THE PHILIPPINE PETROCHEMICAL INDUSTRY

I. Product Coverage

Table 1. Product Coverage of Philippine Petrochemical Industry

H.S CODE

PSCC

DESCRIPTION

3901.1000 5711100 Polyethylene having sp g of less than 0.94, in primary forms

3901.2000 5711200 Polyethylene having sp g of 0.94/ more, in primary forms 3901.3000 5712000 Ethylene-vinyl acetate copolymers, in primary forms 3901.9000 5719000 Oth polymers of ethylene, in primary forms 3902.1000 5751100 Polypropylene, in primary forms 3902.2000 5751200 Polyisobutylene, in primary form 3902.3000 5751300 Propylene copolymer, in primary form 3902.9000 5751900 Polymers of oth olefins, in primary forms 3903.1100 5721100 Polystyrene, expansible, in primary forms 3903.1900 5721900 Oth polystyrene, in primary forms 3903.2000 5729100 Styrene-acrylonitrile (san) copolymers, in primary forms 3903.3000 5729200 Acrylonitrile-butadiene-styrene (abs) copolymers, in

primary forms 3903.9000 5759900 Oth polymers of styrene, in primary forms 3904.1000 5731101 Polyvinyl chloride homopolymer, suspension type, in

primary form 3904.2100 5731109 Oth polyvinyl chloride, not mixed w/ oth substance, in

primary forms 3904.2200 5731300 Polyvinyl chloride, plasticized, in primary forms 3904.3000 5739100 Vinyl chloride-vinyl acetate copolymers, in primary forms 3904.4000 5739200 Oth vinyl chloride copolymers, in primary forms 3904.5000 5739300 Vinylidene chloride polymers, in primary forms 3904.6100 5739401 Polytetraflouroethylene, in primary form 3904.6900 5739409 Oth flouro-polymers, in primary form 3904.9000 5739900 Oth polymers of vinyl chloride/oth halogenated olefin,

primary forms The industry is currently oriented towards downstream operations. These operations involve the manufacture of synthetic resins (i.e., polyvinyl chloride (PVC) and polystyrene (PS) and the most recently produced polypropylene (PP) and polyethylene

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(PE)) primarily for the plastic processing, surface coating and textile industries. The limited scope of the industry is due to the inadequacy of local upstream facility to supply the necessary basic raw materials (i.e., ethylene and propylene), which are currently being imported. More midstream facilities could be established once the naphtha cracker is in place. The manufacture of petrochemicals is considered a strategic industry as it has extensive forward linkages practically covering all sectors (industrial, agricultural, mining and services) and numerous applications as well as impact on total output. As a result, the industry is considered a very important sector of the economy.

II. Definition

Petrochemicals are organic compounds derived from petroleum raw materials (called naphtha) or natural gas or a derivative produced from such a substance by chemical reaction, e.g., ammonia, carbon black and thousands of organic chemicals. Petrochemicals are commonly referred to a plastics or synthetic resins. We can use crops as substitutes for petrochemicals.

This industry comprises establishments primarily engaged in converting

feedstocks derived from petroleum, or from petroleum and natural gas liquids, into petrochemicals.

Some important processes used in petrochemical manufacturing include steam cracking and steam reforming. For the purpose of defining this industry, petrochemicals consist of acyclic (aliphatic) hydrocarbons and cyclic aromatic hydrocarbons.

Acyclic (aliphatic) hydrocarbons, made from petroleum or natural gas liquid feedstocks

Cyclic aromatic hydrocarbons, made from petroleum or natural gas liquid feedstocks

Benzene, made from petroleum or natural gas liquid feedstocks Ethylene, made from petroleum or natural gas liquid feedstocks Styrene, made from petroleum or natural gas liquid feedstocks

III. Philippine Petrochemical Industry Industry Structure

Per latest records from the Board of Investments, the Philippines has only one (1) active producer of polyvinyl chloride) PVC, i.e., Philippine Resins Industries, Inc. and two (2) producers of polystyrene (PS) i.e., D & L Industries, Inc. and Philippine Petrochemical Products, Inc. In January and October 1998, respectively, another 2 world-class, world-scale plants have been built and commercially operated, i.e., the polypropylene (PP) plant of Petrochemicals Corporation of Asia-Pacific (ceased operations in December 2003), and the polyethylene (PE)/PP plant of JG Summit

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Petrochemicals Corporation. In February 2001, the PE plant of Bataan Polyethylene Corp. started operations but has ceased operations on July 2001.

Table 2. Petrochemical Plants Currently Operating in the Philippines

PRODUCT

NAME OF COMPANY CAPACITY

(1,000 MTPY) PLANT

LOCATION BRAND NAME

Petrochemicals Corp. of Asia-Pacific*

225 Bataan PP

JG Summit Petrochemical Corporation

180 Batangas City

Evalene

PE JG Summit Petrochemical Corporation

175 Batangas City

Evalene

Bataan Polyethylene Corp.**

275 Bataan

PVC Phil. Resins Industries, Inc.

