Thailand's petrochemicals major PTT Global Chemical (PTTGC) will focus on producing high-margin specialty products as it seeks to better compete with Middle East producers in the crowded China market, says CEO Anon Sirisaengtaksin. "PTTGC will focus on producing compound plastics or specialty products as the market demand for these products are growing at a high level," he told ICIS recently.
The company's Memorandum of Understanding (MoU) with China's Sinochem International in August this year underlines its desire to carve out a niche for itself in specialties in a bid to differentiate itself and avoid competition from Middle East cracker operators which have lower feedstock costs.
"PTTGC plans to focus on selling our products in the high-growth region of Asia, especially in China and ASEAN"
PTTGC, 49% owned by Thai energy major PTT, is stepping up its capital expenditure (capex) plans in the medium to long term. Its latest capex plan, which outlines at least $11bn (€8.7bn) worth of new projects through to 2020, is expected to be finalized soon.
The company has already announced a slew of new projects earlier this year, targeted at expanding its downstream green and specialty chemicals portfolio, to be implemented in the medium term.
"A move into downstream chemicals would reduce the company's exposure to commodity grade petrochemicals and increase long-term returns," JPMorgan analysts said in a report earlier this year.
Emery Oleochemicals, a 50:50 joint venture between PTTGC and Malaysian conglomerate Sime Darby, announced in October this year that it will spend $50m to build a new plant that will produce high-performance, bio-based polyols. The new plant at the joint venture's production site in Cincinnati, Ohio, is aimed at serving the automotive, furniture and various other industries.
The investment move by Emery Oleochemicals follows PTTGC's creation of a 51:49 polyurethanes (PU) joint venture with Sweden's Perstorp, called VENCOREX, and the acquisition of a 50% stake in US-based biopolymers maker NatureWorks for $150m. The investment to create VENCOREX is a strategic move into the high-volume specialty products market, which will provide added opportunity for future growth, Sirisaengtaksin says. NatureWorks, meanwhile, is the only producer of polylactic acid (PLA), a biodegradable polymer, in the world. It runs a 140,000 tonne/year unit in Blair, Nebraska.
Following these acquisitions, PTTGC has announced plans to build a complete PU chain in Asia by utilizing technology from Perstorp, and to construct a new PLA production plant in Thailand. The pre-feasibility study for the 140,000 tonne/year PLA plant has been completed, with detailed feasibility and engineering studies now under way, Sirisaengtaksin notes.
Looking ahead, the move towards high-value products market will get increasingly harder in time to come as competition intensifies with more companies joining the "green" movement, Sirisaengtaksin believes.
To boost competitiveness amid this trend, companies in Asia that intend to move towards specialty products in markets in other regions must invest heavily in research and development, and innovation, to meet customer demands, he says.
"[Furthermore] the key challenge is the increased intense competition in terms of resources and trade. In Southeast Asia, feedstocks [availability] are expected to decline in the future while free-trade agreements will affect their trade and business," Sirisaengtaksin adds.
While revenues from high-volume specialty products are set to grow over the next decade, the majority of the PTTGC's sales in 2020 will come from existing businesses, as the core business of the company is the manufacturing and distribution of olefins products to downstream petrochemical plants in the PTTGC group and other downstream industrial plants.
PTTGC has a combined production capacity of 2.26m tonnes/year of aromatics products including benzene, paraxylene (PX), cyclo-hexane (CX), orthoxylene (OX), toluene, and mixed xylenes. The company has olefins capacity of about 6m tonnes/year and can process 280,000 bbl/day of crude oil.
The company's latest investment plan includes a new 1m tonne/year cracker that is expected to be built somewhere Asia. "The new cracker project is in the feasibility study stage," Sirisaengtaksin adds.
In the near term, he says that the outlook for demand growth for the PTTGC's products remains uncertain due to the debt crisis in the eurozone and the slow economic growth in US and China. "To avoid the softened demand in the market, especially in Europe, PTTGC plans to focus on selling our products in the high-growth region of Asia, especially in China and ASEAN [Association of Southeast Asian Nations] countries," he says.
The unexpected slump in earnings in the second quarter of this year has also "affected the financial performance of PTTGC severely," which forced the company to cut its investment budget of about $500m by 5-10% this year, Sirisaengtaksin reveals.
The company and its subsidiaries reported a net profit of Thai baht (Bt) 851m ($28m) in the second quarter of this year, a 90% drop from the same period a year earlier and down by 91% from the previous quarter.