Vietnam poised to become major petchem production center

Vietnam - the next petrochemical hub?

16 July 2008 17:59  [Source: ICB]

A surging economy, and big markets on its doorstep, mean Vietnam is poised to become a major petchem player. But the neighborhood is not without competition

Consultant's corner

Sukanya Jira-Arnot/Nexant

VIETNAM IS top of the list of potential and attractive locations for investment in Asia. GDP has grown at an average of 8%/year in the past five years and is projected to exceed that figure this year. With this fast economic growth, Vietnam has been targeted for investment in every sector by major foreign companies.

By the end of 2007, there were more than 8,600 foreign investment projects in Vietnam, with total registered capital of $83.1bn (€52.1bn), of which more than 60% was in the South - the demand center of the country. Investment has been made in sectors that are deemed to be important for modernizing the country, such as industrial, construction, electronics, telecommunications, services, agricultural processing and industrial zone areas. Increasing foreign investment boosts domestic consumption for all products, resulting in higher demand for petrochemical products.

Petrochemical demand in Vietnam is mainly for polymers, not intermediates, with the exception of vinyl chloride monomer (VCM) and purified terephthalic acid (PTA), used in polyvinyl chloride (PVC) and polyester production, respectively. Polymer demand for plastic production in Vietnam is centered on Ho Chi Minh City and its surroundings, including Binh Duong, Dong Nai, Long An, and Ba Ria Vung Tau. This accounts for around 80% of total investment in the plastics industry in the country.

Plastic is produced for domestic consumption and packaging for export. Domestic demand is changing towards hi-tech plastic products manufactured mainly for export.

Vietnam is one of Asia's largest importers of plastic materials. Polymer demand in Vietnam grew from less than 1m tonnes/year to more than 1.7m tonnes/year in 2007. Major polymer demand includes polyolefins: polyethylene (PE) and polypropylene (PP) styrenics, such as polystyrene (PS) expandable polystyrene (EPS) acrylonitrile-butadiene styrene copolymer (ABS) and PVC.

Polyolefins constitute the largest polymer demand in Vietnam. It is projected that demand growth for all polymer virgin resins will increase at more than 5%/year through 2015. Prior to 2004, all Vietnamese plastic products were manufactured with virgin polymer resins. With booming demand, together with continued increasing virgin resin prices, Vietnamese plastic converters are importing more cheaper, plastic scrap.

MAJORS HOP ON BOARD

With base resin demand nearing 2m tonnes/year, Vietnam is attracting investments from major petrochemical players such as Siam Cement Group (SGC) of Thailand as well as Mitsui and Idemitsu Kosan from Japan. Vietnam Oil and Gas (Petrovietnam) and Vietnam Chemical (Vinachem) are two government entities in charge of petrochemical and chemical investments in the country.

They have jointly invested in petrochemical projects in the country, such as the 1.6m tonne/year ethylene cracker at Long Son, due for completion during 2011-2013. The project has been initiated by Petrovietnam, SCG, and Vinachem. Petrovietnam also invests in refineries that produce feedstocks to support petrochemical production.

Currently, the polymer plants in operation are two PVC plants with total capacity of 200,000 tonnes/year and a polyester plant with a capacity of 200,000 tonnes/year. TPC Vina Plastic and Chemicals, a joint venture (JV) of Thai Plastics Company (TPC), Vinachem and Vinaplast is expanding its PVC capacity. The second line is projected to come on stream later this year.

The other PVC plant belongs to Phu My Plastics, a JV of Petronas and Vinachem. Nan Ya Plastics started up the polyester plant in 2006. Raw materials for PVC and polyester are imported. This is another reason, in addition to a large polymer demand base, to have an ethylene cracker to support the intermediates production for PVC and polyester.

The chlor-alkali, ethylene dichloride and VCM complex is included in the Long Son cracker complex. SCG is also a shareholder of TPC and this vinyl chain complex will support PVC production in Vietnam. The aromatics complex initiated by Idemitsu Kosan, Kuwait Petroleum International (KPI) and Mitsui will bring raw materials for polyester production into the country. Paraxylene (PX) will be used to produce PTA, a main feedstock to produce polyester.

