S'pore promotes chemicals industry as growth engine

S'pore promotes chemicals industry as growth engine

By Raj Rajendran

SINGAPORE (Reuters): Singapore is firing up a second engine,
the chemical industry, to propel its economy out of the regional
chaos and into the next millennium.

But analysts say the strategy is not without its pitfalls, and
point to new mega projects coming up in Thailand and Malaysia
that promise to offer stern competition in a climate of shrinking
regional demand.

Unfazed, the Singapore government is pumping investments of
Singapore $7 billion (US$4.1 billion) into infrastructure to
prime the chemical sector to shoulder a heavier burden in the
country's future.

"The chemical sector is something that we have to build up,
there is no choice, so that we have a more balanced economy. Up
to now electronics has a very large chunk," Phillip Yeo, chairman
of the Economic Development Board, told reporters recently after
opening yet another chemical plant.

"We are trying to build the chemical sector as the second
engine...and we are determined to make it. We can build chemicals
to be a third of manufacturing's share of output," Yeo added.

Output from the chemical sector, which includes petroleum,
petrochemicals, speciality chemicals and pharmaceuticals, grew
about 12 percent in 1997 to S$27 billion from the year before,
contributing around 20 percent to total manufacturing output.

Well aware of the strong competition for every dollar of
foreign direct investment, the government has earmarked Jurong
Island for the chemical industry where the S$7 billion investment
is being used develop a large piece of land.

"Starting from oil products, the linkages flow downstream to
petrochemicals and eventually to intermediates, specialty
chemicals and advanced materials. Our intent is to build both
depth and breadth in the industry integration," Yeo told a recent
industry gathering.

Jurong Island, an amalgamation of seven small islands through
land reclamation, will eventually be 2,800 hectares (6,720 acres)
-- triple its original size when completed at the turn of the
century.

The government is not stinting on its investment in the island
project despite an overall belt tightening in response to the
prevailing economic hardship.

Battered by the winds of the year-old Asian economic crisis,
Singapore has just announced its first budget deficit in more
than a decade. Exports have fallen sharply, foreign direct
investment is forecast to contract in 1988/99 and job losses are
on the rise.

Officials see negligible growth -- in the region of 0.5 to 1.5
percent -- this year, and warn it will probably stay sluggish for
another five years. And Prime Minister Goh Chok Tong has even
raised the prospect of a recession next year.

But Jurong Island appears to be yielding results. It is home
to around 20 companies with combined fixed investments of S12.5
billion with another 10 projects involving S$5.6 billion in
various stages of completion.

The island boasts two world-scale refineries, one owned by
Exxon Corp and the other a consortium that includes British
Petroleum and Caltex Petroleum, a joint venture between Chevron
Corp and Texaco Inc and Singapore Petroleum Co.

The basic petrochemical feedstock is provided by a Royal Dutch
Shell Group and Sumitomo Chemical- led Japanese consortium,
producing annually nearly one million tons ethylene -- the basic
raw material used to make plastics.

Despite these big name projects, and the failure of six
similar projects in Thailand and Indonesia, industry overcapacity
is still forecast with more challenges expected from other
ventures in neighboring countries that are untouched by the
regional malaise.

Perennial rival Malaysia has lined up German giants BASF AG
and U.S. major Union Carbide Corp to bring on stream in the next
millennia product lines similar to that mooted in Singapore,
analysts said.

Thailand, already a regional power house in basic
petrochemicals, will at the end of this year bring on stream a
fourth world-scale ethylene plant that will raise the country's
reliance on the international markets for buyers.

"Too much capacity has already come onstream. It will bottom
out in 2000, 2001," said one Singapore-based, U.S. oil and
petrochemical consultant.

The consultant said that if the regional economy recovers
within that time, then the industry can look forward to higher
operating rates, from the current low 70-80 percent, and improved
profits.

Even in the oil refining industry, Singapore is not looking
too comfortable despite strong integration with the downstream
petrochemical industry.

"Singapore refining margins will be down in the short term. It
really doesn't come back to 1997 levels till...several years
after the turn of the century," said Bob Anderson, senior
principal at consultant Purvin & Gertz Inc.

Although no new oil investments are planned, the industry
faces the start up of a new refinery in Malaysia later this year.

Analysts said in the long term, Singapore will ride out the
bumps and the planned billion dollar petrochemical investments by
Exxon and Mobil will come to fruition.

"I am confident both projects would go ahead. The EDB want to
make it (Singapore) a major petrochemical center," said Danley
Wolfe, manager of consultants Chem System East Asia.