70 Bataan

D & L Industries, Inc. 18 Quezon City Hi-Flo Hi-Flex

PS

Phil. Petrochemical Products, Inc. (PPPI)

14 Cavite Styrophil Styropearl

Alkylbenzene LMG Chemicals Corporation

25 Batangas

Phthalic Anhydride

RI Chemical Corporation (formerly Resins, Inc.)

14 Pasig City

Borden International Phils., Inc.

28 Formaldehyde

RI Chemical Corporation (formerly Resins, Inc.)

40 Pasig City

Borden International Phils., Inc.

Polyco

D & L Industries, Inc. Quezon City Acrybond Acrylite

Kemwerke, Inc. 25 Pasay City Pacific Products, Inc. Cavite Adocryl

Emulsion Polymers

Polymer Chemicals Taguig D & L Polycol RI Chemical Corporation PPPI 10 Cavite Polyset Kemwerke Pasay City

Polyester (unsaturated)

Pacific Products Cavite Adopol Polyamide Pacific Products 1 Adomid

Wolfamid Nylon 6 Fibers Fibertex 14 Taytay

*ceased operations in December 2003 ** ceased operations in July 2001

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Raw Materials

Monomers, a derivative of naphtha cracking are used in the manufacture of plastic resins. Monomers are: -ethylene -propylene -styrene -vinyl chloride Investment Cost The entry in the petrochemical industry requires large capital outlay. The capitalization of the largest existing firms in the industry as of 1997 was almost P3 billion. Thus, difficulties may be met in terms of required capital investment. Size of the Market The size of the local market limits market participation to very few large firms. Marketing Individual firms in the industry engage in direct selling and require a minimum purchase volume. User industries confirm that the petrochemical industry has an efficient delivery system, and preferred/established customers can ever request for split delivery on orders. Access to Infrastructure Improvement of roads is viewed as a complement to an efficient delivery system, which is already provided by individuals in the industry. Comparative Advantage With its large pool of easily trainable, well-educated, English-speaking human resources, the Philippines has the comparative advantage among its Asian neighbors. Feedstock (naphtha) supply is available locally from the two (2) existing oil refineries (Petron and Shell, Caltex has since closed its refinery and imports it requirements from its Singapore refinery). Petron's Limay, Bataan refinery has a crude processing capacity of 180,000 barrels/day. Pilipinas Shell has a 153,000 barrels/day refinery. Overall, Philippine refineries run at around 80% of capacity.

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Competitive Advantage The Philippine petrochemical industry will compete primarily with petrochemical producers in other ASEAN countries. With the future virtual elimination of tariffs on most petrochemical products, the Asian region will become highly competitive in the next century. Imports of competitively priced commodity plastics will compete with locally produced products for a share of the Philippine market, and Philippine producers will seek export opportunities to maximize plant operations. While the country, in terms of the development of the local petrochemical industry is a decade behind compared with Malaysia, Indonesia, Singapore and Thailand, this can be turned into an opportunity for greater growth, as it allows the adoption of state-of-the-art technology compared to most petrochemical plant in the region, which have been in operation for quite some year. Investment Opportunities The successful development of a viable domestic petrochemical industry will depend on many factors. Key among them are the growth of the Philippine economy, government policies regarding investment incentives, competing projects in other ASEAN countries, and the growth of the downstream plastics fabrication and textile industries. (Plastics exports amounted to $183.7M in 2003, up 5.5% from the previous year; garments and textiles exports earned $2.8 billion in 2003).

Investment Policies In the 2004 Investments Priorities Plan (IPP), petrochemicals is included under the Other Preferred Activities section. It covers upstream and midstream activities. Linkage of the Industry The petrochemical industry is primarily concerned in the production of plastic resins. Plastic resins are used in a wide range of applications. Monomers, a derivative of naphtha cracking, are used in the manufacture of these resins. Using a process known as polymerization, the monomer molecules are linked in long chains to form polymers. These polymers are polyethylene (PE), polypropylene (PP), polystyrene (PS), polyvinyl chloride (PVC) and others such as polyester. The polymers are molded and processed to form various items such as consumer goods, packages, construction materials, appliances and industrial goods. It composed of three (3) industries, upstream, midstream and downstream. Figure 1 shows the linkage/flowchart of the petrochemical industry.

