China capitalises on crisis

02 July 2007 00:00  [Source: ICB]

THE ASIAN financial crisis has helped to drive China's growing petrochemicals position. While China and southeast Asian countries such as Indonesia and Thailand were mentioned in the same breath before the crisis, project delays and cancellations during the recession enabled China to steam ahead.

"If you go back to the mid-1990s, before the southeast Asia crisis hit, China was an important factor, but so were the ASEAN [Association of Southeast Asian Nations] economies," observes Ray Bignell, strategic planning director at Foster Wheeler. "They were the tigers. They were the boom economies of the world."

When the crisis struck, many small petrochemicals projects that had been under discussion subsequently disappeared.

"Virtually every week we would have someone approach us from places such as Indonesia asking us to do studies," says Andy Allen, Foster Wheeler's global business director for chemicals, petrochemicals and polymers. "There was so much bullishness about the market. But certainly, as soon as the Asian crisis did occur, those enquiries just stopped."

Allen suggests there are parallels between the confidence in the petrochemicals investment in southeast Asia in the mid-1990s and today's confidence in the Middle East. Chemicals investments were particularly badly hit in Indonesia and South Korea. In contrast, China's fortunes have improved in the past 10 years. It enjoys a GDP growth of 9-10%/year, compared with 4-5%/year for southeast Asia.

Singapore has also benefited from the scaling back of petrochemicals plans by some of its neighbours. Thanks to its stability, business-friendly environment, technical expertise and strong intellectual property protection, and despite having no feedstock advantage, the country has attracted large investment projects.

The ASEAN governments, and Thailand in particular, have now to a large extent knocked petrochemicals off their list of strategic growth industries, according to Bignell. "I don't think any of them any more see themselves building up those industries to be major exporters. The Asian crisis knocked that on the head," he says.

"The balance of power has undoubtedly shifted in favour of China, so the southeast Asian countries have had to find different policies." Some projects have been rekindled, but as China builds its own capacity and its reliance on feedstocks from the Middle East grows, many projects based on exports to China no longer make sense.

Switch in focus

Countries such as Thailand, Malaysia, Indonesia, the Philippines and Vietnam are refocusing their petrochemicals industries on their domestic markets, continues Bignell.

Thailand is much more aggressive than Indonesia in terms of chemicals investment. While some smaller-scale projects were cancelled, the larger-scale projects by international companies, mainly in Mab Ta Phut, were largely unaffected, notes Allen.

Before the crisis, Thailand had considered opening up the southern seaboard as a second centre for petrochemicals production. In 1999, Foster Wheeler was asked to study the merits of the project, but the company advised against proceeding with the investment, at least for some years.

"The collapse in demand in the region had left surplus product, and... the Middle Eastern producers were intent on putting more productive capacity on the ground to export to China," explains Bignell. "At the same time, China was looking at building its own petrochemicals complexes."

In the short term, South Korea was rescued by the Chinese chemicals imports market, says Bignell. But now, as China builds its own chemicals production capacity, South Korea is targeting other industry sectors such as plasma and LCD televisions, and automobiles. "They've moved further down the skills base," he says. "I don't think they any longer have a strategy of building new plants to export bulk chemicals."

The impact of the crisis on the Foster Wheeler's Asian operations was muted because its clients were typically major international corporations, such as Shell and ExxonMobil. "They were not cancelling their projects... so the immediate effect on us as a company was limited," Allen says.

Opportunities in Asia-Pacific aromatics projects - an area in which the company had been active in the mid to late-1990s - did dry up, however. "The investment wave just came to a stop in aromatics, so there was virtually no investment [in southeast Asia] for several years," says Allen. Since then, however, Foster Wheeler's Asian operations have expanded rapidly, with employee numbers tripling in the past four years.

< previous article(ICIS Chemical Business podcast November 2, 2009)

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