Philippines’ JG Summit eyes expansion as petchems in “sweet spot”

Interview article by Pearl Bantillo

MANILA (ICIS)–JG Summit Petrochemicals Group, the sole cracker operator in the Philippines, is pursuing a $500m-600m expansion over the next three years as it is bullish on the domestic growth prospects of the industry, the group’s top executive told ICIS.

“We think [the] petrochemicals [industry] is in a sweet spot right now because of the price of crude and naphtha and we think the derivative market will be stable,” said Patrick Go, president and chief operating officer of JG Summit Petrochemical Corp and JG Summit Olefins Corp.

“We’re taking a long-term view that it will stay like this for the long term, so we decided to invest –expand the cracker while the opportunity is there,” he said.

The company has an integrated petrochemical complex located in Batangas, which is 120 kilometers south of Metro Manila.

It houses a naphtha cracker that can produce 320,000 tonnes/year of ethylene and 190,000 tonnes/year of propylene, as well as downstream polymer plants.

The cracker’s ethylene capacity will be increased to 480,000 tonnes/year, while its propylene capacity should rise to 240,000 tonnes/year.

Production at the group’s derivative polyethylene (PE) and polypropylene (PP) plants will also increase.

JG Summit Petrochemicals currently produces 160,000 tonnes/year of high density PE (HDPE); 160,000 tonnes/year of linear low density PE (LLDPE); and 190,000 tonnes/year of polypropylene (PP) at its site in Batangas, according to ICIS data.

“For the expansion, it’s [the cost] $500m-600m because it will involve other derivatives,” Go said.

“Basically, we are investing in a new polymer plant, expanding our polypropylene plant. We’re also investing in BTX [benzene, toluene, xylene] extraction and BD [butadiene] extraction,” he said.

The expansion project will take three to three-and-a-half years to complete, he said, while noting that the company has chosen most of its technology partners.

“We have already signed up technology agreements for most of the projects. The only open one is for polyethylene. So we still have to make a decision on the technology to invest in. But other than that, the BTX, BD the expansion, all these are going through basic front-end engineering [phase],” Go said.

After expansion, JG Summit Petrochemicals expects to produce around 160,000-170,000 tonnes of combined BTX and 80,000-90,000 tonnes of BD – most of which are expected to be exported, Go said.

For the planned PE plant, about 30-40% of its output will be sold within the domestic Philippine market, while the rest will be shipped out, he said.

The project cost will be covered by internally-generated funds and “some borrowings maybe at the parent level”, Go said.

JG Summit Petrochemical Corp and JG Summit Olefins Corp are subsidiaries of conglomerate JG Summit Holdings, which is listed in the Philippine Stock Exchange.

For this year, the group is targeting a revenue growth of 10-15%, and possibly 20% in 2017, backed by high utilization rates at its plants, Go said.

“Most of this will come from operational efficiencies. We were running at much lower rates in 2015,” Go said.

According to JG Summit Holdings, its petrochemical operations posted a 6.8% year-on-year increase in first-half 2016 gross revenues to Philippine pesos (Ps) 13.0bn, with net income surging to Ps2.43bn from Ps490.4m in the previous corresponding period.

For the full-year 2016, the petrochemical plants should be able to post an average operating rate of 80-85% taking into account production hiccups throughout the year, although the company tries to run the plants at 98-99%, Go said.

“Right now, what we are doing is we are filling a gap – there’s no petrochemical supply in the Philippines to begin with. That’s why the rate of growth for us was big, we are able to run at high operating rates right away,” Go said.

JG Summit Petrochemical’s cracker started commercial operations in November 2014, when crude prices had been spiraling downwards on oversupply concerns, pulling down the prices of naphtha, which is the main feedstock for petrochemical production in Asia.

The slump in crude and naphtha prices in recent years has had a net positive effect on the company operations, he said.

“Nobody saw that coming, so when it happened, we might as well take advantage of it. It lowered our working capital requirements, it made products more affordable. We think demand will stay healthy, so overall we see it as a positive,” Go said.