Singapore Chemicals Report 2008

Market Overview The Singaporean chemicals industry is the largest in Singapore, after electronics. The Singaporean government has been promoting the industry since the mid-1990s, with the aim of increasing the share of chemicals and petrochemicals of total manufacturing output to 30% by 2010. The country has a chemical complex on Jurong Island, Singapore, acting as a base for over 80 domestic and international companies.

The chemical industry output accounted for about SGD76.19bn (US$47.96bn) in 2006, contributing roughly one-third the country's manufacturing output.

Industry Performance In 2006, the net investment in the Singaporean chemicals sector was reported to be SGD2.56bn (US$1.61bn), up 29.95% year-on-year (y-o-y). In October 2007, Singapore's chemical output increased 8.4% y-o-y fuelled by the strong performance of the specialty chemicals segment, which increased 14.5% y-o-y. The growth in the specialty chemicals segment came from higher production of epoxy compounds, industrial acids, adhesives and mineral oil additives. Petroleum products output increased by 10.5% y-o-y in October 2007, while the petrochemicals segment grew by 1.8% in the same period. For the period January to October 2007, cumulative output of the chemicals cluster grew 3.3% compared to the same period a year earlier.

Industry Developments In February 2007 it was reported that Petrochemical Corporation of Singapore (PCS), a joint venture between Japan - Singapore Petrochemicals Company Limited (led by Sumitomo Chemical Company Ltd) and Shell Eastern Petroleum (Pte) Ltd opened a new metathesis plant. The new SGD$80mn (US$52.2mn) metathesis plant is expected to produce up to 200,000 tonnes per annum (tpa) of propylene, in addition to the current 650,000 tpa produced currently by its two operational naptha crackers.

In June 2007, it was reported that Denka had increased its substantial presence in Singapore with two new plants - one in Tuas and the other on Jurong Island - worth SGD$120mn (US$78.9mn). With the two new plants boasting some of the world's most high-tech production facilities, Singapore now has the distinction of being Denka's third largest production base.

Future Risks The potential slowdown resulting from a slowdown in the US economy because of the sub-prime crises remains a major concern. There is the possibility of a downturn in US consumer spending arising from the ongoing correction in the housing market. If that happens, it will have an adverse impact on Singapore's exports, especially in the electronics sector. Secondly, though oil prices cooled in November 2007, a rise in global prices in the near future may also adversely impact the economy.

The Singaporean chemicals industry is growing at a fast rate; however the country lacks indigenous raw materials, which is likely to impede the country's growth. Further, countries such as Indonesia and Malaysia have vast indigenous feedstock resources; as such the production cost of petrochemicals in these countries is comparatively lower than in Singapore.