Chemicals & The Economy

The blog is delighted to have been invited to address two important industry events in coming months:

Washington DC. It will be presenting a Global Outlook to the Coatings Summit, alongside CEOs including Andrew Liveris of Dow Chemical; Christopher Connor of Sherwin Williams; Hans Wijers, AkzoNobel; Kenji Sakai of Nippon Paint, as well as senior figures from consumers in the aerospace and auto industry. The Summit is hosted by the International Paint and Printing Ink Federation.

Bahrain. It will be delivering a Keynote address to the World Refining Association's Petchem Arabia conference, alongside leading industry figures from SABIC, Saudi Aramco, Borouge, Tasnee, TOTAL, Lanxess, Egypt Basic Industries, Jubail United, NatPet, Qatar Petroleum and McBride.

Please click Coatings Summit and WRA for more details of each event.

EU governments have spent enormous sums of money to support the economy over the past year. Yet in terms of a key indicator such as unemployment, the situation has got worse rather than better. This is bound to restrain consumer spending, a key factor for domestic EU chemical demand.

Eurozone unemployment hit 10% in February, and it has remained at this level into July. 16 million people are out of work, and 23 million people in the European Union. Both figures are up around 1 million since July 2009.

As the chart shows, Austria and The Netherlands continue to have the lowest rates, at 3.8% and 4.4%. Spain now has the highest at 20.3%, closely followed by the two Baltic countries, Latvia and Estonia. Youth unemployment remains a particular problem, with 20.2% of under-25s out of work in the EU. Shockingly, 41.5% were unemployed in Spain.

The blog is pleased to announce that Dr Ralf Kuhlmann is joining International eChem (IeC) as a Senior Vice President.

He was previously Business Director, Basic Chemicals, with ExxonMobil Europe, where he was responsible for Marketing & Sales, Planning, Feedstock, and Supply Chain optimization for the European petrochemicals business.

He also represented ExxonMobil on a number of industry bodies and was President of the Association of Petrochemical Producers in Europe (APPE), as well as a Member of CEFIC's Energy, HS&E and Logistics Program Council, an EPCA Board Member. He is an advisor to German industry associations.

With IeC, Ralf will focus on assisting clients in long-term strategic assignments, including management and M&A support, as well as in the key area of operational and management integration.

Last month's IeC Boom/Gloom Index showing a worrying weakness in sentiment, particularly when the world's major stock markets had actually recorded good performances in July, albeit on low volume.

But as the chart shows, this month confirms the downturn reading, with the Index (blue column) below the 4.0 level. Further confirmation of this reading comes from the 4.7% fall in the US S&P 500 Index over the month. Crude oil prices, which have been strongly correlated with the S&P, have also weakened sharply.

The only positive is that the Austerity reading (red line) fell back to April's level. But, of course, this was still high by comparison with earlier months. And with the return of politicians from their summer holidays, the austerity message may well start to gain in volume again.

Early last year, China's leadership faced the prospect of social unrest, as 23 million people lost their jobs as Western demand dropped for China's exports. The government bought itself time to deal with this problem by throwing money at it - $1.4trn of bank lending, and $580bn of stimulus.

Earlier this year, the government then announced measures to cool the housing bubble that these policies had created. But last week, the People's Daily noted that : "With house prices still high and not falling, the results of the policies are still quite far from what ordinary people expect." And according to China Daily, "regulating the property market remains a daunting task in spite of "initial progress" the country has made in cooling excessive prices".

Responding to these pressures, China's chief economic planner, Zhang Ping, accepted that "current housing prices in some large and medium-sized cities are still too high." And he promised that the government would "further implement the measures meant to curb excessive gains in housing prices, and resolutely restrain speculative property investment."

Thus it seems clear that China is set on slowing its economy to a more sustainable pace. As China Daily added "the main task now is to deflate the asset bubble, particularly in the urban housing market, and to avoid heavy inflation, which requires a gradual slowdown".

Soberingly, it warned "there is a genuine likelihood that global market demand for Chinese manufactured goods can never be fully regained. A greater part of this economy will also have to find more customers in the domestic service sector. That will probably take a much longer, if not painful, process."

This new policy has important implications for the global chemical industry. Demand has been boosted over the past 18 months by China's efforts to reflate its economy. We probably shouldn't rely on the stimulus effects from this to continue for much longer.

