Singapore petrochem plants in competition with Middle East

The Middle East region is building up its strength in the petrochemical sector to take advantage of availability of cheaper feedstocks and will continue to consolidate it's position in the next few years. As of now, Saudi Arabia is leading in petrochemical projects, but other countries in the region are also setting up new projects. The Gulf region will become the world's largest producer as well as exporter of petrochemicals and plastics by 2005. The exports of ethylene-based products are forecast to grow from 5.7 million tons in 2001 to more than 11 million tons in 2006, while exports of propylene-based products are expected to increase from 450,000 tons in 2001 to 1.5 million tons in 2006. Annual exports of all petrochemical products from the AGCC are already above 30 million tons, expected to increase to over 40 million tons by the end of 2005. Since Asia is likely to emerge as the largest consumer of petrochemicals and plastic products very soon, the trend of the petrochemical industry shifting to the Middle Eastern and Asian regions will continue. What is very interesting is that the Middle Eastern companies are now looking for setting up projects in China. For instance, Saudi Arabia Basic Industry Corp. - SABIC is in talks with China Petroleum & Chemical Corp. (SNP), or Sinopec Corp., on taking a stake in a major ethylene project in northern China's Tianjin city. We strongly believe that the petrochem manufacturers in the Middle East cannot afford to lose the inherent advantage of cheap feedstocks. An interesting development has been the growing investment in petrochem expansions in Singapore. Will Singapore petrochemical plants be able to compete with rival Middle East crackers despite the latter's access to cheap natural gas? Apparently, Singapore believes in this and that is the reason why Singapore continues to foster growth in this segment. Is proximity to China a major reason for this continuing growth? Eventually, though Middle East has the advantage of cheaper feedstock, the landed cost of the petrochemicals from Singapore in a major market like China will stack up favourably against Mid-East products.Will the landed cost and not production costs, determine competitiveness? (Landed cost refers to the total cost of bringing the petrochemicals to the market, and includes production, transportation and other costs, like insurance). The other factor (besides price), instrumental in determining competitiveness is time- delivery when the customer wants. Besides cost, the other significant factors are product quality and promptness of delivery, which ensure that he does not lose out on opportunity. With Singapore's efficient container port, the cost of shipping polymers to markets is cheap compared with Middle East. This could be the value addition offered by the Singapore petrochemical industry. Another point to consider is the emergence of crackers in China. Shell, BASF and BP have plants there which together will produce some 2.4 million tons this year. They will definitely have the advantage of being directly in the marketplace. However, their current level of integration, will make import of substantial quantities of feedstock necessary. Also, keeping in view the phenomenal growth of the Chinese economy and its continuing demand for polymers, China will need to import substantially, perhaps as much as 30-40% of their petrochemicals needs. This definitely makes China a significant market for Singapore in the long term.