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Asia Top Ten Chem Companies

Business, China, Company Strategy, Economics, Fibre Intermediates, India, Malaysia, South Korea, Thailand
By John Richardson on 17-Sep-2012


By John Richardson

SINOPEC’s remarkable rise in the petrochemicals business continued in 2011 as it jumped two places in the ICIS Top 100 ranking, compared with 2010, to finish second overall, behind BASF. This was the result of a 28.9% rise in chemicals sales in local currency and a 34.9% increase when sales were measured in US dollars.

The steep rise in sales reflects the Chinese government’s strategy of boosting petrochemicals self-sufficiency. New cracker and derivatives capacity was commissioned by Sinopec in 2011. Between 2000 and 2011, the company’s total production in all chemicals rose from 2m tonnes to 10m tonnes – a 14% increase per year.

Sinopec’s operating profit also almost doubled in 2011 compared with the previous year.

But the problem is that this reflected a strong first half of 2011. By Q4 of last year, markets had weakened.

And 2012 has been an immense disappointment. Chinese demand growth in all the major synthetic resins is likely to be in the low single digits.

Doubts are also growing over the long-term health of the Chinese economy. GDP (gross domestic product) growth could call to as low as 3% per year over the next few years, as China undergoes a painful rebalancing from investment to domestic consumption-led growth.

If it fails to rebalance quickly enough, there is a risk of a major non-performing loans crisis as a result of continued investment in unneeded infrastructure and industrial capacity.

This doesn’t mean, however, that Sinopec will necessarily delay capacity expansions. The main role of the company , which is still 76% owned by the government, is to guarantee supply of raw materials to domestic downstream industries even if, at certain times, this means losing money.

China as a whole is scheduled to increase its ethylene capacity from around 15m tonnes/year in 2011 to 27m tonnes/year in 2015, according to ICIS data.

This puts some of Sinopec’s overseas competitors, which have to answer to shareholders, in a very difficult position if the worst fears over China’s economy are realised.

South Korea’s Honam Petrochemical, however, had a tremendous 2011 as a result of a 47.6% increase in sales.

But the South Korean companies in general are expected to struggle to achieve full-year 2012 financial targets because they are so heavily dependent on China for exports.

At least in the case of Honam, though, its position has been strengthened by its 2010 acquisition of Malaysia’s Titan Chemicals.

This has given it better access to the booming ASEAN (Association of Southeast Asian Nations) markets, and an edge in exporting to China through the ASEAN-China Free Trade Area.

The challenge for Thailand’s PTT Global Chemical, also, of course, within the ASEAN region, is to maintain its 2011 progress in 2012. In 2011, it leapt into the top 30 of the ICIS ranking, thanks to its emergence from the merger of the former PTT Chemical and PTT Aromatics.

India’s Reliance Industries, which saw its 2011 petrochemicals sales jump by 28.2%, faces the very different challenge of effectively executing the biggest “off-gas” cracker project of all time.

It is due to bring on-stream a cracker, which could eventually produce 1.6m tonnes/year of ethylene, and associated downstream capacities at its Jamnagar complex in Gujarat in 2015

The cracker will be entirely fed by off-gases from Reliance’s 1.24m tonnes/year refinery capacity at the same site.

“The biggest previous cracker to run solely on off-gases had an ethylene capacity of only 100,000 tonnes/year,” said a source familiar with the Reliance project.

Reliance is to spend a total of $12bn on new petrochemicals capacity, including not only the cracker complex, but also on new paraxylene (PX), purified terephthalic acid (PTA) and polyester plants.

This is a major play on a domestic Indian market that, even if GDP growth slows quite dramatically, should be able to absorb all of the new Reliance capacities.

This time last year, most people would have said the same thing about all the capacities added to serve China, but maybe not now.