BLOG: The “National Champions” in the New Petrochemicals Landscape

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson.

Even the long-established National Champions, such as the oil, gas and petrochemicals companies in southeast Asia (SEA), need to re-examine their business models as the New Petrochemicals Landscape evolves.

Taking high-density polyethylene (HDPE) as an example, the subject of today’s post, short-term tactics should involve constant reviews of sales opportunities outside the region where netbacks can be better.

With China’s demand growth lower than expected, and with China’s HDPE self-sufficiency higher than expected, SEA producers need to scour the rest of the world for every extra tonne of sales.

As the main chart in today’s post illustrates, returns within the region need to be maximised by taking advantage of “price ceilings”. Production costs versus competitors need to be reviewed.

But here’s the thing as we switch to the long term: The SEA countries in HDPE deficits are forecast to account for 24% of global net imports between 2023 and 2030, the second-biggest percentage share behind China at 37%.

This is our base case. I believe that China could move closer to complete petrochemicals self-sufficiency be 2030 than is widely assumed. This would lead to SEA becoming a bigger prize for the global net exporters.

The competition in the SEA HDPE market may also be intensified by the emergence of petrochemicals Supermajors with exceptionally low production costs – and with new capacities on a scale we have never seen before.

Country by country:

Because of China’s shift to self-sufficiency, because of Singapore’s very small domestic market – and because its feedstock advantages are weakening versus the emerging Supermajors – the island nation needs to redefine its polyolefins future.

Thailand has big polyolefins export exposure to China and a large overall export exposure but has a big domestic market. In this new competitive environment, questions even need to be asked about the cost position of Thailand’s ethane cracking.

Malaysia’s Petronas is predominantly an oil and gas company (PTT is predominantly a gas company in Thailand, so what follows also applies to PTT). Oil and gas give the Petronas chemicals businesses a solid bedrock of support. But Malaysia’s petrochemicals cost position on the new cost curve could shift to the right.

Indonesia a major net import market with very few petrochemical assets. It will be interesting to see whether local expansions are justified if they are not led by one of the Supermajors.

Vietnam is of course also an oil producer. But because of free trade deals with the rest of ASEAN, China and South Korea, Vietnam is heavily exposed to the record levels of global oversupply. This is because Vietnam is another big net import market.

It is what it is. There can be no return to the old petrochemicals landscape.

Editor’s note: This blog post is an opinion piece. The views expressed are those of the author, and do not necessarily represent those of ICIS.