, said a BP spokesman. Sumitomo Corp and Mitsui & Co, which hold a 12.5% share each, have also decided to sell their stakes, he added.

No deadline has been set but BP and the Japanese companies were said to be talking to a number of interested parties.

The spokesman maintained that BP would continue to focus its resources on other investments in Indonesia and the region.

December

Petronas, BP Chemicals and other shareholders of Bataan Polyethylene Corp (BPC) have decided to pull out of the joint venture based in the Philippines.

‘Despite lengthy discussions to find a positive outcome for the long-term future of BPC, and given the difficult economic circumstances in which BPC finds itself, the shareholders in BPC have decided to exit their joint-venture company,’ said David Nicholas BP spokesman.

The shareholders intend to enter into early discussions with BPC’s financiers and the Philippine authorities on the future of the company and its assets.

BPC’s 250 000 tonne/year hdPE/lldPE plant has been shut since August 2001.

 

THE consortium of LG Chem and Honam Petrochemical has been selected as the primary negotiator in the race for the acquisition of Hyundai Petrochemical ahead of US petrochemical major Koch, said a Hyundai source.

The consortium’s bid of US$1.21bn was selected as the winning bid by Hyundai’s creditors led by Woory Bank and its mergers and acquisitions adviser Goldman Sachs.

LG Chem and Honam will jointly conduct one final round of due diligence in January 2003 before the sale is finalised.

February 2003

SK Corp will be without its chairman and chief executive officer in the short term after his arrest for alleged stock manipulation. Chey Tae-Won will face a court hearing on 3 March and will not be allowed to apply for bail until the prosecution has prepared and presented its case.

Chey is accused of swapping his stocks in the Sheraton Walker Hill hotel in Seoul for stocks that another SK subsidiary owns in SK Corp. In the transaction, Chey’s hotel stocks were allegedly priced at almost double the market value, giving him US$60m in illegal profits.

The alleged deal also allowed him to increase his shareholding in SK Corp, which serves as the holding company for the group’s affiliates.

March

SK Corp is considering selling its non-performing assets and reducing its capital expenditure to protect itself from the debt problems that have hit sister company SK Global.

SK Global, in which SK Corp has a 38.7% share, is the trading arm of the SK Group. Ten of the group’s top executives were indicted recently on allegations that SK Global had inflated its profits by US$1.2bn.

 

A new investment-approval process for petrochemical projects in China was put in place at the first meeting of the Tenth National People’s Congress. With immediate effect, investors in petrochemical and all other projects costing US$50m or more need to seek approval for their feasibility studies only from the State Development and Reform Commission and then a rubber stamp from the State Council, after the initial go-ahead has been given by the local governments.

For projects below US$50m, only approval by the local governments is needed.

 

Japanese majors Sumitomo Chemical and Mitsui Chemicals are calling off negotiations to consolidate the operations of the two companies by October 2003. Sumitomo said it could not longer look forward to the various synergies that it expected to result from the consolidation with Mitsui.

‘With regard to the most critical issue – consolidation ratio – the two companies finally concluded that it would not be possible to bridge the gap that remains between them and reach an agreement that would be acceptable to their shareholders,’ Sumitomo said.

But the decision by the two companies to discontinue talks did not surprise many in the industry. Even though both companies had said they would gain from the synergies generated by the merger, one industry source said, it was difficult to see how two companies with starkly different corporate cultures could work together.

April

The spread of Sars (severe acute respiratory syndrome) in Asia has affected the region’s petrochemicals trade.

A source from Formosa Chemicals & Fibre which exports regularly to southern China said trade in Hong Kong and southern China had slowed significantly with Sars one of the factors responsible for the slowdown.

ACN understands that several Hong Kong-based trading houses were functioning with fewer staff in the office last week. Some employees were allowed to work from home, to minimise their contact with crowds.

One foreign chemicals major even sent expatriate staff home until end-April, giving them the option to take a holiday in their home country or to work from their homes there.

