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A Global Business Reports publication, presented with IHS Chemical Week Down the Stream from China This research has been conducted by Pavlina Pavlova and Amelia Salutz of Global Business Reports. For more information, contact [email protected]. Cover photos courtesy of CCSB, ScinoPharm and Sino Japan. ment. Yet the island’s chemical industry INTRODUCTION remains resilient. Reaching an output of PETROCHEMICALS $146 billion in 2011 and accounting for Taiwan is known the world over for its roughly 29.81% of the country’s overall A TURNING POINT FOR technologically advanced electronics manufacturing sector, the industry is a key THE SECTOR industry, but the island’s $146 billion economic driver for the island; the private With little hope of realizing its invest- sector and government alike are keen to ment in Taiwan, the KuoKuang Petro- chemical sector is also worthy of ensure its continued success. chemical Technology Co., a joint ven- attention. Boasting one of the region’s Surveying the changing dynamics of ture between CPC and private sector the national and global landscape, gov- producers, is eyeing a site location in oldest chemical complexes, Taiwan ernment in Taipei has formed a strategy. Pengerang, Malaysia. The group’s in- is host to a behemoth petrochemical Environmental opposition to cracker ca- vestment in Changhua was expected sector ranking 11th in the world in pacity expansion has mounted in recent to increase Taiwan’s ethylene capacity years, culminating in a decisive blow to by more than a quarter, adding 1.2 mil- ethylene production capacity. the island’s petrochemical players, com- lion mt/y overall capacity at the cost ing in the form of President Ma Ying- of $21.3 billion. Although the project Over recent years, however, Taiwan’s jeou’s decision in April 2011 to cancel would have helped Taiwan to meet the chemical industry has found itself con- the $21.3 billion KuoKuang Petrochemi- Ministry of Economic Affair (MOEA)’s strained by rising regional petrochemical cal Technology Co. investment project goal of achieving a national ethylene producers and overshadowed by other planned in Changhua County. self-sufficiency rate of 90%, President innovation-driven economies. Pressed by The government is now pushing the Ma cancelled the project before the these market dynamics and propelled by industry towards an area where the island completion of the environmental im- government policies, the industry’s time has already proved competitive: high- pact assessment (EIA). to make its mark is now. tech, high value-added products. For a The government’s decision came not Helped in no part by the global econ- country endowed with a strong electronics only in an election year, but closely fol- omy, Taiwan’s industry is highly suscep- industry and highly skilled workforce, the lowing a particularly accident-ridden tible to lagging international demand. For industry’s focus on upgrading its value- year for the sector. In 2010, Formosa a market with an exports-to-GDP ratio added rate does not seem like much of a Plastics recorded four major fires, three of 74%, and an industry as integral as gamble. However, when it comes to play- of which at its Mailiao complex and the the chemical sector, the global economic ing the innovation game, Taiwan lacks the fourth lasting for two days at a nearby crisis has not been forgiving. After slow attractive R&D incentives of neighboring desulfurization unit. Environmental years in 2008 and 2009, with economic countries like Singapore and high R&D groups have been fighting fiercely to growth rates of 0.7% and -1.8% respec- investment to sales ratio of Japan. In order limit cracker expansion, citing not only tively, Taiwan’s GDP growth jumped to compete, Taiwan’s chemical sector will these accidents but an increase in can- to 10.7% in 2010, only to drop to 4% in have to adjust rapidly in order to complete cer mortality in the area around the 2011 and fall further to 1.25% in 2012. its transition into a regional hub of high- Mailiao complex. After a challenging 2012, an uptick in the value chemical production. In the wake of industry disappoint- year’s last quarter has led analysts to esti- In spite of these challenges, Taiwan has ment over Kuokuang, the government mate GDP growth for 2013 will be close a solid foundation upon which to advance has used the end of the Changhua proj- to 3.5%. its chemical sector. With the island’s gi- ect as an impetus for change, urging the The outlook for 2013 is a welcome re- ants of the petrochemical sector—state- national chemical industry to embrace lief for the island’s chemical producers. owned CPC Corporation and private fine chemical production. Accounting Softening global demand, coupled with conglomerate Formosa Plastics Group— for almost 30% of the island’s total rising competition coming from mainland providing upstream processing, Taiwan’s manufacturing, the industry’s survival China, Southeast Asia and the Middle downstream industries can flourish along is crucial to the health of the overall East, as well as increasing regulations with the tremendous growth seen in the economy, yet the government has made on the home front, have thrown many island’s specialty chemicals and pharma- it clear that a future for chemical com- challenges in the way of their develop- ceuticals sectors. modities is simply not possible. 