Anyone running a chemical company knows that the benefits of certain key decisions can take years to develop. Many companies had to support their nascent pharma businesses for 20 years, before steady profits began to flow. Whilst major complexes can easily take 10 years from inception to completion.

Yet in recent years, investors have become more and more impatient for quick results. We can see this in the above chart, from Andrew Haldane of the Bank of England, which shows that US investors' average holding time has reduced since the mid-1970's from 7 years to less than 7 months. Equally, the Financial Times has recently noted that:

"Today's markets are dominated not by long-term investors, but by speculators so busy with "burn and churn" buying and selling, that they have lost interest in what is surely the fundamental reason for owning shares: the fact that they either produce, or are expected to produce, an income."

The FT adds that "dividends have accounted for 90% of total return in the US market since 1871", and suggests that investors seeking to fund pension promises would do well to focus on companies whose future earnings will support steady dividend growth.

Haldane, in a very thoughtful and well-researched paper, goes on to question whether the West's financial system has been on the right track in recent years. He worries about its "tendency towards impatience and a demand for immediate gratification", and warns that "just as patience can ward off great disaster, impatience can ruin a whole life."

Coincidentally, this message is also supported by the Bank for International Settlements (BIS), the central bankers' bank, in its latest Quarterly Review. Its study of 20 recent financial crises leads it to conclude with the simple truth that "what goes up, tends to come down".

It goes on to argue that today's short-termist policies will only prolong the pain of the current Crisis, as was seen in Japan in the 1990's. Instead, it says the prime need is to "fix the banking system" via "the early full recognition of losses and the restructuring of bank balance sheets".

With shareholders seemingly ever-more short-term in their outlook, the blog will not be holding its breath for this to take place any time soon.

Yesterday's blog photo (of men sitting on planks to paint the outside of an apartment block), has led my engineering colleague, Andy Gibbins, to pass on the above link to his Top 10 video list of things you really don't want to try at work, or at home.

The blog's favourite is No 2, with a new recruit holding the target for his regiment's rifle practice. But the complacent figure at No 8 runs it close.

Oil markets are now in their longest-ever period of contango. This is when prices for future months are higher than current levels. According to Bloomberg, they have now been in contango for a record 656 days.

Keeping a barrel of crude in a tank on land costs 60 - 70 US cents/month, whilst hiring a supertanker costs $1.50/month.

So this is clearly excellent news for the blog's friends in the storage and shipping industries, as well as in the trading community.

But a comparison with the previous record period of contango (640 days between October 2005 and July 2007), reveals the lack of logic behind the current speculative mania. Then, global crude oil consumption was rising rapidly from 82.2mbd in 2004 to peak at 85.6mbd in 2007, according to BP's authoritative Statistical Review. But last year, demand was back at 84mbd, and is clearly still being hit by today's high prices.

Where is the need to store record levels of oil and oil products, with this level of comfort in supplies? Especially as in the short-term, oil inventories are already rising still further as Western refineries shut for routine maintenance before the winter arrives. US operating rates are already down to 87% from July's 91.5%, for example.

In addition, in terms of petchem feedstocks, OPEC has been rapidly increasing its NGL output. The International Energy Agency estimates this will rise 600kpd in both 2010 and 2011, to total 5.9mbd. It notes this volume will represent "7% of global oil output, up from negligible levels in the early 1990s".

One day, crude oil markets will shift their focus back to these fundamentals of supply/demand. The blog used to think this correction could see prices slip back to $60/bbl. But now, with the mania having lasted so long, it is beginning to fear they could easily fall back to $40/bbl. This would be very painful for those in the real world of the chemical industry.

The blog's 6 monthly survey of major stock markets, now including the US 30 year Treasury bond, shows mixed performance since March:

• The worst performers have been Shanghai and Tokyo, down ~12%. They are also the worst performers since the pre-Crisis peak, down ~50%.
• In the middle are the US, UK, Russia and Brazil, down ~2%. Since the peak, Brazil is down 9%, UK down 18%, US down 29% and Russia down 40%.
• The positive performers are Germany, up 6%; India up 11%; and the US 30 year Treasury bond, up 15%. Since the peak, however, Germany is still down 23% and India down 10%, but the Treasury bond is up 20%.

Whilst there is a lot of talk about a bond market bubble, as discussed recently in Questions to the chemical market genie, there are also a number of quite rational reasons why investors might focus on long-dated bonds issued by major governments.

Monday's Financial Times will feature the blog's analysis of this issue.

