Toilets, trade and towns; boom time for Asia's plastic makers

Finolex Industries

15/11/2016 23:00

* Demand driven by "Clean India" sanitation programme ... 
    * ... and China's "One Belt, One Road" projects 
    * Asian urbanisation also needs petrochemicals 
    * Plastic futures, petrochemicals margins soar 
 
    Nov 16 (Reuters) - 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) 
 DPVcv1 , 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" programme, 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  IOC.NS , 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 tonnes of 
plastic materials, noted Luna Kim, principal consultant at 
Chemical Market Research Inc. 
    This, together with the urbanisation 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 tonnes 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 tonne, 
up from below $400 last year. 
    In Thailand, PTT  PTT.BK , Thai Oil  TOP.BK  and Siam Cement 
 SCC.BK  all reported strong profits in the last month, citing 
the performance of their petrochemical divisions.  urn:newsml:reuters.com:*:nL4N1CW2V0 
 urn:newsml:reuters.com:*:nL4N1CW2EY 
     
    ADVANTAGE ASIA 
    To be sure, plastic makers from the United States, Europe 
and the Middle East, such as BASF  BASFn.DE , Exxon Mobil 
 XOM.N , Total  TOTF.PA  and Dow Chemical  DOW.N , 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 U.S. 
petrochemical makers," said Jae-sung Yoon, analyst at Hana 
Financial Investment in South Korea. 
    Asia's leading refiner Sinopec Corp  0386.HK  has announced 
a joint venture with Taiwan's Dynamic Ever Investments to build 
a petrochemical complex in China's southeastern Fujian province, 
 urn:newsml:reuters.com:*:nL4N1DA17T while Korea Petrochemical Industry Corp  006650.KS  
and Malaysia-based Lotte Chemical Titan  011170.KS  plan to 
expand next year. In the Philippines, JG Summit  JGS.PS  has 
also said it plans to expand. 
    Malaysia's state-owned energy firm Petronas  PETRA.UL  has a 
$27 billion refining and petrochemical complex due to come on 
stream in 2019.  urn:newsml:reuters.com:*:nL8N1D27FV 
    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, U.S. 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  6505.TW  and India's Finolex Industries 
 FINX.NS  outperform share price gains at manufacturers based in 
other regions. 
 
    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ 
GRAPHIC-Share price performance of major petrochemical producers 
   http://tmsnrt.rs/2fpfEUQ 
GRAPHIC-Price performance of key petrochemical product prices    
http://tmsnrt.rs/2eAoHSR 
  
GRAPHIC-China PVC plastic prices and trading volumes    http://tmsnrt.rs/2f0iUG3 
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> 
 (Reporting by Jane Chung and Nataly Park in SEOUL, Florence Tan 
in SINGAPORE, Nidhi Verma in NEW DELHI, and Aizhu Chen in 
BEIJING; Writing by Henning Gloystein; Editing by Richard Pullin 
and Ian Geoghegan) 
 ((henning.gloystein@thomsonreuters.com; Reuters Messaging: 
henning.gloystein.thomsonreuters.com@reuters.net)) 
 
Keywords: ASIA PETROCHEMICALS/DEMAND