Trade tariffs to boost petrochemical demand


The escalation of the trade dispute between the US and China could boost demand for petrochemical products from Malaysia and the region but curb long-term demand.

Petronas Chemicals Group Bhd (PetChem) MD and CEO Datuk Sazali Hamzah (picture) said the US-China trade rift has yet to have a material impact on the company, but is perceived as both a threat and an opportunity for the industry.

“If, for example, China really moves into a trade war, the country may seek ethylene and polyethylene products and supplies from South-East Asia as an alternative to tariff-hit US petrochemical products,” he said during the Asia Petrochemical Industry Conference 2018 in Kuala Lumpur yesterday.

In July, Washington announced a list of US$200 billion (RM820.2 billion) worth of Chinese commodities to be hit with a 10% tariff. This includes various organic and inorganic chemicals made in China.

If implemented, Beijing will respond in kind as a retaliatory measure, thus making alternative petrochemical markets such as Malaysia and South-East Asia cheaper in comparison.

According to Sazali, who is also PetChem’s parent company Petroliam Nasional Bhd’s (Petronas) VP, a prolonged trade war could weaken China’s industrial growth which could be negative for the industry as a whole.

“China is a big country, so if it is affected, it will affect the entire region,” he said.

He said although the industry will return to normal in the end, it is unclear how long this process will take.

China is today the largest consuming and producing country for petrochemicals, consuming 36% of the 639 million tonnes produced by the industry.

PetChem, a diversified downstream oil and gas producer involved in commodities, derivatives and specialty chemicals, sees about 16% of its 12.7 million tonnes per annum production volume going to China alone.

China is also reducing its dependence on coal to reduce pollution in the country. The initiative saw the world’s second-largest economy produced 281.5 million tonnes of coal in July this year — the lowest for the country since September 2016.

Sazali said this puts PetChem in a better position to bring its products to China as the country looks for alternatives to coal.

“When China decided to curb its coal production, it is actually an advantage for us because the alternative is ethylene gas-based products which we produce,” he said.

Meanwhile, with petrochemical facilities for the US$27 billion Pengerang Integrated Complex slated to come online towards the tail end of 2019, PetChem’s nameplate capacity is expected to increase 15% to 14.6 million tonnes per annum.

Sazali said the additional output will go mostly towards markets in South-East Asia and some parts of China, which would increase the latter’s contribution close to 18% to 20% of total group volume.

Going forward, PetChem’s fiscal performance will be influenced by global conditions, currency fluctuations, petrochemical prices and plant utilisation.

On the impact of the depreciating Turkish lira on currency markets, Sazali said ringgit weakness will not affect the fundamentals of the business as the company buys and sells in US dollar which provides stable cash generation for the group.