Asia fights to balance its books
15 Jan 2000
Huw Williams, director of Asian chemical research at NatWest Securities (NWS) Asia, painted a picture of a potentially productive Asian industry being undermined by rocky financial affairs.
'Asian petrochemical capacity will continue to rise,' he said, 'despite the inability of domestic companies to finance expansion. Instead, global majors will step into the breach as part of their continuing battle for market share.
'A weak product pricing outlook allied to uncertain equity markets and weak currencies, will further undermine the ability of Asian companies to raise funds.
'This year's declines in equities have been driven by concern over Asian currencies, by the potential for slower growth in the region and global knock-on effects. This situation mirrors the position of the global chemical industry which is investing more capital in Asia.
'Unfortunately, both chemical prices and Asian markets have become increasingly unattractive. As a result, equity funding for the industry has become difficult. This situation has not arisen solely because of rising capacity.
'Demand has played a role, especially with respect to export sales of finished goods. Asian plastic demand is undoubtedly growing, but from a low base. This region is an important centre for low labour-cost goods.
'I would not underestimate the impact of the North American Free Trade Alliance (NAFTA) on Asian producers. Any widening of NAFTA a possibility should be a further worry. Taiwanese and Korean producers are looking to install plastics and fibre capacity in Mexico to be inside NAFTA.
'Asia's dismal export performance during 1996 led to reduced offtake of Asian product and consequent inventory build. Thus, prices of intermediates and products have stayed under pressure.
'When we look back to 1997, we will, I hope, see that Asian markets did not fall apart together. Thailand was the trigger for the recent round of currency weakness across south east Asia, which spread to equity markets. North Asia followed, and Hong Kong after that.
'In the absence of equity, Asian companies have increasingly turned to debt to provide capital, particularly dollars not a good situation when devaluations occur. But this situation does not rule out new capacity in Asia. The door is opening to international majors who want access to Asian markets as producers.
'Some of the most notable are Exxon, BP, Shell and Mobil. Pure chemical majors include Dow, BASF and Union Carbide. Amoco continues to seek dominance in PTA, with jvs across the region. ICI, Eastman and Hoechst wish to establish themselves, too.
'We have few doubts that Asian capacity to produce petrochemicals will rise into the next century. Until even last year, the dominant concern within the Asian industry was the potential for rising ethylene capacity from countries such as Thailand and Korea. But many of these planned plants have been dropped, or put back, past 2000.
'US and European majors are fighting a global battle for markets in bulk petrochemicals and Asia is seen as one of the last major under developed markets.'