The blog is very pleased to have been invited to write for today's Financial Times.

Its article looks at the influence of the Western 'baby-boom generation', born between 1946-70.

Typically, as in the UK, the period saw a 25% jump in the number of births compared to pre-War levels. Since 1970, births have fallen back to earlier levels.

The baby-boomers created a significant upswing in demand as they entered the key 25 - 54 year old cohort between 1970 -95. This age group dominates consumption, as they marry, buy houses and start families. Naturally enough, this demographic also helped to boost chemical demand - which is largely based on personal consumption.

But now, as the article notes, the majority of the baby-boomers are moving into the over 55s age group. Their need to consume is therefore reducing, and they are much more concerned with saving - especially as they have the longest life expectancy in history.

This demographic change in the developed economies is very significant for future demand. It is a major reason for believing that the post-Crisis period will be a New Normal, with lower consumption, less debt and higher savings.

If you would like to read the full article, which focuses on the possible impact of this change on interest rates, please click here.

The ICIS Top 100 listing of the world's major chemical companies has just been published, and provides its usual store of data and insight.

In his summary, editor Nigel Davis notes that 16 of the Top 100 reported a net loss in 2009, with LyondellBasell, PEMEX and INEOS the largest at $2.9bn, $1.5bn and $0.9bn respectively.

Davis also notes that "In a world cautious in the extreme and armed against the impact of a further downturn, it is predictable that Top 100 analysis for 2009 records much lower capital spending (capex) across the sector. The average fall for the Top 100 that disclosed capex was 16.5%." The data is summarised above, by reporting company.

Davis also notes that "the average decline in R&D spending was 4.4%, with 37 companies making cuts of more than 5%". Equally, he reports that "11 companies cut employee numbers by more than 10%."

A full copy of this year's report can be downloaded free by clicking here.

The summer has seen several reports of reductions in ethane availability to Saudi petchem plants.

This seems to have been due to two causes:

• Saudi has cut back oil production by a third (4mbd) in order to comply with its 8.3mbd OPEC quota at a time of reduced global demand. This has also reduced the production of associated gas, including ethane.
• In addition, gas has had to be used to supply growing demand for power generation, which has also required the use of 750kpd of oil, according to International Energy Agency estimates.

Now Aramco's CEO, Khalid al-Falih, has signalled that the company's $130bn exploration plans are focusing on unconventional resources such as shale gas.

In an interview with the Financial Times, he notes that 4.3bn cubic feet has been added to Saudi's gas reserves in the past 5 years. And he suggests Saudi could double current gas reserves via unconventional sources.

Shale gas exploration has, of course, already delivered major new feedstock availability for US petchem producers, with US natural gas prices at their lowest level for 7 years. Now al-Falih is suggesting the Kingdom will harness the expertise generated by the international oil companies (IOCs) in order to boost its own production in this area.

He also confirms that Aramco remains "enthusiastic" about its current JVs in refining and petchems with partners such as Sinopec, Sumitomo, Dow, ExxonMobil, Shell and TOTAL. Increased gas availability would certainly go a long way towards enabling higher petchem production levels in the Kingdom over the medium term.

The past fortnight has confirmed the strong linkage between Dalian futures trading, and financial market speculation.

Dalian prices (red line) for linear low density polyethylene (LLDPE) rose steadily in early September, as traders bet on higher crude prices. They had gained RMB 600/t ($90) by last Wednesday.

But then rumours began flying that China's interest rates would be increased at the weekend, to help curb rising inflation. Prices immediately dropped RMB 305 ($45/t), as traders dived for cover, mirroring Thursday's 1.5% fall on the Shanghai stock market.

Dalian's trading volume (blue line), over 6 MT/day at this month's peaks, gives it major influence on physical market pricing. Yet, now the excitement has died down, it is clear that nothing much had changed in the fundamentals of the polyethylene market to justify either its earlier rise in prices, or the sudden fall.

It has become, as my fellow-blogger John Richardson noted recently, an Alice in Wonderland market where financial speculation rules.

China's leadership seems to be increasingly confident about its ability to redirect the economy towards more domestic consumption over time, and away from the previous over-reliance on exports.

As the above chart shows, bank lending (red column) is well on track to meet the $1.1trn target set for 2010, down 21% from 2009's high. In turn, given the close historical correlation, this should mean that electricity consumption (blue line) starts to stabilise, along with industrial production.

