Market Watch 2012 The Malaysian Petrochemical Industry

Transcription

1 Market Watch 2012 The Malaysian Petrochemical Industry General information about Malaysia Malaysia is centrally located within the Association of South-East Asian Nations (ASEAN). Consisting of two regions separated by the South China Sea the Malaysian Peninsula and the states of Sabah and Sarawak on the island of Borneo Malaysia is a federation of 13 states and three federal territories. The former British colony gained its independence in Since Independence, Malaysia has adopted the political system of a parliamentary democracy with a constitutional monarch whose position is rotated every five years between each of the nine hereditary state rulers. The political scene has been characterized by an extra-ordinary degree of political stability and continuity through an encompassing national coalition of political parties. Its territory comprises approx. 330,000 sq km, four fifths of which are covered by tropical rainforest. Due to its bio-diverse range of flora and fauna offering excellent beaches and brilliant scenery, the country is one of the region s key touristic destinations. Malaysia is a multi-ethnic, multicultural and multilingual society with million members. Ethnic Malays make up the majority of the population at 57.1% followed by Chinese at 24.6%, Indian at 7.3% and other local ethnicities at 11%. The Malaysian constitution guarantees freedom of religion, although Islam is the largest and official religion. Approx. 61.3% of the population practice Islam, 19.8% Buddhism, 9.2% Christianity, 6.3% Hinduism, and 2.6% practice Confucianism and other traditional Chinese religions. The official language of Malaysia is Bahasa Malaysia, but English as well as Chinese are the business languages. Economical Overview Malaysia is a dynamic country which is constantly evolving. Being a middle-income country, Malaysia has transformed itself since the 1970s from a producer of raw materials into an emerging multi-sector economy spurred on by high technology, knowledge-based and capitalintensive industries. Malaysia s Economic Performance ranking improved to 7 th place out of 59 economies this year compared with 12 th position in Malaysia s economy attains 7 th position, New Straits Times, 20 th May 2011.

2 It is one of the 20 largest trading nations worldwide and was headed of Taiwan, Sweden, Canada, Australia, the United Kingdom and Switzerland. 2 The World Competitiveness Yearbook 2011 Report released by the Institute for Management Development (IMD) continued to rank Malaysia as among the top 5 most competitive nations in the Asia-Pacific region, taking 6 th position in the 20 million population category and 2 nd position after Taiwan in the GDP per capita less than US$20,000 category. 3 Moreover, the country is the 21 th largest exporter among all trading nations worldwide. Strategically located in the heart of South-East Asia, Malaysia offers a cost-competitive location for investors intending to set up offshore operations in order to manufacture advanced technological products for both regional and international markets. In addition, Malaysia has a market-oriented economy which is supported by pro-business government policies. Last year, the Malaysian Government launched the Economic Transformation Programme (ETP) which is managed by PEMANDU (Performance Management & Delivery Unit) under the patronage of the Prime Minister. 4 The ETP identifies 12 National Key Economic Areas (NKEAs) which are drivers of economic activities that have the potential to materially contribute to the growth of Malaysia. Its objective also known as Vision 2020 is to transform Malaysia into a high income country by year The programme will lift Malaysia s Gross National Income (GNI) to US$523 billion by 2020, and raise per capita income from US$6,700 to at least US$15,000, meeting the World Bank's threshold for high income nation. 5 To achieve the targets set, Malaysia needs an annual growth of GNI of 6%. There are plans to revitalize Malaysia's private sector, to grow the service sector from 58 to 65% and to create 3.3 million new jobs. 6 The Government will also introduce other transformation plans in In Malaysia, the 2011 GDP growth edged lower to 4.0 percent year-on-year due to a weaker domestic demand. Further implementation of ETP projects and a RM232.8 billion 2012 Budget 2 Ibid. 3 Ibid. 4 See 5 Forbes.com, 21 st September Ibid. 7 Malaysia Budget 2012 Main Highlights, accessed on 21 st November