A Hong Kong trader said the mood was one of gloom and fear. ‘There was already a lull following the start of the war in Iraq and few people were buying. With the Sars outbreak, business activities are going to slide further.’

May

The Formosa Plastics Group (FPG) is to build its 1m tonne/year No3 cracker in Mailiao, Taiwan.

The company previously said it was still deciding between building the cracker in Taiwan or in Ningbo, China, where affiliate companies are constructing plants for PVC and ABS.

Industry sources said the decision to build in Taiwan was due to futile attempts at persuading the Taiwanese government to lift a ban on Taiwanese companies building crackers and refineries in China. But the sources added that FPG, in its ambition to become a major ethylene player, would still consider a cracker in China if the ban was lifted.

 

French major Atofina and South Korea’s Samsung General Chemicals have signed a final US$1.55bn contract for their 50:50 petrochemicals joint venture.

Under the terms of the MoU, Atofina will inject US$775m into the joint venture and SGC will contribute the balance, plus its petrochemicals complex and labour force at Daesan, South Korea.

Atofina and SGC will share management responsibility. Existing output will be divided, with around 55% to be managed by SGC, which will be sold domestically, and 45% controlled by Atofina, which will be exported mainly to China.

July

Saudi Aramco is in discussions with potential partners on developing a petrochemical complex that will be integrated with the state-owned company’s refinery in Rabigh, Saudi Arabia, said a source close to the project.

The project is at an advanced planning stage and is targeted to come onstream in H2 2008.

The petrochemical complex is expected to produce 1.7m tonne/year of olefins, about 1m tonne/year of ethylene derivatives, more than 700 000 tonne/year of propylene derivatives and about 50 000 bbl/day of gasoline. The Rabigh project would be the company’s first foray into petrochemical production.

September

Japanese cracker players accept that they may have to reduce the country’s overall ethylene capacity by as much as 1.5m tonne/year to stay viable.

Almost all the cracker players ACN spoke to said cracker cutbacks are called for because more lower-cost overseas capacity is due onstream over the next four years and domestic downstream demand, especially for commodity-grade PE, is declining.

However, shutting down a cracker entails a complicated reengineering of the whole downstream production process and reorganising the workforce in an already embattled economy with unemployment at around 6%.

 

Concerns have arisen over the viability of Saudi projects that use liquefied petroleum gas (LPG) as feedstock after the government recently agreed to stop supplying the product at a discount.

In a deal signed with the European Union last month, the Saudi government agreed to end its dual-pricing policy. The concession would help Saudi Arabia gain World Trade Organization membership.

Under the dual-pricing policy, projects pursued by local and foreign investors in Saudi Arabia enjoy a discount of around 30% on the Saudi naphtha price for propane, butane and LPG purchases between 2002 and 2011.

October

The Indonesian Bank Restructuring Agency (Ibra) has sold the state’s holding in Chandra Asri, Indonesia’s only cracker operator, to Glazers & Putnam Investment for US$71.8m.

Ibra’s assets in Chandra Asri were estimated by the restructuring agency to be US$1.09bn in December 2002, which means that Ibra was forced to sell off its assets at around only 60% of their book value.

Glazers now holds a 25.86% share in Chandra Asri, with Japanese companies holding a 24.59% stake and former company chief Prajogo Pangestu holding 49.55% through investment company Inter Petrindo Inti Citra.

 

Shell Chemicals, Basell and Iran’s NPC have suspended their joint development of the Olefins No 8 project in Iran for the time being because of different views on timing, said Rein Willems, Shell’s executive vice-president, procurement and business units.

However, Willems stressed that the suspension was ‘not a done deal’ and that, as a result, the door remained open for future cooperation. Shell and Basell were originally considering taking a combined 50% stake in the project.

While NPC was looking at bringing the facility onstream in 2007, Shell and Basell preferred a later start-up because of the complexity of the project and the extra costs that would be incurred by pursuing the project more rapidly.