This also explains the government's reluctance to raise interest rates, even though inflation moved well above target to 3.5% in August. And it suggests premier Wen Jiabao was serious when warning last week that:

"It is the key responsibility of all levels of governments to stabilise housing prices and to guarantee housing availability. The issue is not only an economic problem but also an issue of people's livelihood that affects social stability."

With China Daily reporting that rising property prices are causing rents for small Beijing apartments to rise by up to $150/month, the risk to social stability is clearly rising. And so it was clearly no coincidence that Ma Jiantang, head of China's Statistic Bureau, told the Summer Davos forum that "China's tightening measures on the property market will not throw a major impact on the country's economic growth".

Ma said real estate was only 20% of China's total investment, and only a "small share of GDP". He was followed by Xia Bin, of the Bank of China, who noted that investment in the sector had "surged 37% in August versus 2009", in spite of "the government's tough measures to curb excessive growth".

Xia warned that it might take 2 to 3 years to restore normality to housing markets, due to "China's complicated economic condition and difficulties in its economic restructuring." But in the meantime, it looks as though this key sector for chemical demand might be in for a bumpy ride.

ICIS' Mark Victory wrote a interesting article this week, in which he tried to relate differing views of the economic outlook to auto demand, the area in which he specialises. The underlying issue, of course, is the complexity of the value chain, where supplies are often ordered months in advance, whilst most data will only appear weeks after the event.

His analysis concluded that the indicators, good and bad, "give a snapshot of the market at the time they are compiled, but they do not offer a crystal ball view into the future".

In uncertain times, the blog believes that raw data on auto sales is our best guide as to what is really happening. Last year, the EU was the largest auto market in the world, thanks to the various stimulus programmes. But no longer.

As ACEA (Association of European Automakers) note in relation to the above chart, auto sales in July and August "continued the downward trend seen in Q2". One can't get clearer than that about the direction of a market. The Big 5 markets in terms of volume were also all negative versus 2009: France -8%; UK -18%; Italy -19%; Spain -24%; and Germany -27%.

The trend is also worsening, now that all stimulus programmes have ended. Q1 sales were up 9% versus 2009, with stimulus programmes still underway in the Big 5 with the exception of Germany. But they were down 8% in Q2, as these came to an end. So far, sales are down 16% in Q3.

Increasing demand for greater fuel efficiency will continue to support chemical and polymer sales, as manufacturers replace steel and glass. But European consumers are providing fairly clear evidence of dramatic falls in auto demand itself, as austerity programmes begin to bite.

The blog remains very concerned that, overall, the economic policies adopted during the current Crisis are leading the world economy to the worst possible outcome. This outcome is totally predictable. Indeed it has been predicted by reputable experts for some years. Yet most policymakers still seem intent on dealing with symptoms rather than causes.

As evidence for this argument, the above chart first featured in the blog 18 months ago. It was developed by Comstock Partners, but many others identified the same logic. And sadly, we continue to move through exactly the cycle it defines:

• Originally, China/Asia boosted savings and investment, whilst the West ran up huge debts in creating demand to utilise this investment eg in housing, autos.
• Equally, the West created huge over-capacity in services, particularly financial services, in order to recycle Asia's savings into Western debt.
• Inevitably, the world then reached a position where this excess capacity led to growing weakness in pricing power - causing the Crisis which is now with us.

Did Western policymakers stop at this point, and ask themselves what was happening? Not as far as the blog has observed. Instead, they focused on short-term measures such as stimulus programmes to boost demand, in the mistaken belief that the problems were caused by a lack of market liquidity, rather than solvency.

The EU's efforts to avoid debt default by Greece are just one example of this. Equally, Germany's weakening of the new Basel bank capital rules to avoid problems for its bankrupt state banks. Or, indeed, the Obama administration's apparent belief that their stimulus programmes would produce 'escape velocity', with the US consumer quickly returning to full spending mode.

Meanwhile in Asia, China has begun quietly devaluing versus the trade-weighted average of partner currencies, spending $1bn a day in the process. It has also been forcing up the value of the Japanese yen, buying $12bn of government bonds in June-July.

China's premier, Wen Jiabao, has also ruled out any "drastic appreciation of the renminbi" against the US$. Noting that China's factories receive only $6 for each $299 iPod sold, he warned, "you don't know how many Chinese companies would go bankrupt. There would be major disturbances. This is the reality."