3 tabled by Prime Minister Datuk Seri Najib Razak will boost domestic demand, but unlikely to offset underperformance in net exports 8. Economical Key facts Malaysia 9 Currency: 1 Ringgit (RM) = 100 Sen Exchange rates: 1 EURO = RM4.3; 1 US$ = RM3.2 ( ) GDP (billion RM): 2009: ; 2010: ; 2011: GDP - real growth rate: 2010: 7.2%; 2011: 4.0%, 2012: 5.0% (est.) 10 Inflation rate: % (est IMF) Exports: RM billion (Jan- Sep 2011) Exports - commodities: Electronics 34.5%; petroleum & products 9.9%; palm oil 9.3%; chemical products 6.9%; machinery 3,4%; manufactures of metal 3.0%; rubber products 2.6% Exports partners: Singapore 13.3%, China 12.5%, Japan 10.5%, USA 9.5%, Thailand 5.3%, Hong Kong 5.1%, Germany: 2.7% Imports: RM424.37billion (Jan Sep 2011) Imports - commodities: Electronics 31.2%, petroleum & products 10.1%, chemical products 9.2%, machinery 8.0%, manufactures of metal 5.9%, transport equipment 5.1%, iron & steel products 4.3%, optical & scientific equipment 3.2%, processed food 2.2%, other products 20.8% Imports - partners: Japan 12.6%, China 12.6%, Singapore 11.4%, USA 10.6%, Unemployment rate: 3.0% (2011) 11 Thailand 6.2%, Germany 4.0% 8 Malaysian Economic outlook by Malaysian Institute of Economic Research (MIER), Malaysia External Trade Development Corporation (MATRADE), 10 Malaysian Institute of Economic Research (MIER), accessed on18 th November

4 Average wage 2011: Project manager IT: RM8,415, lecturer/speaker: RM3,459, mechanical engineer: RM3,070, account executive: RM2,572, plantation worker: RM Population below poverty line: 3,6% 13 Bilateral Trade: Malaysia & Germany Malaysia is EU s second largest trading partner inside ASEAN, behind Singapore, with bilateral trade in goods reaching 31.9 billion Euros in 2010 and the EU s 22nd largest trading partner. Germany enjoys intensive trade relations with Malaysia and is one of the main foreign investors in Malaysia, while among members of the European Union, Germany is Malaysia s leading trade partner. 14 Besides, Malaysia ranks 2nd as a consumer of German products among the ASEAN countries. Overview of the Petrochemical Industry A wide range of petrochemicals are produced in Malaysia, such as olefins, polyolefin, aromatics, ethylene oxides, glycols, oxo-alcohols, exthoxylates, acrylic acids, phthalic anhydride, acetic acid, styrene monomer, polystyrene, ethylbenzene, vinyl chloride monomer and polyvinyl chloride. The petrochemical industry is an important sector in Malaysia, with investments estimated at RM 28 billion. With 29 petrochemical plants throughout Malaysia producing 39 types of petrochemical products, the growth of the industry has transformed Malaysia from a net importer to exporter of major petrochemical products. 15 The rapid growth of the industry is mainly attributed to the availability of oil and gas as feedstock, a well-developed infrastructure, a strong base of supporting services, the country's cost competitiveness, as well as Malaysia's strategic location within ASEAN and its close proximity to major markets in the Far East. The long term reliability and security of gas supply ensures the 11 Bank Negara Malaysia, Economic and Financial Data for Malaysia, last updated on 14th November accessed on 21th November Index Mundi, accessed on 18th November accessed on 21st November Petrochemical. Chemistry Industries Council Malaysia

5 sustainable development of the country's petrochemical industry. Today Malaysia has the world's 14th largest natural gas reserves and 23rd largest crude oil reserves. Malaysia produced 2,000 million standard cubic feet natural gas per day and 730,000 barrels of crude oil equivalent per day. Malaysia also has also the world's largest single location production facility of liquefied natural gas with a production capacity of 24.2 million metric tonne per year. 16 According to BP s Statistical Review of World Energy 2009, at the end of 2009 Malaysia had oil reserves of 5.5bn barrels and 2.38 trn cu metres of natural gas. In ,600 barrels of crude oil have been produced. The petroleum sub sector includes refinery products such as naphtha, liquefied petroleum gas, gasoline, kerosene, diesel, fuel oils, gas oils, wax, bitumen and lubricating oils. Presently, six refineries and a gas-to-liquid plant are in operation. Companies producing various types of lubricating oils total more than 20 currently. Domestic demand for lubricants is approximately 300,000 metric tonnes per annum (mtpa), which is mainly met by PETRONAS, Shell and BP with 70%. Total investments in the refineries amount to RM 1.1 billion, of which 63% are from domestic and 37% from foreign sources. The presence of world renowned petrochemical companies, such as Dow Chemical, BP, Shell, BASF, Eastman Chemicals, Toray, Mitsubishi, Idemitsu, Polyplastics, Kaneka, Dairen and Honam speaks clearly of Malaysia's potential as an investment location for petrochemical industries. Most of these companies are working in collaboration with Malaysia's national petroleum company, PETRONAS. All in all 43 companies, with a total capacity of 12.9 million mtpa are in the production of petrochemicals, which got investments to the amount of RM 58 billion in The main domestic investor in the petrochemical sector is PETRONAS. Besides PETRONAS, the presence of petroleum giant players such as Shell and ExxonMobil for over 100 years demonstrates their long-term confidence in Malaysia s oil and gas industry. 16 Petrochemical and Polymer Industry. Malaysian Industrial Development Authority (MIDA). November