PTA is mainly imported from Taiwan for polyester production. Petrovietnam is also planning to build a 165,000 tonne/year polyester plant in a JV with Vietnamese state textiles manufacturer Vinatex. Timing of this project is not confirmed. This will stimulate demand for PTA in Vietnam and could result in a production plant being built, given that construction of the feedstock PX plant is underway.

If all projects come on stream, Vietnam will become one of the major petrochemical players in the Association of South East Asian Nations (ASEAN), surpassing Indonesia and the Philippines in terms of olefins capacity.

But how realistic is it for Vietnam to become a new petrochemical hub in Asia? Would it be able to compete with the major players in ASEAN, such as Singapore, Malaysia and Thailand? Singapore is adding two large naphtha crackers commissioned by the major petrochemical players Anglo-Dutch Shell and ExxonMobil, of the US, which will come on stream earlier than the Vietnam cracker, by 2011.

Singapore has excellent infrastructure, port facilities and skilled labor to support petrochemical operations. Its government provides tax incentives, but also other support, such as providing funding by taking on equity in some projects. With these advantages, Singapore is in a great position to compete in export markets.

Thailand and Malaysia have base domestic demand, but production capacity is much larger, so they need to export their products as well. Both have gas supplies to produce ethylene at a much more competitive cost than naphtha, especially at the high naphtha price level. Ethane crackers in Thailand and Malaysia therefore have a great competitive advantage over a naphtha cracker in Vietnam.

KEEPING PACE WITH THE BIG BOYS

Singapore, Thailand and Malaysia are major suppliers of plastic resins to Vietnam. Vietnamese projects will have to compete with these supplies in their own domestic market. To be able to compete with these established players, petrochemical plants in Vietnam will have to be cost-competitive at least in domestic markets. The government will need to provide incentives to support projects in both tax and non-tax forms.

Non-tax incentives include improvements in infrastructure and the investment process. Sea ports in Vietnam cannot receive large vessels of more than 50,000 dwt. Therefore, connections from sea ports to national road networks are not efficient and can sometimes bottleneck the transport systems.

The investment process in Vietnam is complicated, requiring approval from many ministries, which can delay projects. This could also lead to a mismatching of domestic supply and demand, lower project economies and discouraged investors.

With a large domestic demand base, Vietnam attracts investors from around the world to set up plants in the country. Petrochemical projects are developing in the country to capture this large demand base.

Mega projects, initiated by the major players in Asia, include a worldscale naphtha cracker complex and an aromatics complex. These projects will have to compete with import materials from competitive sources. The Vietnamese government can support these projects and increase project economies by improving infrastructure, sea ports and transportation systems, as well as accelerating the approval investment process.

If these come to fruition, then Vietnam has the potential to become another petrochemical hub in the region.

Vietnam: demand for major polymers ('000 tonnes)

Product	2002	2007	Annual Growth 2002-2007 (%)	Annual Growth to 2015 (%)
PE	289	558	14.1	5.2
PP	262	419	9.8	6.7
PS/EPS/ABS	61	115	13.5	4.3
PVC	145	235	10.1	6.2

Source: Nexant

Petrochemical plants and projects in Vietnam

Company	Product	Capacity ('000 tonnes)	Start-up
TPC Vina Plastics	PVC	100	in operation
	PVC	90	end 2008
Phu My Plastics	PVC	100	in operation
Nan Ya Plastics	PET	200	in operation
Petrovietnam/LG (Dung Quat)	propylene/PP	110	2009
Petrovietnam/Mitsui/Idemitsu Kosan/Kuwait Petroleum International (Nghi Son)	propylene/PP	350	end 2013
	benzene	150	end 2013
	PX	480	end 2013
Petrovietnam/Siam Cement Group/Vinachem (Long Son)	ethylene	1,650	2013
	PE and PP	1,450	2013
	chlor-alkali	200	2011
	EDC	330	2011
	VCM	400	2011
Petrovietnam/Vinatex	PET	165	not confirmed

Source: Nexant

As a senior consultant at Nexant based in Bangkok, Sukanya Jira-Arnot is responsible for clients in the region, marketing Nexant to potential customers, undertaking market research and working on projects, particularly those in the Asia-Pacific region.

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