2012 will be a challenging year for Taiwan’s petrochemical industry amid rising crude oil prices, the macroeconomic slump and increased production capacity from rivals in China and the Middle East, as per a market researcher in Taipeitimes.com.
Crude prices are estimated to hover at US$100-110 per barrel, pressurizing profit margins for midstream to downstream petrochemical products, according to the Industrial Economics and Knowledge Research Center at the Industrial Technology Research Institute. Additionally, China’s 12th five year economic plan has outlined a plan to ramp up ethylene production capacity by 7-8 mln tpa to 23 mln tpa by 2015. As a result, China’s dependence on Taiwan for petrochem and polymer products will reduce. China’s monetary tightening and electricity rationing measures in 2011, have led to weaker downstream demand for petrochemical buyers, and have taken a toll on Taiwan’s output. Total ethylene production capacity in the Middle East is also expected to rise to 32.24 mln tons in 2012 from 29.68 mln tpa in 2010. Sluggish economic prospects in USA and the eurozone, coupled with a series of industrial safety mishaps at Formosa Plastics Group have also dampened output for H2-2011.
Taiwan’s Ministry of Economic Affairs, has called on the sector to allocate additional resources to research and development (R&D) to produce higher value-added petrochemical products that have a chance to compete on the international stage. Petrochem majors in Taiwan will end up competing with overseas rivals in a price war without higher value-added products. The ministry has been urging local petrochemical companies to invest at least 2% of their annual revenue in R&D by 2020, up from the current 0.32%. The IEK also cautioned Taiwanese manufacturers to consider the risk involved in expanding business across the Taiwan Strait, given the Chinese government’s frequent changes in policy and the possibility that Beijing might take over control of raw materials deemed critical for naphtha cracking.