Yet in the USA, the administration seems increasingly keen on a 'weak dollar' policy, to support its desire to double US exports over the next 5 years.

Now, Japan has publically signalled the move to the next stage of the Crisis, with its decision to competitively devalue, to try and maintain its exports. Its export-driven economic model simply can't survive with the yen above ¥95: $1.

As before, this short-termism clearly cannot work long-term. With world trade no longer expanding, nobody is now able to take on the role of 'importer-of-last-resort' that has been adopted by the USA and Western Europe in recent years. Instead, the politicians are all mindful of the increasingly protectionist mindset of their electorates, with unemployment at high levels.

So the stage is now being set for the next phase of the Crisis, namely protectionism and tariffs. The first signs are already beginning to appear. And they will undoubtedly increase in volume next year, if the major developed economies (Europe, N America and Japan) continue to stagnate. These regions, after all, do account for two-thirds of global GDP.

In the meantime, more and more governments are planning to further reduce demand by imposing austerity programmes, in the mistaken belief that their previous policies have delivered economic recovery. The outlook therefore does not seem very optimistic, even to the blog.

Peter Lynch, who managed Fidelity's Magellan Fund in its great days, once remarked that "the futures and options markets are a giant transfer payment from the unwary to the wary".

This has certainly been the case in oil markets over the past 18 months. The sale of futures contracts to pension funds and others, has taken prices far above anything justified by fundamentals, and made a considerable profit for those selling these contracts.

The issue, of course, from the chemical industry viewpoint, is whether this situation will change any time soon?

To answer this critical question, we probably have to turn to so-called 'technical analysis', which is widely used by those trading both commodities and currencies. It focuses on trying to identify behavioural patterns, not supply/demand fundamentals, and then applies these to current conditions.

Thus the above chart, from Petromatrix, is a warning that a possible major price move lies ahead. It charts the weekly range of WTI in recent months. And it shows a 'triangle' is being formed, highlighted by the red 'resistance line' at the top, and the green 'support line' at the bottom.

The triangle has been building since May, and suggests that 'bulls' have run out of steam in trying to push prices higher, whilst 'bears' have not gained sufficient momentum to take them lower. Quite often, the end of such a tug-of-war produces a major price move, up or down, as one side capitulates.

The blog will therefore keep an eye on developments, to see if the triangle pattern helps forecast future price movements on this occasion.

Last year, the US administration spent $2.85bn on supporting the sale of 360k autos, by paying owners of older vehicles to destroy them with sodium silicate.

At the time, most people in the chemical industry, and many experts, regarded this 'cash for clunkers' programme as being a complete waste of money. And they became even more concerned when European governments followed with similar programmes.

Now a new study for the US National Bureau of Economic Research finds that it "had no long run effect on auto purchases". Their analysis suggests it increased sales by 360k in summer last year, "but then quickly hurt sales by about the same amount, in effect stealing sales from the future".

Of course, they can't also measure the negative impact on chemical companies and converters of suddenly having to ramp up production, only to then see it collapse again. But this clearly happened, causing major disruption to the supply chain. Equally, all the anecdotal evidence suggests the same pattern occurred in Europe.

The underlying problem is that many politicians simply fail to accept that short-term fixes, such as the clunkers programmes, housing tax credits etc, cannot provide 'escape velocity' to overcome the real issues underlying the current Crisis. Vast sums of money, and time, are being wasted whilst they remain in this state of denial, as the blog will discuss in more detail at the weekend

The good news this week was that the body responsible for dating US recessions, the National Bureau of Economic Research, finally declared that the so-called Great Recession was over.

It was the longest since the Depression, running from December 2007 to June 2009, and twice as deep as in 1981-2, causing a 4% loss in GDP.

The bad news was last night's statement from the US central bank, the Federal Reserve - here is the entire first paragraph:

The pace of recovery in output and employment has slowed in recent months.
Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.
Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in non-residential structures continues to be weak.
Employers remain reluctant to add to payrolls.
Housing starts are at a depressed level.
Bank lending has continued to contract, but at a reduced rate in recent months.
The Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be modest in the near term.

Unsurprisingly, the Financial Times is already calling the 'recovery' since June last year, the Great Disappointment.

Major changes are taking place in US retailing. They echo the changing focus of emerging Asian markets. Taken together, these must have important implications for chemical demand.

