APIC '07: Eyes on Asia’s largest cracker in Taiwan

16 May 2007 03:03  [Source: ICIS news]

By Florence Tan

SINGAPORE (ICIS news)--It is perhaps appropriate that Asia’s largest industry event will be held in Taiwan this week as Formosa Petrochemical prepares to start up its cracker- the largest in the region.

Good times are still rolling in for Asia’s petrochemical market. Despite record high naphtha costs, prices of derivatives such as the phenol chain, oxo-alcohols and isocyanates show no sign of abating.

Even prices of oversupplied polyvinyl chloride (PVC) and bottle-grade polyethylene terephthalate (PET) are rebounding.

But the industry is keeping a close watch on output from the new 1.2m tonne/year ethylene plant which is scheduled to start up on 25 May.

Will output from the Formosa companies dampen prices and spark a slowdown? Or will China be able to gulp down the new capacities as it has done over the past two years?

The discussions will continue among the more than 1,000 delegates at the 28th Asian Petrochemical Industry Conference (APIC) in Taipei which kicks off on Thursday.

Taiwan will be relying mainly on China’s ferocious appetite and its downstream companies which moved to the mainland to absorb most of its petrochemicals.

China’s first quarter gross domestic product grew at 11.1% exceeding expectations and the country is expected to hold its ground at least until the 2008 Olympic games.

There are also some bright spots in southeast Asia, like Malaysia which is benefiting from the European Union’s tariffs on China-made plastic bags. Singapore, too, is aggressively adding on new capacities with Shell’s cracker under way, and ExxonMobil making a decision on its project soon.

Vietnam’s recent entry into the World Trade Organisation could open doors to foreign investors, some of whom like LG International have already started working the ground. Its potential demand, access to crude oil feedstock and proximity to China make the country attractive.

But in Thailand, the political uncertainty and the recent controversy on pollution at its petrochemical hub Map Ta Phut puts a big question mark on its development. Although the government has re-approved the cracker projects at PTT and Siam Cement with the promise of funds to clean up the pollution, their progress remains to be seen.

The green voice is also strong in Taiwan which has already banned free plastic bags. Strong protests from locals against new crackers have halted further development in its industry.

Other than environment issues, the industry will also have to contend with expensive feedstocks, stronger competitors formed through mergers and acquisitions, and changes in demand and supply patterns.

Most are already bracing themselves for a downturn in 2008-2009 as many Middle Eastern projects using cheaper feedstocks are due on stream.

The Chinese majors have pushed back cracker start-ups while others are gearing up for the eventuality by switching to specialty chemicals production, widening their feedstock choices and diversifying their revenue sources.

But with construction costs continuously rising, it is unlikely that all projects will start up as planned. Some could be shelved as it will be hard to justify the returns on investment.

With so much cash on hand, companies have also started making their moves on mergers and acquisitions.

Reliance has made headlines with talks of a potential tie-up with Dow Chemical while the Indian company and Saudi Basic Industries Corp (SABIC) are reportedly bidding for GE Plastics, one of the world’s largest polycarbonate (PC) producers.

Saudi Arabia-based National Titanium Dioxide Company (Cristal) boosted its ranking to the second largest producer in the world, with a planned $1.2bn acquisition of Lyondell Chemical's titanium dioxide (TiO2) business. This will be the first acquisition of a major US chemical asset by a Middle East-based firm.

More deals could be on the way if the petrochemical industry continues to charge ahead.

By: Florence Tan
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