InterviewPhilippine Petron upbeat on petchems, mulls expansion

29 June 2009 06:36  [Source: ICIS news]

By Pearl Bantillo

SINGAPORE (ICIS news)--Philippine major oil refiner Petron Corp intends to boost its petrochemicals production, bullish on the segment's potential contribution to its overall profitability, a senior company executive said on Monday.

“We are very optimistic about out petrochemicals business over the long term. We expect petrochemical prices to increase as the global economy recovers,” Petron president Eric Recto told ICIS news in an interview.

The company has plans to invest up to $1bn (€710m) to upgrade its 180,000 bbls/day Limay refinery, which would be partly funded by the P10bn ($208m) it recently raised through issuance of fixed rate corporate notes, he said.

“We are looking at supplementing this by issuing preferred shares, but we do not have a firm schedule,” said Recto.

The company is now majority owned by Philippine food and beverage giant San Miguel Corp, whose president - Ramon Ang now sits as the chairman of Petron.

Petron has a $300m petrochemical facility in Limay, Bataan, housing a Petro Fluidised Catalytic Cracking (FCC) unit with a conversion capacity of 19,000 bbls/day and a 140,000 tonne/year propylene recovery unit that was inaugurated in April 2008.

It also has an aromatics plant that can produce 150,000 tonnes/year of benzene, 22,800 tonnes/year of toluene and 220,000 tonnes/year of mixed xylene that was commissioned last month.

The planned upgrade will include a PetroFCC 2 that will enable Petron to fully convert residual products to higher-value gasoline, liquefied petroleum gas (LPG), diesel and propylene.

“We are doing some feasibility studies prior to finalising our plans,” the Petron executive said.

Petron intends to cater primarily to domestic needs for petrochemicals while keeping an eye out on international markets such as southeast Asia as well as China, Recto said.

“As for export volumes, these will depend on the level of domestic demand for these petrochemical feedstocks,” Recto said.

“We started exporting propylene in April 2008 and we will be exporting benzene and toluene by July. We continue to export isomer grade xylene under term contracts to maximize price potential,” he said.

He cited that mixed xylene enjoys significant premium over other white products such as gasoline and diesel.

Early this month, the company closed a 5,000 tonne isomer xylene tender when prices in Asia were at $760-775/tonne FOB (free on board) Korea, according to global chemical market intelligence service ICIS pricing.

Petron is upbeat about the financial contributions of its new petrochemicals business notwithstanding the difficult business environment.

“We expect our venture into petrochemicals to immediately contribute to our bottomline despite a weak regional market,” Recto said.

He considers the softness in its product prices this year as just “all part of the cyclical nature of the market”.

“We expect prices of petrochemicals to further strengthen as the world economy recovers and demand for plastics and other petrochemical-based products resume growth,” Recto said.

The collapse in demand hit the global petrochemicals sector hard in the fourth quarter of last year as the global economy was racked by the financial and economic crisis. While there was some recovery in prices in the first quarter, most companies registered weak financial results.

Petron posted profits of Philippine peso (Ps)874m in the first quarter but sales volumes in the three-month period were down 20% year-on-year.

The company recorded a heavy net loss of Ps3.9bn in 2008 primarily due to the sharp decline in crude prices in the second half of the year. Crude hit an all-time high of $147/bbl in July last year before plunging to around $30/bbl levels in December.

“Now that the oil market has stabilized, we anticipate a healthier performance in 2009. We have already seen improvement in our first-quarter margins,” Recto said.

“The main challenge right now is the weakness in local fuel demand caused by the economic slowdown, resulting in very tough competition among domestic market players,” he added.

($1 = €0.71 / $1 = Ps47.96)

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By: Pearl Bantillo
+65 6780 4359

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