US retail markets have been evolving over the past 3 years, as the Crisis began to hit, and the baby-boomers moved beyond the peak 25 - 54 age group of maximum consumption:

• Back in 2007, the major retailers began to report that consumers "appreciate the opportunity to save on everything" (Wal-Mart) and "are more focused on value-for-money" (Tesco).
• Then this trend spread to impact the major consumer products companies. Even Procter & Gamble was forced to respond, after its sales were hit by competition from low-cost 'own brands'. They introduced the Basic range, with lower performance and price.
• Now, the New York Times is reporting that "Dollar stores have shown the biggest gain in shopper visits over the past year". These are stores where most products sell for $1 or less. In turn, manufacturers are starting to produce "smaller packages that cost less".

The implications are obvious. The richest consumers in the world are no longer focused on buying more of everything. Instead, they are beginning to redefine purchases into 'needs' and 'wants'.

This trend is now spreading across all categories. Large so-called McMansion homes are definitely out of fashion, as are large Hummer vehicles. Equally, of course, the emerging economies of Asia are increasingly focusing on the vast untapped markets on their doorsteps, such as China's rural population, rather than 'aspirational' consumerism for the lucky few.

India, for example, is successfully introducing the nano car, priced at $2k, aimed at providing an alternative for families using a two-wheeler. Whilst Unilever's Shakti project is aiming to sell single items of toiletries etc to 600m people who cannot afford to buy western-style volumes.

Richard Brasher, Tesco's commercial director, warned 3 years ago that "Coming down the road is a tougher time." He announced that Tesco was changing its focus from affluent shoppers because "if you don't have the basic things right, you will be talking at the edge rather than at the centre".

Today, as chemical companies focus on their 2011-13 budgets, these comments seem more insightful than ever in terms of likely future demand patterns.

Investors on Wall Street are no longer bothering with the boring detail of company performance.

That's the conclusion from a new study by Barclays Capital, on the correlation between movements in the S&P 500 and individual stocks.

Instead, they are piling into the 'correlation trade', as high-speed computers now often account for over 60% of daily trading.

Until 2006, the daily correlation between stocks and the index was just 27%. It was only in exceptional circumstances, such as the Iraq War in 2003, that correlation rose to 60%.

Since then, correlation has become the name of the game. It was 80% at the height of the financial crisis, and again in Q2 during the European debt crisis. And it is still high today, at 74% in August and 60% today.

According to the Wall Street Journal, "such high correlation levels were seen previously only during the Great Depression". The blog, not being a fan of correlation trading anyway, likes the sound of that parallel even less.

This week's ICIS Chemical Business includes the blog's article on the changes taking place in global markets for ethylene, propylene, butadiene, benzene and paraxylene. These have a potential impact on buyers and sellers all the way down the various value chains.

The article updates the blog's major series on these issues in the summer, and also links to the demographic changes now underway in the West. It suggests that "prudent producers and consumers might want to develop a Scenario-based approach to future planning, that includes further development of the analysis set out".

Please click here to download a free copy of the article. And please click here to see the YouTube interview with Will Beacham, ICB deputy editor, which explores some of the key issues in more detail.

The battle lines are definitely being drawn up in South East Asia, following Honam's July move to acquire Malaysia's Titan.

The context for this is Asian producers need to develop new strategies, as export opportunities to China dry up. China's ethylene production grew 26% in H1 versus 2009, with Sinopec increasing its output by 41%. And, of course, there is further expansion in the pipeline, well ahead of likely demand growth.

The news this week is that moves are finally being made to sort out the long-standing problems at Chandra Asri in Indonesia. As my blogging colleague John Richardson notes, this has made the country one of the world's largest importers of ethylene, with an expected deficit of nearly 600kt in 2013.

Joint owner Barito Pacific will end up with 71.6% of the new company in January, when TriPolyta Indonesia merges with Chandra Asri. The aim must surely be to increase olefin capacity, whilst properly integrating the cracker with downstream polymer production.

If this doesn't happen, then Honam will have an open goal, once its Titan acquisition goes through. Honam has already announced its intention to expand olefin production in Malaysia, whilst its acquisition brings with it the PT Titan polyethylene plant in Indonesia.

Singapore's new strategy shows its Economic Development Board is well aware of the risks of standing still whilst the world changes. But Thailand's PTT seems in danger of falling behind, as M&A goes on around it. It is burdened with a complex ownership structure, and must have inevitably been distracted by the long-running environmental issues at the Mab ta Phut site.