6 The United States is the largest source of investment in Malaysia s petrochemical sector followed by Japan, the United Kingdom, Germany and Taiwan. 17 Three major petrochemical zones have been established in Kertih, Terengganu; Gebeng, Pahang; and Pasir Gudang/Tanjung Langsat, Johor. Each zone is an integrated complex with crackers, syngas and aromatics facilities to produce feedstocks for downstream products. There are also other petrochemical plants in Malaysia such as the ammonia and urea plants in Bintulu, Sarawak and Gurun, Kedah; acrylonitrile butadiene styrene plant in Pulau Pinang; methanol plant in Labuan and the nitrile-butadiene rubber plant in Kluang, Johor. Malaysia has forged partnership with other ASEAN members: Vietnam, Indonesia and the Malaysia- Thailand Joint Development Area (JDA) for the supply of gas. In efforts to further enhance gas supply is made with the availability of the ASEAN gas grid, a venture that is made available to all 10 ASEAN countries. Feedstock at competitive prices have made Malaysia a viable petrochemical hub in the ASEAN region attracting more than US$ 9 billion in investments from leading petrochemical and chemical manufacturers. The six gas processing plants located in Kertih and Terrengganu ensures the industry sufficient supply of petrochemical feedstocks while Malaysia s Peninsular Gas Utilisation (PGU) transpeninsular gas transmission pipeline channels gas to industries around the country. The following exhibit shows the locations of Oil Refineries in Malaysia. Oil Refineries Petronas Penapisan (Terengganu) Sdn Bhd Petronas Penapisan (Melaka) Sdn Bhd Malaysia Refining Company Sdn Bhd Shell Refining Company (FOM) Bhd Location Kerteh, Terengganu Tangga Batu, Melaka Tangga Batu, Melaka Port Dickson, Negeri Sembilan 17 MIDA. December

7 Esso (Malaysia) Bhd Port Dickson, Negeri Sembilan Table 1 - Location of Oil Refineries in Malaysia Source: Malaysian Industrial Development Authority (MIDA) Incentives for Growth and Taxation The corporate tax rate has been reduced to 25% and a wide range of tax incentives apply to both local- and foreign-owned companies in Malaysia. A person carrying on petroleum upstream operations is subject to a Petroleum Income Tax of 38%. With effect from the year of assessment 2010, the assessment system on income derived from upstream petroleum companies under the Petroleum (Income Tax) Act 1967 be changed to the current year assessment system; and self assessment system. Income tax for the year of assessment 2010 based on income received in 2009 shall be allowed to be paid by installments for five years. 18 To ensure companies in Malaysia maintain their competitive edge, the government constantly reviews incentives. The incentives include the following: 1) Incentives for Manufacturing Companies a. Pioneer Status: Applications received by 31 December 2010 are eligible for an income tax exemption of 70% or 100% on the statutory income for five years or b. Investment Tax Allowance: Investment tax allowance of 60% or 100% on the qualifying capital expenditure for five years. The allowance can be utilised to offset against 70% or 100% of the statutory income. c. Reinvestment Allowance: Reinvestment allowance of 60% for 15 years on the qualifying capital expenditure. The allowance can be offset against 70% or 100% of the statutory income. 18 Taxation. Malaysian Industrial Development Authority (MIDA)

