Photo: pcs.com.sg

Although electronics manufacturers have been hit by supply chain disruptions and delays, Singapore’s petrochemical sector is more prone to be impacted by a contraction in demand for petrochemical products.

In 2018, Singapore’s petrochemical imports comprised of just 3 per cent of Chinese market, which minimises the damage from supply chain disruption, as stated by the Economic Development Board (EDB).

However, the Chinese market is a major petrochemical market for Singapore, as it is made up of around 40 per cent of Singapore’s exports in 2018.

“It is too early to predict the effect of Covid-19 on demand in China for petrochemicals, as we do not know how protracted the outbreak will be, but any impact will likely come from the demand side,” said EDB’s Chemicals and Materials Director Khalil A Bakar, when speaking to The Business Times.

The prospects for demand are uncertain in the near future due to the Covid-19 situation, which is likely to affect China’s economy. Petroleum-derived petrochemicals are also made into synthetic polymers such as plastics.

According to a former oil broker overseeing Asian petrochemicals at S&P Global Platts, Vanessa Ronsisvalle, the demand for the chemicals used to produce end-products like synthetic textiles, plastic goods, and cars will be driven down as a result of Chinese factories shutting down.

Ms Ronsisvalle cited Platts Analytics figures for polyethylene demand in China to decline by between 350,000 and 1 million tonnes, using 2020 as the base comparison year. On this basis, she remarked that “polymer demand will certainly deviate from expectations due to the coronavirus.”

The petrochemical sector contributed just under one-tenth of the country’s S$336.2 billion in factory output in 2019, and this is further compounded by the outbreak of Covid-19.

In January, petrochemical output contracted 10.8 per cent, following the decline by 18.8 per cent from 2018 to 2019.

Despite the pessimistic demand side, on the supply side, Singapore players need not worry as much.

The ecosystem on Jurong Island allows firms to source for feedstock and sell their goods in one place, so much so that it is billed in 2018 as a “highly integrated energy and chemicals complex” by Damian Chan, who is EDB’s Assistant Managing Director.

“It is unlikely Singapore will face shortages of raw materials from China,” said Ms Ronsisvall. Petrochemical supply is likely to be ample across South-east Asia as China imports less, which means higher inventory levels are expected in Singapore,” Ms Ronsisvalle added.

A spokesman for industrial gas and engineering company, Linde, told The Business Times that they will continue to supply to their Singapore customers “without disruption and see minimal impact in the immediate term”.

Similarly, Fitch Solutions’ Senior Oil and Gas Analyst Peter Lee remarked that if the consumption of consumer goods and plastics is stronger, the impact from the outbreak could be less damaging.

Citing consumer product demand in China, Mr Lee added, “Even though demand for most fuels are taking a hit – such as gasoline, diesel and, most of all, jet fuel – consumption of feedstocks for the petrochemicals industry… is still rather resilient.”

According to Lin Taohai, a Consumer and Retail Analyst at Fitch noted that “there are early signs that recovery is already here, as retail stores slowly reopen” despite the dampened consumer demand, citing Starbucks and Apple as examples.

“Global demand is likely to see further upward price pressure” on demand from industrialising economies when the outbreak ends, as opined by Dan Marjanovic, a commodities lawyer and a partner at Simmons & Simmons.

EDB’s Mr Khalil believes that “Singapore is in a strong position to recover once the Covid-19 situation stabilises”, buttressed by the growth potential in other Asian markets and ASEAN in general.

“We will also continue to diversify the portfolio of industries in Singapore and the markets that they sell to, so as to strengthen our resilience as an economy,” Mr Khalil concluded.

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