Despite the difficult business climate, the Philippines’ oil refiner Petron continues its downstream expansion, according to a report by BMI. 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$1.5 bln. It plans to invest around US$1 bln to upgrade its 180,000 bpd refinery in Limay, which will be funded by US$210 mln 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 19,000 bpd and a 140,000 tpa propylene recovery unit came onstream in April 2008. It also has an aromatics plant that can produce 150,000 tpa benzene, 22,800 tpa toluene and 220,000 tpa mixed xylene that was commissioned in May 2009, with a proportion of output exported. BMI has factored in a dip in the country’s refinery capacity to 282,000 bpd, before rising to 400,000 bpd 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 320,000 tpa of ethylene production capacity, but the report believes that it is unlikely to come online before 2010. It is believed that the NPC Alliance Corp may put its 275,000 tpa 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 750,000 tpa. 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, the report does not envisage further expansions in PE capacity over the forecast period. In 2008, Philippines had capacities of 375,000 tpa LLDPE, 100,000 tpa HDPE, 340,000 tpa PP (including Petrocorp’s 160,000 tpa PP plant which is not operational) and 100,000 tpa 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. The report 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. It is believed that rates will continue falling in 2009 as policy makers remain under pressure from a swiftly deteriorating economic climate.