8 d. Accelerated Capital Allowance: An accelerated capital allowance consisting of an initial allowance of 40% and an annual allowance of 20% is available for three years after the reinvestment allowance period. 2) Incentives for High Technology Companies a. Pioneer Status with a tax exemption of 100% on the statutory income for five years; or b. Investment Tax Allowance of 60% on the qualifying capital expenditure for five years which can be offset against 100% of the statutory income. 3) Incentives for Strategic Projects a. Pioneer Status with a tax exemption of 100% on the statutory income for ten years; or b. Investment Tax Allowance of 100% on the qualifying capital expenditure for five years which can be offset against 100% of the statutory income. 4) Pre-packaged Incentives a. Customized packages that cover tax and non-tax incentives. 5) Incentives to Strengthen Industrial Linkages 6) Incentives for R&D 7) General Incentives a. Industrial Building Allowance b. Infrastructure Allowance c. Tariff Related Incentives All applications for the incentives mentioned above, should be submitted to MIDA. 19 The World-class Facilities in Petrochemical Zones To sustain the competitiveness of the Malaysian petrochemical industry, value integration through inter-plant synergies is promoted. The development of petrochemical zones where petrochemical plants are clustered together has created a value chain, which ensures the 19 Source: MALAYSIA INVESTMENTINTHE MANUFACTURINGSECTOR; p / MIDA

9 progressive development of downstream petrochemicals activities. The major petrochemical zones with 29 petrochemical plants are in: Kertih, Terengganu Gebeng, Pahang Pasir Gudang Tanjung Langsat, Johor Bintulu, Sarawak Each zone is an integrated complex with crackers, syngas and aromatics facilities to produce basic feedstocks for downstream products. Kertih in Terengganu has now transformed into a petrochemical hub. It houses the Petronas Petrochemical Integrated Complex (PPIC) that links the entire range of the oil and gas value chain beginning from upstream exploration and production to the final stage of petrochemical manufacturing. Gebeng in Pahang is another petrochemical hub for multinational players like BASF, Amoco, Kaneka, Eastman and Polyplastics. The petrochemical zone provides an integrated environment that meets the specific needs of the petrochemical industry. Pasir Gudang in Tanjung Langsat, located next to the port of Johor is an established industrial area. To cope with the needs of the growing petrochemical industry, the adjacent Tanjung Langsat site has been developed to enhance manufacturing capacity. Bintulu in Sarawak is the largest producer of liquefied natural gas (LNG) in Malaysia. There are three LNG plants with a combined capacity of 24 million tons a year. Furthermore is has an ammonia/urea fertilizer plant. The following products are manufactured in petrochemical plants in the petrochemical zones described above. 9

10 Paraxylene, Benzene Ammonia Acetic Acid Ethylene Ethoxylates Propylene Ethanolamines Ethylene Oxide Polyethylene & Low Density Polyethylene Vinyl Chloride Monomer Ammonia, Urea Liquefied Natural Gas Glycol Ethers Butanol Middle Distillates Esters Syngas Oxo-alcohols Phthalic Anhydride Acrylic Acid Polyester Copolymers Purified Terephthalic Acid Dispersion Polyvinyl Chloride Methyl Methacrylates Copolymers MTBE Polyacetals Ethylene Glycol Plasticizers Butanediol Tetrahydrofurane BTX Butyl Acetate Polypropylene Polystyrene Ethylbenzene, Styrene Monomer Expandable Polystyrene Ethylene Vinyl Acetate Gamma-butyrolactone 10

11 Polyvinyl Choride Table 2 - Manufactured Products Source: Malaysian Industrial Development Authority (MIDA) In addition, there are also petrochemical plants located in other parts of Malaysia such as the ammonia/urea plants in Gurun, Kedah and Bintulu, Sarawak, the acrylonitrile butadiene styrene (ABS) plant in Penang, the methanol plant in Labuan and the nitrile-butadiene rubber (NBR) plant in Kluang and Pasir Gudang, Johor. Projects Approved in 2009 In 2009, a total of 8 projects were approved with total investments of RM1.2 billion compared with 17 projects with total investments of 13.8 billion in Four of the Projects were new projects with investments of RM1.16 billion while four projects were expansions/diversification projects (RM13.3 million). 61 % (RM719.1 million) were domestic investments; respectively 39% (RM460.1 million) were foreign investments. 174 employment opportunities are expected to be generated with regards to the approved projects, including chemical engineering, process engineering and skilled workers. Among the Major Projects Approved were: A new Malaysian majority joint-venture project involving investments of RM1.1 billion to produce petrochemical feedstocks and fuels. The products approved in 2009 reflect Malaysia s efforts in targeting investments in projects to provide additional petrochemical feedstocks as outlined in the IMP3. The existing production of olefin feedstocks is currently fully committed to existing petrochemical projects. Hence, it is essential that new sources of feedstock are made available to continue to develop the petrochemical industry in Malaysia. There is need to establish new crackers in order to provide additional feedstocks, which will provide a base for enlarging the range of petrochemical products produced in Malaysia. 11

