Toi­lets, trade and towns; boom time for Asia’s plas­tic mak­ers De­mand driven by ‘Clean In­dia’ san­i­ta­tion pro­gram

Kuwait Times - - BUSINESS -

BEI­JING: From In­dia’s plan to plumb in over 100 mil­lion toi­lets in six years to China’s am­bi­tious new Silk Road net­work and the con­tin­ued move­ment of mil­lions of peo­ple into ci­ties across Asia, plas­tic mak­ers face years of strong de­mand. And, be­cause they are closer to end-users and man­u­fac­tur­ing hubs, Asian petro­chem­i­cal mak­ers are best placed to ride the boom.

Their prof­its and share prices are ris­ing and they’re in­vest­ing in new projects to ex­pand their busi­ness. Chi­nese fu­tures prices for PVC (polyvinyl chlo­ride), used in prod­ucts from pipes to bank cards, have risen more than 80 per­cent this year. Petro­chem­i­cals, seen as a niche busi­ness in the oil in­dus­try, are used in 70 per­cent of man­u­fac­tured goods - from mo­bile phones and yoga pants to cars and food pack­ag­ing - and bring in valu­able rev­enue for a sec­tor other­wise bat­tling over-sup­ply.

An­nual de­mand for eth­yl­ene, the most-used com­pound among many petro­chem­i­cal prod­ucts, is ex­pected to grow at over 10 per­cent in the com­ing decade, an­a­lysts say. In just one il­lus­tra­tion of how de­mand is set to grow, the “Clean In­dia” pro­gram, seek­ing to end open defe­ca­tion by 2022, has been wel­comed by the In­dian Petro­chem­i­cal In­dus­try group as a “boon for the plas­tics in­dus­try” - re­quir­ing build­ing hun­dreds of mil­lions of toi­lets, waste pipes and wa­ter sup­ply sys­tems to bring clean san­i­ta­tion to more than 700 mil­lion peo­ple.

“There is tremen­dous po­ten­tial for petro­chem­i­cal de­mand to go up be­cause per capita con­sump­tion is so low. There is a plas­tic us­age in ev­ery util­ity,” said B. Ashok, chair­man of In­dian Oil Corp, which has a petro­chem­i­cal plant at its re­fin­ery in Pa­ni­pat, to the north of Delhi. “De­mand is strong not only for toi­lets. In­dia is short of do­mes­tic PVC sup­plies and has been sourc­ing from coun­tries in­clud­ing South Korea, so Korean ex­port vol­umes are grow­ing,” said Hwang Kyu-won, an­a­lyst at Yuanta Se­cu­ri­ties in Seoul.

‘Lion’s share’

China’s “One Belt, One Road” project - to build a vast rail, road, ship­ping and fac­tory net­work be­tween China, cen­tral Asia, Africa and Europe will also re­quire mil­lions of tons of plas­tic materials, noted Luna Kim, prin­ci­pal con­sul­tant at Chem­i­cal Mar­ket Re­search Inc. This, to­gether with the ur­ban­iza­tion of tens of mil­lions of peo­ple across Asia each year, means the re­gion will have as many as 650 mil­lion new petro­chem­i­cal cus­tomers within two decades, pre­dicts re­search firm IHS Markit.

Mark Eramo, vice pres­i­dent for global chem­i­cal busi­ness devel­op­ment at IHS Markit, said the Asia Pa­cific re­gion will “have the lion’s share of the to­tal in­vest­ments” in petro­chem­i­cals un­til 2025, adding an­other 100 mil­lion tons of ba­sic chem­i­cal pro­duc­tion, in­clud­ing eth­yl­ene. “Eth­yl­ene and its re­lated prod­uct sup­ply will re­main tight over the next 12 months,” Ja­panese bank No­mura said in an in­vestor note. The de­mand boom is show­ing across mar­kets, with IHS Markit ex­pect­ing over­all 2016 Asian eth­yl­ene mar­gins of $600 per ton, up from be­low $400 last year. In Thai­land, PTT, Thai Oil and Siam Ce­ment all re­ported strong prof­its in the last month, cit­ing the per­for­mance of their petro­chem­i­cal di­vi­sions.

Ad­van­tage Asia

To be sure, plas­tic mak­ers from the United States, Europe and the Mid­dle East, such as BASF, Exxon Mo­bil , To­tal and Dow Chem­i­cal, also hope to profit from Asia’s soar­ing de­mand, but those closer to that de­mand should ben­e­fit most from lower tran­sit costs and cheaper feed­stock prices. “Asian petro­chem­i­cal mak­ers can be win­ners over US petro­chem­i­cal mak­ers,” said Jae-sung Yoon, an­a­lyst at Hana Fi­nan­cial In­vest­ment in South Korea. Asia’s lead­ing re­finer Sinopec Corp has an­nounced a joint ven­ture with Tai­wan’s Dy­namic Ever In­vest­ments to build a petro­chem­i­cal com­plex in China’s south­east­ern Fu­jian prov­ince, while Korea Petro­chem­i­cal In­dus­try Corp and Malaysia-based Lotte Chem­i­cal Ti­tan plan to ex­pand next year. In the Philip­pines, JG Sum­mit has also said it plans to ex­pand.

Malaysia’s state-owned en­ergy firm Petronas has a $27 bil­lion refin­ing and petro­chem­i­cal com­plex due to come on stream in 2019. Asian petro­chem­i­cal mak­ers are also at an ad­van­tage in that they largely use the fos­sil fuel naph­tha as a feed­stock, while the main feed­stock in the United States is nat­u­ral gas. “By us­ing nat­u­ral gas as a feed­stock, US eth­ane crack­ers can only ob­tain eth­yl­ene. How­ever, Asian naph­tha crack­ers can also pro­duce other byprod­ucts like bu­ta­di­ene and propy­lene,” said Yoon at Hana Fi­nan­cial. This feed­stock flex­i­bil­ity has helped Lotte Chem­i­cal, Formosa Petro­chem­i­cal and In­dia’s Fi­nolex In­dus­tries out­per­form share price gains at man­u­fac­tur­ers based in other re­gions.

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