Philippines Petrochemicals Report Q4 2009

Philippines Petrochemicals Report Q4 2009

Despite the difficult business climate, the Philippines’ oil refiner Petron continues its downstream
expansion, according to BMI’s latest Philippines Petrochemicals Report.
Petron is optimistic about the industry’s profitability and intends to boost its petrochemicals production,
according to reports in June 2009. Petron is in the process of evaluating the second phase of its refinery
master plan, which should entail an additional investment of US$1.5bn. It plans to invest around US$1bn
to upgrade its 180,000 barrels per day (b/d) refinery in Limay, which will be funded by US$210mn in
corporate bonds and a possible share issue. The upgrade will include a second Petro Fluidised Catalytic
Cracking (FCC) unit, due to start implementation in 2009 and go onstream in 2014, that will enable
Petron to fully convert residual products to higher-value gasoline, LPG, diesel and propylene, used
mainly for domestic consumption. An FCC unit with a conversion capacity of 19,000b/d and a
140,000tpa propylene recovery unit came onstream in April 2008. It also has an aromatics plant that can
produce 150,000tpa benzene, 22,800 tonnes per annum (tpa) toluene and 220,000tpa mixed xylene that
was commissioned in May 2009, with a proportion of output exported.
We have factored in a dip in the country’s refinery capacity to 282,000b/d, before rising to 400,000b/d in
2011-2012. The increase in capacity will help boost the availability of naphtha. A new naphtha cracker at
Batangas will lead to the installation of 320,000tpa of ethylene production capacity, but BMI believes
that it is unlikely to come online before 2010. BMI believes that the NPC Alliance Corp may put its
275,000tpa PE plant in Mariveles – which had been mothballed in 2002 – back online in the event that it
overcomes electricity supply problems. This will raise PE capacity to 750,000tpa. Falling prices for oil
and gas will reduce production costs for PE, although the price of polymers is also falling, so any
improvements in margins will be eroded. At present, BMI does not envisage further expansions in PE
capacity over the forecast period.
In 2008, Philippines had capacities of 375,000tpa LLDPE, 100,000tpa HDPE, 340,000tpa PP (including
Petrocorp’s 160,000tpa PP plant which is not operational) and 100,000tpa PVC. According to the
National Statistics Office’s volume of production index (VoPI), plastic output grew strongly in the first
half of 2008, but tailed off towards the end of the year. In December 2008, growth was down to just 0.6%
from a high of 31.5% in April 2008, demonstrating how the economic environment has deteriorated. BMI
believes growth levels will be in marginal in the early months of 2009 in line with a moderate economic
slowdown, with remittances from Filipinos living abroad set to decline. This will be counter-balanced by
an easing of monetary policy, with reductions in lending rates in order to sustain consumer spending and
prop up the economy. In March 2009, Bangko Sentral ng Pilipinas (BSP) cut its benchmark borrowing
and lending rates by 25bps to 4.75% and 6.75%, respectively. BMI believes that rates will continue
falling in 2009 as policy makers remain under pressure from a swiftly deteriorating economic climate.

Executive Summary ....5
Philippines Petrochemicals Industry SWOT .......... 6
Philippines Political SWOT .. 6
Philippines Economic SWOT 7
Philippines Business Environment SWOT... 7
Global Market Overview.........8
Global Ethylene Capacities .. 8
Table: World Ethylene Production By Country, 2008 And 2012 (‘000 Tonnes Capacity) ........ 8
Polypropylene.......... 11
Global Oil Products Market Review......... 14
Table Global Oil Prices, 2003-2013 (US$ per barrel).... 18
Emerging Asia Petrochemicals Overview 19
Table: Asian Ethylene Projects...... 21
Philippines Market Overview ..........22
Table: Value Of Net Sales Growth By Segment, 2008 (% y-o-y). 22
Table: Production Capacity Utilisation By Segment, 2008 (%) .. 23
Market Structure...... 23
Petrochemicals Business Environment....26
Table: Asia Pacific Petrochemicals Business Environment Ratings ...... 26
Limits Of Potential Returns. 26
Risks To Realisation Of Returns .... 27
The Philippines Business Environment Outlook .. 28
Table: BMI’S Asia Pacific Business And Operational Risk Ratings ...... 30
The Philippines’ Institutions .......... 31
Table: BMI’s Asia Pacific Legal Framework Ratings..... 32
The Philippines’ Infrastructure...... 34
Table: Asia Pacific Labour Force Quality 37
The Philippines’ Market Orientation ........ 37
Table: Asia’s FDI Annual Inflows, 2006-2007 .... 38
Table: Philippines’ Top Export Destinations, 2001-2007 (US$mn)....... 39
Tax Regime ... 40
Operational Risk...... 40
Foreign Direct Investment And Trade Relations.. 41
Table: BMI’s Asia Pacific Trade Ratings . 43
Industry Trends And Developments .........44
Upstream ...... 46
Financial Results ..... 47
Industry Forecast Scenario ..49
Table: Philippines’ Petrochemicals Sector, 2006-2013 .. 50
Macroeconomic Outlook..... 50
Table: Philippines – Economic Activity, 2006-2013 ....... 53
Company Monitor......54
BASF Philippines..... 54
Dow Chemical Philippines . 55
Bataan Polyethylene Corporation.. 56
Tosoh . 57
JG Summit Petrochemicals Corp... 58
PNOC Petrochemical Development.......... 60
Petron Corporation . 61
Country Snapshot: Philippines Demographic Data.......63
Section 1: Population.......... 63
Table: Demographic Indicators, 2005-2030........ 63
Table: Rural/Urban Breakdown, 2005-2030 ....... 64
Section 2: Education And Healthcare....... 64
Table: Education, 2002-2005 ........ 64
Table: Vital Statistics, 2005-2030.. 64
Section 3: Labour Market And Spending Power .. 65
Table: Employment Indicators, 2001-2006.......... 65
Table: Consumer Expenditure, 2007-2012 (US$) 65
Table: Average Annual Manufacturing Wages, 2004-2006 ....... 66
BMI Methodology ......67
How We Generate Our Industry Forecasts .......... 67
Chemicals And Petrochemicals Industry .. 67
Cross Checks 68
Business Environment Ratings....... 69
Table: Petrochemicals Business Environment Indicators And Rationale.......... 69
Weighting...... 70
Table: Weighting Of Indicators ..... 70