12 Imports According to the World trade Atlas, imports of Mineral Fuels, Oils, Waxes & Bituminous Sub valued up to 164, million US$ in Petrochemicals that are imported are used as raw materials in the manufacture of various products by different industries, which are subsequently exported as intermediates or consumer goods. Major sources of imports were Singapore with imports valued at RM11.5 billion, which is 75.1% of total imports, followed by Indonesia (RM756.8 million) and Saudi Arabia (RM746.9 million). 20 Exports According to the World trade Atlas, exports of petroleum products including petrochemicals, mineral fuels, oil etc. amounted to 198, million US$ in 2010, an increase compared to 157, million US$ in Their major export destinations were the Republic of Korea (ROK) totaling RM735 million, followed by India (RM486.9 million), Japan (RM435.8 million) and Singapore (RM261.5 million). 21 Outlook The Malaysian plastics industry has been rated as among the most competitive in Asia. Globalisation poses both challenges and opportunities simultaneously for Malaysian plastic manufacturers. Therefore, it is imperative for Malaysian manufacturers to sustain their competitiveness, through improved technologies, enhanced skills and penetrating new markets in developed and developing economies. This is expected to benefit the Malaysian manufacturing sector, assisted by the promising investment trends in industries such as E&E, Machinery and Equipment (M&E), chemicals, basic metals and petroleum industries. The machinery and equipment industry has progressed to manufacture high-end specific M&E, automation equipment, materials handling equipment, and heavy M&E that support the E&E, automotive and petrochemical, oil and gas, construction and power generation industries. 20 World Trade Atlas, Malaysia Exports to World World Trade Atlas, Malaysia Exports to World

13 Growth in the petrochemical sector will be driven mainly by the developments in the petroleum and related industry. The rise in the price of crude oil will continue to impact the industry in The development of the petrochemical industry in Malaysia is also dependent on additional supply of feedstocks. Industrial Master Plan 3 (IMP3) Malaysia will continue to fine-tune its policies and incentives to ensure that it remains a competitive location for both manufacturing and services activities. The strategic thrusts for the petrochemical sector in the IMP3 are as follows: Expanding and enhancing the value-added of existing capacities and broadening the range of petrochemicals produced Diversifying into manufacturing related services and support industries; Enhancing linkages with downstream industries, in particular plastics and oleo chemicals Intensifying the development of technologies in materials and product applications Improving chemical process technologies and the application of catalysts to increase yields Undertaking the full integration of existing petrochemical zones in Kertih, Terengganu; Gebeng, Pahang; and Pasir Gudang-Tanjung Langsat, Johor Establishing new petrochemical zones in Bintulu, Sarawak; Gurun, Kedah; Tanjung Pelepas, Johor; and Labuan; Making feedstocks available at competitive prices Third Industrial Master Plan (IMP3). Ministry of International Trade and Industry (MITI). Date: November

14 Conclusion With the full implementation of AFTA, petrochemical manufacturers in Malaysia will benefit from a single market with a total population of 580 million, a combined GDP of US$ 1.07 trillion and a total trade of US$ 1.34 trillion. Manufacturers based in Malaysia will also benefit from the access to a much larger Asia Pacific market. With China being a net importer of petrochemicals and its entry into the WTO will also open up new business opportunities for petrochemical manufacturers in Malaysia. Malaysia has a good infrastructure for petrochemical manufacturers to compete favorably with regional players. The Malaysian government implements measures to further enhance the business environment, infrastructure development, human resources support and the position of feedstock supply in which all appear to be contributing factors for a stable and conducive investment environment. There are indeed great prospects for future development of Malaysia s petrochemical industry. 14

15 Trade Fairs in Malaysia 2012/13 OGA th Asian Oil, Gas & Petrochemical Engineering Exhibition 5th to 7th June 2013 Kuala Lumpur Convention Centre World Gas Conference & Exhibition to 08 June 2012 Contact: Kuala Lumpur Convention Centre (KLCC) Mr. Thomas Brandt at: Ms. Schvonne Choo at: We hope the market report serves you with actual information on the Malaysian market. Our core business is to establish contacts, finding distribution partners, project acquisitions, etc. our Office-in Office will give you a permanent address to develop the market. Please contact us for further information. 15