Singapore’s Chemical Producers: Feeding Asia’s Appetite

August 10, 2018

One would be forgiven for missing the little red dot on a world map, but Singapore has proven over recent decades that size does not matter. Its position as a top 10 exporter of chemicals, according to the World Trade Statistical Review 2017, is alone testament to this truth. This feat is even more impressive when considering India, which exported US$36 billion of chemicals in 2016 - US$9 billion less than Singapore – is 4,716 times the size of Singapore.

The 32 square-km Jurong Island, an amalgamation of seven offshore isles, has been at the heart of Singapore’s emergence as a chemicals powerhouse. With the global chemicals market expecting a compounded annual growth rate (CAGR) of 3.9% from 2015 to 2030 according to Ernst and Young, the island’s role is set to grow even more powerful.

In fact, Singapore’s manufacturing sector has experienced a resurgence in 2017, with the sector expanding by 10.1%. This measured against 3.7% growth in 2016, according to Singapore’s Ministry of Trade and Industry. Although chemicals output is expected to increase by 5% in Q1 2018 compared to Q4 2017, the general business outlook for the first half of 2018 is less auspicious: growth is expected to decline by 9% compared to the second half of 2017, as noted by the Singapore Economic Development Board (EDB). This decline, however, is driven largely by a reduction in petrochemicals production due to scheduled plant maintenance, suggesting it will only be a temporary downturn. Further downstream, specialty chemicals manufacturers anticipate greater output in the near term due to increased export orders from the region, as ASEAN economies are expected to perform strongly in 2018 thanks to growth in domestic demand.

 

Specialty Chemicals  

Singapore’s forward-oriented leadership knows all too well that the city-state will not be able to compete with its neighbors as a low-cost destination for manufacturers. To enhance the island’s competitiveness, it must nurture a business environment that is especially conducive to the production and export of specialty chemicals. Asia Pacific’s (APAC) specialty chemical market is set to continue growing in the coming years, from $259.6 billion in 2017 to $361 billion in 2023, representing a CAGR of 5.7% according to P&S Market Research. With this increase in demand from a number of end-user markets in APAC, most notably in agrochemicals, lubricants and oilfield chemicals, water-treatment chemicals, and specialty coatings, companies can leverage the opportunities for research excellence and technological advancements that make Singapore so enticing to multinationals (MNCs). “As Singapore moves towards higher value-added derivatives, intellectual property (IP) protection with respect to innovation and manufacturing processes will be very important. For many companies, formulation and process technologies are trade secrets, so they appreciate Singapore’s respect for IP protection,” argued Cindy Koh, Director of Energy & Chemicals at EDB.

With this outlook in mind, Singapore is cementing its status as a global hub for R&D with its highly skilled talent pool and top research institutions. Through its Research, Innovation and Enterprise (RIE) 2020 plan, it is pumping S$19 billion alone into R&D that can drive economic growth through creating value, adopting technology, and translating research into concrete business solutions. Moreover, the Energy and Chemicals industry transformation map (ITM) is targeting the construction and/or expansion of 20 new application-development centers by 2025, with US$55 million added in business expenditure on R&D (Ministry of Trade and Industry).


In the past year, a number of Jurong Island’s manufacturers have invested in research facilities and partnerships. Mitsui Chemicals, for instance, has been working closely with the Agency of Science, Technology and Research (A*STAR) to develop advanced materials as well as chemical and biotechnological processes that enhance sustainability and productivity. Linde Gas has also recently launched an S$30-million initiative to develop an Asia Pacific Digitalization Hub – the first such center outside of Germany. DSM continue to invest in its Asia Pacific Nutrition Center, which opened in 2015. Pieter Nuboer, vice president for Animal Nutrition and Health and president for Nutritional Products at DSM Asia Pacific, has seen the industry become more insight-driven: “the Center has brought us closer to both customers and their consumers. At the center we offer externally facilitated needs exploration and typically a new idea comes out of our workshops, such as an ingredient or label claim,” said Nuboer.

Another one is Evonik, who recently opened its Asia Research Hub, a rare feat for a company that traditionally concentrated its R&D in Germany. “Now, for the first time, we have a major concerted initiative to bring significant R&D capability to Asia, complementing our R&D in Germany. We have decided to do this in Singapore because it has over the years managed to establish a very interesting, highly developed, state-of-the-art ecosystem for R&D. We see an interesting overlap in the areas that we are working in: additive manufacturing, functional surfaces and tissue engineering,” said Peter Meinshausen, president for APAC South at Evonik.

Despite Singapore’s clear advantages in terms of academic and research excellence, some companies are deciding to split the baby: basing their production facilities elsewhere in the Association of Southeast Asian Nations (ASEAN), while only retaining their research and innovation facilities in Singapore. For example, Corbion’s APAC headquarters (HQs) is in Singapore, where they also have an application and innovation center, but its regional production facility is in Thailand. In another case, AkzoNobel conducts its R&D in Singapore and retains some manufacturing capabilities here, but most of its production facilities are positioned elsewhere the region, including across the Strait in Johor.

Nonetheless, Singapore’s motivated ecosystem, which is now embracing biotechnology, digitalization, and analytics, continues to attract specialty chemical producers to not only set up their regional HQs and innovation hubs alongside their manufacturing facilities. Driven by the aforementioned incentives and all-important political predictability – something that Malaysia has reminded is never a given in any jurisdiction, as will be discussed below – Singapore remains the top destination for MNCs aiming to meet APAC’s increasing demands for chemicals. Doan Nguyen Hansen, head of McKinsey’s chemicals and agriculture practice, highlighted that when companies carry out a total cost equation assessment, Singapore is still highly attractive. “They are willing to balance higher operating costs and rigorous environmental standards against a more highly skilled talent pool as well as the ease of doing business. Over the past five to 10 years, several MNCs located their Asian HQs in Shanghai. However, some companies are also now moving their Asian HQs to Singapore due to the ability to recruit global talent, the high quality of life, and the easy business environment,” said Hansen.

