New Petron facility provides boost to petrochem sector

MANILA, Philippines – The Philippines’ petrochemical industry is poised for a comeback this year as major players open new plants, but growth along the manufacturing chain will still lag behind Asian neighbors. Long-term supply and tariff issues still hound the industry and consequently weigh down forward-linked production of plastics, rubber and other synthetic products, a research firm said. Aiming to boost the local productivity, top oil firm Petron Corp. yesterday inaugurated, at its refinery in Bataan, a petrochemical complex that will churn out 140,000 metric tons of propylene annually. "This underpins our strategic transformation program which aims to broaden our markets and give us new high-value revenue streams. This is the first major step in our diversification into the petrochemicals business and signals a shift in our growth strategy," Petron President Kamal M. Al-Yahya told reporters. Japan’s Mitsui Co. Ltd. was the first company to avail of the facility’s output, with a contract of six months. The first propylene lifting of 1,500 MT from Petron by Mitsui was done on April 1. The facility represents Petron’s second major investment in three years at its 180,000-barrel per day Bataan refinery. Company officials said the Bataan plant produces a full range of petroleum products and supplies nearly 40% of the country’s fuel needs. Petron Chairman and chief executive officer Nicasio I. Alcantara said the refinery units aim to boost the local petrochemical industry and benefit other vital downstream manufacturing sectors. However, Business Monitor International, in its Asia Petrochemicals Business Environment rankings, said the Philippines was last of five petrochem-producing countries reviewed last year, with a score of 42.6 points. This score was well below the regional average of 58.7 points and 3.3 points behind Indonesia. "The sector suffers from lack of locally available feedstock, such as propylene or ethylene, and a relatively small and inefficient local polymers manufacturing base, which is incapable of supplying the plastics industry. "If announced plans for petrochemicals expansion come to fruition, the country could climb up the rankings, but it is unlikely to exceed India’s score. "Nevertheless, the Philippines has a supportive business environment in which the petrochemicals industry can grow," the firm said. Aside from Petron, Gokongwei-led JG Summit Petrochemical Corp. in February awarded South Korean builder Daelim Industrial Co. Ltd. a $513-million order to build a petrochemical plant. Federation of Philippine Industries (FPI) President Jesus L. Arranza, meanwhile, said a skewed tariffs system also makes the local plastics business chain uncompetitive. "There is a tariff distortion: finished plastic products are levied 5% tariffs while raw materials, the petrochemicals are levied 20-30%. It will be worse under FTAs (free trade agreements)," he said in a recent phone interview. Separately, the Philippine Exporters Confederation has noted that petrochemical manufacturers have complained that aside from the low demand for intermediate products, the market share of imported resins has increased to more than 50%, from 43% in 1999. Despite the problems facing the industry’s 16 players, foreign investors are showing increased interest in the Philippines. Last February, Iran’s International Petrochemical Co. bought $125 million worth of equity in ailing Bataan Polyethylene Corp. to tap export markets in the Asian region and Europe. Thailand’s PTT Chemical, meanwhile, was said to be examining the possibility of a joint venture with JG Summit. The Philippine government lists the petrochemicals industry in its Investment Priorities Plan. The Board of Investments said of the industry, "The manufacture of petrochemicals ... has numerous applications as well as impact on total output. As a result, the industry is considered a very important sector of the economy." - BusinessWorld