The Petrochemical Industry in Singapore
1 Petrochemicals play an important role in the modern world: they are essential for the production of a diverse set of products, such as synthetic fibres and rubbers, plastics and resins, solvents and paints, explosives, and many more. In Singapore, the petrochemical industry is one of the fastest growing industries, fuelled by rapid economic development in the East Asia. It has strong linkages with the domestic economy, especially with the petroleum refining industry.
2 Growth in the petrochemical industry, however, is highly cyclical. This is due to the fact that investments in the industry are lumpy as producers try to exploit the benefits of economies of scale with large plants. Thus, years of shortages and high margins typically result in over-building and subsequent years of serious oversupply.
3 In particular, the strong demand and profitability experienced in the mid-1990s led to massive investment plans for capacity expansion, especially in Asia, in line with projections of strong growth in demand. Moreover, many governments in the region aggressively promoted the development of the petrochemical and other capital-intensive industries as a way to rapidly industrialise their countries. Consequently, ethylene production capacity in Asia expanded by almost twice the global rate in the period 1992 to 1997, and the region is expected to become the largest producer in the world by 2000. The onset of the Asian financial crisis in the middle of 1997, however, had derailed demand for petrochemical products. This, together with recent capacity additions across the region, hastened a downturn in the Asian petrochemical market.
4 In the next few years, Singapore's petrochemical firms appear well-positioned to benefit from the expected pick-up in regional demand. While some major projects have been postponed in the region, Singapore is still forecast to see strong capacity expansion in the petrochemical industry.
5 In the longer term, however, the prospects of Singapore's petrochemical industry depend very much on its competitiveness vis-୶is others in the region. An examination of recent trends shows that Singapore's share in its traditional ASEAN market appears to be under threat, with its market share in Malaysia, its most important market for petrochemicals, sliding in the period 1992 to 1996. This reflected not just gains by major exporter Japan, but also significant inroads made by the ASEAN-3 countries. Output from massive capacity expansion in the ASEAN-3 countries was not only used to satisfy domestic demand, but was also exported. Singapore's share of the Chinese market, Asia's largest import market, actually declined in the period 1992 to 1996. This contrasted sharply with gains by Japan, South Korea and the ASEAN-3 countries. Nevertheless, in 1997, Singapore?s export shares to most of the key markets rose significantly, following the start up of PCS' second cracker and associated downstream plants. This helped to boost the growth of Singapore?s domestic chemical exports despite depressed petrochemical demand from the crisis-hit regional economies.
6 Generally, Singapore's petrochemical plants are fairly competitive compared with others in Asia, given their large size and modern technology. Moreover, they are currently in a stronger financial position. In the longer term, however, the lack of natural gas reserves would be a negative factor.
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