Figure 1. Linkage of the Industry

Naphtha

Ethylene

Polyethylene

Polyvinyl Chloride

Polystyrene

Polypropylene Articles of plastics

Articles of conveyance/

packaging of goods; closures

Floor coverings plates, sheets, film,

foil and strip

Tubes, pipes and hoses

Propylene Cracking

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IV. Major Industry Mid-Stream Players Table 6. Major Industry Players

Company

Products

Investors

Project Cost (Php million)

Technology

Start of Commercial Operation

Annual Capacity

(MT)

Status of Operation

Petrochemicals Corp. af Asia Pacific

Homo-polymer PP

Chemphil PO Holdings PNOC/PPDC

BASF Sumitomo

Itochu

180

BASF ISO 9002

May 1, 1998

160,000

Ceased

Operations in December

2003

JG Summit Ptrochemical Corp. (JGSPC)

LLDPE, HDPE, Homo-polymer and Random Copolymer PP

JG Summit Holdings Marubeni

350

Union Carbide

ISO 902

ISO14001

August 3, 1998

180,000

Operating

Philippine Resins Industries Inc. (PRRI)

PVC

Tosoh

Mitsubishi

60

Tosoh

ISO 9002

January 9,

1999

90,000

Operating

D&L Industries/ Chemrez, Inc.

PS

D&L Industries

15

BC Chemicals

ISO 9002

(2001 version)

1985 (under D&L

Industries) 1994-2001

major expansion

30,000

Operating

Bataan Polyethylene Corporation (BPC)

LLDPE, HDPE

Bataan PE Holding Corp. BP Chemical

Petronas Sumitomo

330

British

Petroleum

ISO 9002

February 1, 2001

275,000

Ceased Operations in

July 2001

Total Production Capacity

Table 7 shows the total production capacity of petrochemical products of each of the company manufacturing specific product.

Table 7. Total Production Capacity

PRODUCT

NAME OF COMPANY

CAPACITY (1,000 MTPY)

Petrochemicals Corp. of Asia-Pacific* 225 PP JG Summit Petrochemical Corporation 180

PE JG Summit Petrochemical Corporation 175 Bataan Polyethylene Corp.** 275 PVC Phil. Resins Industries, Inc. 70

D & L Industries, Inc. 18 PS Phil. Petrochemical Products, Inc. (PPPI) 14

Alkylbenzene LMG Chemicals Corporation 25 Phthalic Anhydride RI Chemical Corporation (formerly

Resins, Inc.) 14

Borden International Phils., Inc. 28 Formaldehyde RI Chemical Corporation (formerly Resins, Inc.)

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Borden International Phils., Inc. D & L Industries, Inc. Kemwerke, Inc. 25 Pacific Products, Inc.

Emulsion Polymers

Polymer Chemicals D & L RI Chemical Corporation PPPI 10 Kemwerke

Polyester (unsaturated)

Pacific Products Polyamide Pacific Products 1 Nylon 6 Fibers Fibertex 14

*ceased operations in December 2003

** ceased operations in July 2001

JG Summit Petrochemical Corporation produces PP and PE. Philippine Resins Industries Inc. is the only manufacturer of PVC. Philippine Petrochemical Products Inc. and D & L Industries Inc. are the

companies that manufacture PS

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Trade Statistics Exports and Imports in F.O.B. US$’000 (ASEAN and World)

Imports Exports Product 1999 2000 2001 2002 1999 2000 2001 2002

ASEAN 46,712 59,460 40,118 53,235 3,053 2,937 121 713PE WORLD 121,895 146,952 107,800 121,647 4,158 5,001 2,085 2,895ASEAN 18,240 29,269 31,933 34,495 3,310 987 353 882PP WORLD 60,519 80,206 79,121 80,447 10,973 65 3,768 3,432ASEAN 8,106 10,119 8,586 8,638 265 1,018 238 766PS WORLD 33,990 44,396 37,262 37,023 1,126 2,578 2,179 2,808ASEAN 2,940 3,567 3,116 3,531 0.6 402 874 703PVC WORLD 18,029 16,385 13,083 14,914 3,574 10,411 8,649 10,277

2003 Export and Imports (US$’000) Imports Exports PE ASEAN 69,778 423 WORLD 129,154 737 PP ASEAN 27,375 878 WORLD 62,471 3,409 PS ASEAN 5,265 450 WORLD 22,618 1,350 PVC ASEAN 1,391 - WORLD 5,.919 3,519 Source: Foreign Trade Statistics of the Philippines and BETP) VII. Participating Groups

Petrochemical Corporation of Asia-Pacific Philippine Resins Industries, Inc. JG Summit Petrochemical Corporation D & L Industries Inc. Philippne Petrochemical Products, Inc. Bataan Polyethylene Corporation Borden International Philippine Inc. RI Chemical Corporation

VIII. Support Groups of Philippine Petrochemical Industry

Board of Investments (BOI) Bureau of Export Trade Promotion (BETP) Philippine National Oil Company (PNOC) International Trade Statistics (ITS) Tariff Commission Center for Research and Communication National Statistics Office (NSO)

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