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Philippines Petrochemicals Report Q2 2010
Market |
Energy and Utilities |
Report Type |
Market Research |
Country |
Philippines |
Published |
9 March 2010 |
Number of Pages |
73 |
Download |
|
Immediate |
|
Publisher |
Business Monitor International |
File Format |
- |
The main issue facing petrochemical industry in the Philippines is the free trade agreement (FTA) between China and ASEAN. Coming into effect from January 1 2010, the FTA eliminates barriers to investment and tariffs on petrochemicals trade between China and the ASEAN states, including the Philippines. This should definitely lead to a change in trade dynamics for petrochemicals and polymers in this region. The FTA will reinforce Chinas growing gravitational pull on South East Asias export community, with Chinese demand in 2009 the major factor behind ASEANs export recovery, lifting the region out of recession.
The Philippines already implemented tariff reforms in late 2008, which had an adverse impact on domestically manufactured finished goods due to the severe market distortions caused by a 10% tariff on imported polymer resins and 5% tariff on imported finished goods. The tariff differential was resolved under Executive Order 486 which brought down resins import tariffs to 5%. However, the Association of Petrochemical Manufacturers of the Philippines, which includes JG Summit, secured an injunction against the order in 2008, although this will have been superseded by the FTA. For the Philippines, which is overwhelmingly dependent on imported petrochemicals, the move will help bring down the cost of plastics, thereby improving the margins of plastic converters and producers of finished products. It will benefit from cheaper raw and intermediate goods from China, helping it move up the value chain. However, it would limit the country's ability to develop an industry with integrated upstream capacities in the face of new competition from Singapore and Thailand, which was ramping up production.
The Philippines government may decide to reverse the implementation of the zero tariff policy in the event that local resin producers apply for a temporary restraining order in court, thereby reinstating a 10% import duty. This could be applied in the event that local producers are adversely affected by the FTA or other ASEAN members – most likely to be Indonesia, the FTA's leading critic – begin implementing protectionist measures.
Greater competition with foreign resins producers could hamper the recovery in output of upstream petrochemicals producers. However, the development of dynamic and growing local petrochemicals consuming industries can only improve the business climate for the industry in the long term with the potential for increased investment in capacity.
The Philippines' petrochemicals market is set to grow in line with broader economic trends. GDP growth will rise from an estimated 0.8% in 2009 to 4.4% in 2010 on the back of a nascent economic recovery in export markets. Moreover, robust resilient remittances and fiscal stimulus should continue to bolster domestic demand in 2010. In our Asia Petrochemicals Business Environment Rankings matrix, the Philippines comes 11th of 12 countries, with 43.1 points, down 0.6 points since the previous quarter due to a deterioration in the country's country risk scores. This puts it 2.2 points behind Indonesia and 12.0 points ahead of Vietnam. The Philippines petrochemicals sector suffers from lack of locally available feedstock and a relatively small and inefficient local polymers manufacturing base, which is incapable of supplying the plastics industry. If announced plans for petrochemicals expansion come to fruition, the country could climb up the rankings, but is unlikely to exceed India's score. Nevertheless, the Philippines has a supportive business environment in which the petrochemicals industry can grow.
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