S'pore promotes chemicals industry as growth engine<\/p>\n
By Raj Rajendran<\/p>\n
SINGAPORE (Reuters): Singapore is firing up a second engine,
\nthe chemical industry, to propel its economy out of the regional
\nchaos and into the next millennium.<\/p>\n
But analysts say the strategy is not without its pitfalls, and
\npoint to new mega projects coming up in Thailand and Malaysia
\nthat promise to offer stern competition in a climate of shrinking
\nregional demand.<\/p>\n
Unfazed, the Singapore government is pumping investments of
\nSingapore $7 billion (US$4.1 billion) into infrastructure to
\nprime the chemical sector to shoulder a heavier burden in the
\ncountry's future.<\/p>\n
\"The chemical sector is something that we have to build up,
\nthere is no choice, so that we have a more balanced economy. Up
\nto now electronics has a very large chunk,\" Phillip Yeo, chairman
\nof the Economic Development Board, told reporters recently after
\nopening yet another chemical plant.<\/p>\n
\"We are trying to build the chemical sector as the second
\nengine...and we are determined to make it. We can build chemicals
\nto be a third of manufacturing's share of output,\" Yeo added.<\/p>\n
Output from the chemical sector, which includes petroleum,
\npetrochemicals, speciality chemicals and pharmaceuticals, grew
\nabout 12 percent in 1997 to S$27 billion from the year before,
\ncontributing around 20 percent to total manufacturing output.<\/p>\n
Well aware of the strong competition for every dollar of
\nforeign direct investment, the government has earmarked Jurong
\nIsland for the chemical industry where the S$7 billion investment
\nis being used develop a large piece of land.<\/p>\n
\"Starting from oil products, the linkages flow downstream to
\npetrochemicals and eventually to intermediates, specialty
\nchemicals and advanced materials. Our intent is to build both
\ndepth and breadth in the industry integration,\" Yeo told a recent
\nindustry gathering.<\/p>\n
Jurong Island, an amalgamation of seven small islands through
\nland reclamation, will eventually be 2,800 hectares (6,720 acres)
\n-- triple its original size when completed at the turn of the
\ncentury.<\/p>\n
The government is not stinting on its investment in the island
\nproject despite an overall belt tightening in response to the
\nprevailing economic hardship.<\/p>\n
Battered by the winds of the year-old Asian economic crisis,
\nSingapore has just announced its first budget deficit in more
\nthan a decade. Exports have fallen sharply, foreign direct
\ninvestment is forecast to contract in 1988\/99 and job losses are
\non the rise.<\/p>\n
Officials see negligible growth -- in the region of 0.5 to 1.5
\npercent -- this year, and warn it will probably stay sluggish for
\nanother five years. And Prime Minister Goh Chok Tong has even
\nraised the prospect of a recession next year.<\/p>\n
But Jurong Island appears to be yielding results. It is home
\nto around 20 companies with combined fixed investments of S12.5
\nbillion with another 10 projects involving S$5.6 billion in
\nvarious stages of completion.<\/p>\n
The island boasts two world-scale refineries, one owned by
\nExxon Corp and the other a consortium that includes British
\nPetroleum and Caltex Petroleum, a joint venture between Chevron
\nCorp and Texaco Inc and Singapore Petroleum Co.<\/p>\n
The basic petrochemical feedstock is provided by a Royal Dutch
\nShell Group and Sumitomo Chemical- led Japanese consortium,
\nproducing annually nearly one million tons ethylene -- the basic
\nraw material used to make plastics.<\/p>\n
Despite these big name projects, and the failure of six
\nsimilar projects in Thailand and Indonesia, industry overcapacity
\nis still forecast with more challenges expected from other
\nventures in neighboring countries that are untouched by the
\nregional malaise.<\/p>\n
Perennial rival Malaysia has lined up German giants BASF AG
\nand U.S. major Union Carbide Corp to bring on stream in the next
\nmillennia product lines similar to that mooted in Singapore,
\nanalysts said.<\/p>\n
Thailand, already a regional power house in basic
\npetrochemicals, will at the end of this year bring on stream a
\nfourth world-scale ethylene plant that will raise the country's
\nreliance on the international markets for buyers.<\/p>\n
\"Too much capacity has already come onstream. It will bottom
\nout in 2000, 2001,\" said one Singapore-based, U.S. oil and
\npetrochemical consultant.<\/p>\n
The consultant said that if the regional economy recovers
\nwithin that time, then the industry can look forward to higher
\noperating rates, from the current low 70-80 percent, and improved
\nprofits.<\/p>\n
Even in the oil refining industry, Singapore is not looking
\ntoo comfortable despite strong integration with the downstream
\npetrochemical industry.<\/p>\n
\"Singapore refining margins will be down in the short term. It
\nreally doesn't come back to 1997 levels till...several years
\nafter the turn of the century,\" said Bob Anderson, senior
\nprincipal at consultant Purvin & Gertz Inc.<\/p>\n
Although no new oil investments are planned, the industry
\nfaces the start up of a new refinery in Malaysia later this year.<\/p>\n
Analysts said in the long term, Singapore will ride out the
\nbumps and the planned billion dollar petrochemical investments by
\nExxon and Mobil will come to fruition.<\/p>\n
\"I am confident both projects would go ahead. The EDB want to
\nmake it (Singapore) a major petrochemical center,\" said Danley
\nWolfe, manager of consultants Chem System East Asia.<\/p>",
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