 

Petrochemicals  

In the coming decade, APAC is expected to contribute two-thirds of total global demand for petrochemicals (KPMG). If a major petrochemical player is yet to have set up in the region, they will most likely strategize a plan to do so given these opportunities. Braskem, the largest petrochemical company in Latin America, initially came to Singapore in 2011 to carry out market intelligence but its office quickly began focusing on trading and sales to cater to APAC. Renato Teodoro Goebel, Head of APAC at Braskem, sees a slew of opportunities for investment and trading in the region. “It is culturally and economically diverse, where a convergence of very developed and developing countries meet. We are going to pay close attention to the changing dynamics of the region, and I believe Braskem’s presence in Asia will grow substantially over the coming years,” said Goebel.

As China and the ASEAN continue their economic ascent and rapid urbanization, major regional players and MNCs are monitoring how best to meet demand and capitalize on opportunities. Singapore has been proactively modernizing its refining and petrochemical industry through technological advancement, energy efficiency and reduced reliance on importing feedstock by increasing its liquefied natural gas (LNG) capabilities. Singapore LNG achieved provisional acceptance for its fourth storage tank in March 2018, which will add 260,000 m3 of storage capacity to bring the terminal’s total storage capacity to 800,000 m3.  

Despite the slowdown in the first half of 2018, Jurong Island’s petrochemical producers are still well positioned for future growth. Low crude oil prices and growing demand in a number of end-user industries including plastics, packaging and transportation in APAC are the main contributing factors. Mitsui Chemicals Group has, for instance, continued to expand its footprint in Singapore by opening its Prime Evolue plant in April 2017, the only Evolue plant outside of Japan producing EvolueTM branded MLLDPE. The plant is a prime example of how companies leverage Singapore as a base to tap into the growing ASEAN middle class. “The expansion rate of packaging materials in Southeast Asia is expected to exceed 10% per year, and the Prime Evolue plant increases our presence in this growing market,” said Masayuki Kinoshita, Managing Director and CEO, Mitsui Chemicals Asia Pacific

ExxonMobil has had an equally busy year, completing its new grease and synthetic lubricants facilities in June 2017. The expansion of the Jurong lubricant plant increases the company’s capability of meeting growing demand for grease and synthetic lubricants products in the region. Furthermore, ExxonMobil completed the acquisition of Jurong Aromatics Corporation’s Jurong plant, one of the largest aromatic facilities in the world. “The plant has an annual production capacity of 1.4 million tonnes, presents operational and logistical synergies for ExxonMobil’s integrated refining and petrochemical complex nearby. As a leading global manufacturer of aromatics, the addition of this aromatics plant to our existing operations in Singapore will help us better serve our customers in key Asian growth markets,” said Gan Seow Kee, Chairman and Managing Director of ExxonMobil APAC.  

 

Across the Johor Strait: Malaysia's Potential

Malaysia’s emergence as a Southeast Asian manufacturing hub continues to take shape alongside Singapore, despite political uncertainty. As power is changing hands for the first time in over 60 years, there is an air of excitement but trepidation about governance, as Mahathir Mohamed’s new government has announced that addressing his country’s growing national debt is its top priority. Mohamed also put forth a blueprint for the country’s infrastructural and industrial projects in light of the debt issue, which included the postponement of the Kuala Lumpur-Singapore high-speed rail. Singaporeans will keep a close eye on these developments next door.

The single most important development in Southeast Asia’s petrochemicals industry is the Pengerang Integrated Petroleum Complex (PIPC). Just across the Tebrau Straits from Singapore, the PIPC is a 20,000-acre (thrice the size of Jurong Island), $27-billion development that includes oil refineries, naphtha crackers, and petrochemical plants. The project is set to generate $4.5 billion in gross national income by 2020 and help create 8,600 high-skilled jobs. Key to PIPC is the joint venture between PETRONAS and Saudi Aramco for the Refinery and Petrochemicals Integrated Development (RAPID) project, which includes a $7-billion investment from Aramco, the largest-ever foreign direct investment in Malaysia. RAPID is expected to be completed by early 2019, and the refinery will produce gasoline and diesel to meet Euro 4 and Euro 5 fuel specifications.

The expansion of Malaysia’s petrochemical capabilities is a harbinger of things to come in the region. In 2016, petroleum projects including petrochemicals in Malaysia recorded the highest investments approved, amounting to $3.83 billion. Although they are not involved at the PIPC, both Lotte Chemicals Titan and Nylex (Malaysia) Berhad, two of the largest petrochemical producers, believe they will be able to continue prospering despite the magnitude of the project due to the growing end-user demands of APAC. “There will be some short-term impact when RAPID comes on-stream but we believe that the market in this region is big enough for both of us and together we can contribute to the growth and development of Malaysia,” said Philip Kong, executive VP for Corporate Planning at Lotte Chemical Titan.

The market is indeed big enough to accommodate PIPC as a neighbor, as 60% of global demand for petrochemicals is in Asia. Singapore’s petrochemicals hub, however, will have to continue differentiating itself from its close neighbor by producing higher value-added derivatives while benefiting from the increased trading opportunities offered by PIPC.

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