Taiwan’s Petrochemical Industry to Come under Pressure in 2012

Rising China and Middle East petrochemical capacity expected to dampen exports in Taiwan. Output value for 2H11 expected to fall by 14.6%. Taiwan’s Industrial Economic and Knowledge Research Centre (IEK) has warned that the Island’s petrochemical sector is expected to come under pressure in 2012, due to high crude prices and greater output from China and the Middle East. It expects crude to trade between US$100-110/bbl next year, which will put pressure on margins for midstream and downstream petrochemical products. China’s twelfth five-year economic plan, which is seeking to increase ethylene capacity by 7–8Mta to 23Mta by 2015 and expectations that total ethylene production in the Middle East will rise to 32.24Mt in 2012, up from the 29.68Mt seen in 2010, are expected to hit Taiwan's petrochemical output, according to Taiwan research body, the IEK. As reported by the Taipei Times, the IEK expects the output value of Taiwan’s petrochemical industry to fall by 14.6% for 2H11, to US$29.14 billion, down from the US$34.1 billion seen in the first half of the year. The factors behind this projection are Chinese monetary tightening and electricity rationing, combined with poor economic prospects for the US and the eurozone and industrial safety incidents at Formosa Plastics Group. Taiwan’s Ministry of Economic Affairs has called on the island’s petrochemical manufacturers to invest at least 2% of their annual revenue in R&D by 2020, up from the current 0.32%. In the past five years, just 14.6% of the industry’s products had high added-value, according to a ministry statement released in June. “Without higher value-added products, Taiwanese firms are only competing with overseas rivals in a price war,” says Tseng Fan-Ming, a researcher for IEK. The centre has also warned Taiwanese producers of the risks involved in establishing production assets in China, given frequent changes in Chinese policy and fears that the country’s government may attempt to seize control of the raw materials essential for naphtha cracking. On Monday, Preston Chen, chairman of the Petrochemical Industry Association of Taiwan, called on the island’s government to approve a private sector proposal to build a US$15 billion naphtha cracking complex, in China’s Gulei Peninsula, Fujian province. (Gtforum, Edited by Topco)