2 A Global Business Reports publication, presented with IHS Chemical Week CPC, for its part, has formed strategic for Taiwan’s High Value-Added (HVA) alliances with both domestic and foreign Petrochemical Industry in June 2011, petrochemical companies in order to de- inviting domestic and foreign experts, velop production of specialty chemical scholars, as well as petrochemical in- materials that can replace current im- dustry business representatives to devise ports. While giants like CPC and For- HVA development strategies. In con- mosa Plastics Group have the resources clusion, the group identified six major to invest outside of the island for its basic emerging industries for which the indus- chemical needs and forge specialty part- try should develop specialty materials: nerships, the government’s new action biotechnology, medicine and health care, plan is a challenge for the small and me- culture and creation, tourism, green en- dium chemical players that have long op- ergy and high-end agriculture. erated on the island with little oversight As part of this initiative, the MOEA or opposition. established the High Value Petrochemi- Yen-Shiang Shih, Former Minister of Economic The way forward has been dictated by cal Industry Promotion Office in 2012, Affairs the government; therefore the question to implement the promotion of the HVA remains how far the administration is development policy and assist in the for- enhance Taiwan’s petrochemical output. willing to go to support one of its largest mation of upstream-downstream R&D “For the next five to ten years, Taiwan’s industries in a costly and technological- alliances for joint product development. petrochemical industry policy will push ly-demanding transition. Amongst Tai- In the coming decade, the MOEA the industry towards HVA product de- wan’s petrochemical players, there is no has announced plans to invest in the velopment,” says outgoing Minister of sign of a great uptake of this agenda or R&D of 43 HVA product items in order Economic Affairs Yen-Shiang Shih. “We any significant reallocation of resources to stimulate the HVA portfolios of local hope Taiwan will become an important in favor of R&D and fine chemicals. producers. Additionally, the government focus in the Asia-Pacific region in terms To promote its new plan, the MOEA is looking to attract overseas manufac- of HVA petrochemical product develop- convened a Strategic Planning Meeting turers to invest in local production and ment and logistics.” 3 A Global Business Reports publication, presented with IHS Chemical Week GREatER HOPES FOR 2013 Interview with Dr. Eugene Lin, In light of its recent political and regula- Executive Director, Petrochemical Industrial Promotion Office, MOEA tory challenges, r the petrochemical sec- tor’s performance remains impressively What is PIPO’s mission invest in more advanced modest. Softened demand from mainland and what goals do you technology to minimize hope to achieve in its waste and pollution. China, which consumes about 60% of second year? Taiwan’s petrochemical output, has weak- PIPO’s mission isy to In what ways does the ened the island’s performance, but 2011 promote R&D in the US shale gas boom was nonetheless a record year of $65.2 sector. Taiwan has wel- stand to benefit or dis- billion in output. A slight decrease in 2012 comed foreign compa- advantage Taiwan’s ended the year at $64.4 billion. nies in setting up R&D chemical sector? According to Petrochemical Industry centers in Taiwan, which US shale gas may be a Association of Taiwan, ethylene produced a number of companies, threat to certain products in Taiwan in 2011 totaled 3.52 million mt, such as Dow Chemi- in the Taiwan industry cal and Evonik, have already done. We because they build up cracker capacity. a dip of 10.36% from 2010. Total demand also work to create alliances connecting Taiwan has to cope by focusing on high for ethylene in Taiwan was also down the upstream and downstream sectors to value-added products and considering in- 7.71% and total demand for all petrochem- promote R&D, develop their markets and vestments in the United States. Formosa ical materials was 6.26% below 2010, build plants. Another goal is to eliminate Plastics Group has already announced coming in at 24.83 million mt. To match problems related to investing in Taiwan, they are going to build an 800,000 mt/y lower demand, output of petrochemical through collaboration withthe Executive ethylene cracker and a propane dehydro- intermediates decreased by 5 to 10% for Yuan’s organization InvesTaiwan.