December

Trans Pacific Petrochemical Indotama will finally be able to restart construction work on its long-delayed aromatics project in Tuban, East Java, Indonesia, after the signing on 12 December of a US$400m loan facility provided by Japanese creditors.

Since the project will need 18 more months to complete after the work restarts on the Tuban site, commercial production is not expected until May 2005 at the earliest.

January 2004

Iran’s NPC is planning a 12th olefins project, which would include the world’s biggest cracker, said the company’s president Mohammad Reza Nematzadeh.

He added that the No 12 Olefins, along with NPC’s sixth methanol project, a further 1m tonne/year of ammonia/urea and 600 000 tonne/year of PTA, will be part of the company’s fourth five-year development plan. All the projects would be located at Assaluyeh.

The Olefins No 12 cracker would have a capacity of almost 2m tonne/year in two trains, and would be fed by gas and liquid feedstock – condensate and heavy ends – that are currently exported.

March

Japan’s Ministry of Economy, Trade and Industry (Meti) no longer thinks there is an urgent need for the country’s cracker operators to cut ethylene capacity.

‘Meti earlier shared the view held by many in Japan that cracker shutdowns were essential. But now our view is more objective. We think the current capacity is sustainable for the next five years,’ said a Meti source.

The change in Meti’s views can be linked to Japan’s economic recovery in 2003 and the performance of the petrochemical industry.

May

Saudi Aramco and Sumitomo Chemical have signed a comprehensive MoU to develop an integrated refining and petrochemical complex at Rabigh, Saudi Arabia.

The two companies have agreed to form a joint-venture company with equal ownership.

Initial plans for the project include a high olefins yield fluid catalytic cracker complex integrated with a worldscale ethane-based cracker.

Meanwhile, Sumitomo has cast serious doubts on its involvement in a joint venture with Shell Chemicals to build a cracker in Singapore. Company president Hiromasa Yonekura told reporters that his company would not take part in both projects and said ‘the project in Singapore is economically less attractive than that in Saudi Arabia’.

Petrochemical projects and plants in China that fall below specified capacities or that employ technologies viewed as damaging to the environment will be subject to a review that could lead to them being scrapped.

The National Development and Reform Commission recently issued a circular on curbs on petrochemical plants and projects in an effort to cool the country’s economy, reduce lending risks and stop the repeated building of projects that do not meet certain criteria.

The board of Indian Oil Corp has approved Panipat in Haryana, India, as the location for the company’s 800 000 tonne/year cracker projects instead of Baroda, Gujarat, India.

The company has selected ABB Lummus as the technology licensor for the cracker. The complex is slated for start-up in July 2007.

August

Honam Petrochemical has signed a deal to acquire KP Chemical’s assets for around US$693.3m. After months of negotiations, Honam has agreed to buy 51bn shares in cash-strapped KP Chemical.

The acquisition would give Honam a majority 53.8% stake in the company. Honam has also agreed to assume KP Chemical’s debts.

The deal has to be ratified by KP Chemical’s creditors and the FTC.

September

Japan’s FTC has approved a polyolefins joint venture by Idemistu Kosan and Mitsui Chemicals. The merger of the companies’ polyolefins businesses in Chiba would be completed by April next year.

The joint venture would be capitalised at US$180.9m, with Idemitsu owning 35% and Mitsui owning 65%.

The planned merger follows the recent integration of Idemistu Petrochemical into Idemitsu Kosan.

 

Honam Petrochemical and LG Chem have agreed to split the Hyundai Petrochemical assets complex-by-complex because of a failure to agree on asset valuations that would have enabled capacities to be divided plant-by-plant, said a well-placed source.

Conditions imposed by the KFTC were also said to be behind the decision.

The acquisition is due to be completed in January next year, when the assets are integrated into LG Chem and Honam.

Hyundai’s sales operations have already been split between LG Chem and Honam.

Honam will take complex No 2 at Daesan, which includes a 600 000 tonne/year cracker and PE plants. LG Chem would take the No 1 complex and thereby enter ethylene glycol and ethylene oxide production.

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