InterviewGlobal petchem sector faces tough '10; better conditions in '11

By Malini Hariharan

MUMBAI (ICIS news)--The global petrochemical industry is in for a difficult year given a slew of new capacity additions, but conditions are likely to improve in 2011 as volumes from new plants are absorbed, a PTT Chemical senior executive said on Monday.

“Global ethylene capacity would increase by 10m tonnes this year while demand increase will not be even half of that,” Veerasak Kositpaisal, president and CEO of the Thai petrochemicals major.

Similarly, polyethylene (PE) capacity additions would be close to 5m tonnes and demand growth would absorb only 2m,” he added.

Kositpaisal pointed to “good signs on the demand side” as the world economy, led by Asia, recovers.

“But when you add the numbers, 2010 will be around the bottom of the cycle,” he said.

However, the industry should also be prepared for delays in commissioning of new plants and operating issues.

“The projects, especially those in the Middle East are world-scale. They have a lot of facilities that have to be tied up at the same time; this is difficult. I think we can expect difficulties in plant start ups; it takes a while to get plants running smoothly," explained Kositpaisal.

He pointed out that feedstock was also an issue in the Middle East. Producers in the region faced a shortage of associated gas following crude oil output cuts implemented by OPEC (Organisation of Petroleum Exporting Countries) when demand slumped in late 2008 through to 2009.

“At the same time those producers with high feedstock costs are facing difficulties; they have had to shut down plants,” Kositpaisal said.

He expected the spread between naphtha and high-density polyethylene (HDPE) prices to remain at around the $500/tonne (€375/tonne) level this year.

“At that level naphtha crackers can survive but it is not healthy,” he said.

He was, however, optimistic about PTT Chemical’s prospects as 90% of the company’s feedstock slate was based on gas, with naphtha making up the balance.

“Our gas feedstock is very competitive,” he said.

The company secures gas from its parent PTT on a profit-sharing concept.

Under this system, the market price of high-density polyethylene (HDPE), the cost of investment and operating costs were all taken into account in arriving at a net margin that is shared between the two companies, said Kositpaisal.

PTT Chemical would see revenue growth this year as it has commissioned a new 1m tonne/year cracker and some downstream projects at Mab Ta Phut in Thailand, he said.

Full operations at the cracker were expected later in the year once the new gas separation project of PTT started operations, said Kositpaisal.

Work on this project, along with the other projects of PTT Chemical, was affected by a Supreme Court ruling last December suspending 65 projects at the Mab Ta Phut industrial estate. 

The court has since exempted a few projects and the number of suspended projects is now down to about 50, according to local media reports.

Kositpaisal was optimistic that the Thai government would have a legislative framework in place by the middle of the year paving the way for the projects to start up.

While 2010 was likely to be a difficult year for the industry, Kositpaisal anticipated better years ahead.

“If you look at new capacities, there have been very few announcements. Even if a company announces today, it is going to take four-five years to complete a plant. So I see good years,” he said.

On PTT Chemicals' sales strategy, Kositpaisal said the company would maintain its focus on the export market, especially China.

“We are currently exporting about 50% of our production in the polymer business and China is taking about half of the export volumes,” he added.

“In future if you include the new capacities coming up in China and the Chinese economy growing at 7-8%, then with that growth and the size of the economy, China will have to continue to import. We will continue to maintain our exports to China,” he said.

Kositpaisal also saw an opportunity for PTT Chemical to expand its presence in Asean (Association of Southeast Asian Nations) following the implementation of a free trade pact in the region from 1 January which has brought down tariffs on many products, including polymers, to zero.

“We have a significant participation in Vietnam which is growing fast and we are supplying to Indonesia. Our business plan is to increase sales volumes in this region as we have the strength,” he explained.

He was positive on growth prospects in Thailand where the company was focusing on the packaging sector.

“Even during the crisis in 2008 and in 2009 we did not see a drastic drop in packaging [demand]; we still see growth of 3-4%. And Thailand is also exporting packaging,” he said.

This was expected to support Thai PE demand growth of 3-4%/year, he added.

Like many of its Asian counterparts PTT Chemical was also looking to expand its presence in speciality grades of PE.

“We have a programme to work together with customers to develop new grades; some grades are already in the market. Now only 5% of our volume comes from speciality grades but we plan to increase the share,” said Kositpaisal.

PTT was also looking at producing metallocene grades at its new linear-low density plant that was commissioned earlier this year.

“We have a plan to make it; we want the plant to run smoothly first,” he added.

($1 = €0.75)