Over-capacity is going to be a major issue for the petchem industry over the next few years.
Asian producers, in particular, are likely to be worst impacted. The reason is that they have relied on exports to China taking up to 50% of their production.
But now China’s own production is ramping up, reducing the potential for these imports. And, of course, Middle East exporters to China will have a clear cost advantage in gaining the remaining volumes, versus most Asian plants which run on liquid feeds.
Asian producers therefore only only two alternatives, to attempt to:
• Export to the West or
• Close other regional competitors
The third alternative, of course, would be to shutdown themselves. But this is likely to be a last resort given the social implications on employment, and the impact on associated refineries and customers.
Exporting to the West is also likely to prove difficult, due to logistic costs and the close linkage between local producers and their customers. It will undoubtedly happen as the downturn continues, but at this stage it makes good sense to focus on inter-regional opportunities.
Equally, attack is often the best form of defense. And the new move by S Korea’s Honam to acquire Titan in Malaysia is clearly based on this strategy, as Honam seeks to realise their Vision of ‘global leadership’. Titan will provide them with a strong local base from which to attack SEA markets. And as my blogging colleague Malini Hanrahan notes today, they are losing no time in considering major expansion of Titan’s facilities.
Singaporean producers will be tough competition, given their close links with China. But other SEA producers will quickly find themselves in the firing line. They urgently need to update their own strategies for the future, in the light of Honam’s move.