2016 www.bmiresearch.com VIETNAM PETROCHEMICALS REPORT INCLUDES 5-YEAR FORECASTS TO 2019 Published by:BMI Research Vietnam Petrochemicals Report 2016 INCLUDES 5-YEAR FORECASTS TO 2019 Part of BMI’s Industry Report & Forecasts Series Published by: BMI Research Copy deadline: November 2015 ISSN: 1749-2564 BMI Research Senator House 85 Queen Victoria Street London EC4V 4AB United Kingdom Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@bmiresearch.com Web: http://www.bmiresearch.com © 2015 Business Monitor International Ltd All rights reserved All information contained in this publication is copyrighted in the name of Business Monitor International Ltd, and as such no part of this publication may be reproduced, repackaged, redistributed, resold in whole or in any part, or used in any form or by any means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express written consent of the publisher DISCLAIMER All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International Ltd accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication All information is provided without warranty, and Business Monitor International Ltd makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained Vietnam Petrochemicals Report 2016 INCLUDES 5-YEAR FORECASTS TO 2019 Part of BMI’s Industry Report & Forecasts Series Published by: BMI Research Copy deadline: November 2015 ISSN: 1749-2564 BMI Research Senator House 85 Queen Victoria Street London EC4V 4AB United Kingdom Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@bmiresearch.com Web: http://www.bmiresearch.com © 2015 Business Monitor International Ltd All rights reserved All information contained in this publication is copyrighted in the name of Business Monitor International Ltd, and as such no part of this publication may be reproduced, repackaged, redistributed, resold in whole or in any part, or used in any form or by any means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express written consent of the publisher DISCLAIMER All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International Ltd accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication All information is provided without warranty, and Business Monitor International Ltd makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained Vietnam Petrochemicals Report 2016 CONTENTS BMI Industry View SWOT Political Economic 10 Operational Risk 12 Industry Forecast 14 Table: Vietnam Planned Petrochemicals Projects 14 Table: Vietnam - Petrochemicals Capacities, 2012-2020, '000tpa 18 Macroeconomic Forecasts 19 Economic Analysis 19 Table: Economic Activity (Vietnam 2010-2019) 22 Industry Risk Reward Ratings 23 Asia Petrochemicals Risk/Reward Index 23 Table: Asia Petrochemicals Risk/Reward Index Ranking 26 Vietnam Industry Risk/Reward Index 27 Market Overview 28 Industry Trends And Developments 30 Company Profile 33 PetroVietnam 33 Vinachem 36 Regional Overview 38 Asia Overview 38 Chinese Crackers Spark Concern as Crisis Blazes 39 A Rocky Surge in 2016 41 Global Industry Overview 44 Feedstock Differentials: Respite for Europe 44 2016 Feedstock Outlook Could US Gas Run out? Market Outlook: Chinese Downturn Long-term Outlook Europe - Brent On Board For A Bumpy Ride 46 47 48 48 52 Demographic Forecast 53 Table: Population Headline Indicators (Vietnam 1990-2025) 54 © Business Monitor International Ltd Page Vietnam Petrochemicals Report 2016 Table: Key Population Ratios (Vietnam 1990-2025) 54 Table: Urban/Rural Population & Life Expectancy (Vietnam 1990-2025) 55 Table: Population By Age Group (Vietnam 1990-2025) 55 Table: Population By Age Group % (Vietnam 1990-2025) 56 Glossary 58 Table: Glossary Of Petrochemicals Terms 58 Methodology 59 Industry Forecast Methodology 59 Risk/Reward Index Methodology 61 Table: Petrochemicals Risk/Reward Index Indicators 62 Table: Weighting Of Indicators 63 © Business Monitor International Ltd Page Vietnam Petrochemicals Report 2016 BMI Industry View BMI View: Vietnam is set for a surge in refining and petrochemicals capacities in the next five years as investors seek to establish new operations in the Southeast Asian country Strong growth in end markets and Vietnam's position as a global manufacturing hub are driving production, although there are enduring risks associated with land acquisition and regulatory approval as well as regional market over-supply Currently, limited capacity leads to a reliance on imports for domestic conversion and end-product manufacturing With refinery developments in the pipeline, Vietnam will be able to increase capacities, particularly for polypropylene and ethylene in the medium term However, slow land clearance and financing problems delay these projects, postponing capacity increases by a number of years The main risks will come from both domestic and external influences Domestically, the slow rate of land clearance for projects is delaying progress This is adding years and raising costs to completion, leading to projects being scaled back Externally, the industry is faced with the onslaught of cheap US-based production flooding the Asian market, while it will be dependent on refineries for feedstock, which is likely to be more expensive than shale-derived ethane However, the Vietnamese industrial base is likely to favour the orientation of petrochemicals development with its emphasis on polypropylene and aromatics ■ In the January-November period of 2015, chemicals production was up 5.7% y-o-y and rubber and plastic output grew 12.7% on the back of 9.7% industrial growth However, the small base of local chemicals and petrochemicals production ensured that rising consumption led to a surge in imports ■ A surge in capacity is expected in the medium term, with the completion of new refinery-based complexes operated by Nghi Son Refinery & Petrochemical and Vung Ro Petroleum, adding 700,000 tonnes per annum (tpa) of paraxylene and 1.27mn tpa of polypropylene capacities to the industry ■ The PTT-Aramco joint venture complex is expected to start up in 2021, adding 1.4mn tpa of ethylene and 800,000tpa of polyethylene capacities to the Vietnamese industry • With little current domestic petrochemicals activity, Vietnam scores poorly in BMI's Asia Petrochemicals Risk/Rewards Index However, its position has improved marginally since last year, with its score rising by 0.1 points to 42.9 points Vietnam's position has been enhanced by a modest improvement in long-term country risk, although it is still weighed down by poor institutional, financial and external risks It lies in last place in the regional ranking, 4.0 points behind the Philippines and will remain there until new capacity comes onstream and the business environment improves © Business Monitor International Ltd Page Vietnam Petrochemicals Report 2016 SWOT Vietnam Petrochemicals Industry SWOT Analysis Strengths ■ Self-sufficiency in oil production gives a feedstock advantage, which helps in the development of the petrochemicals industry Weaknesses ■ Well placed to cater for the Chinese demand for petrochemicals ■ Has attracted some foreign investment for polyvinyl chloride (PVC) production ■ Petrochemicals product portfolio is more or less limited to PVC ■ Scarce refining capacity ■ High input costs for petrochemicals production ■ Limited interest from foreign petrochemicals majors in investing, while partners have dropped out of past projects Opportunities ■ Project delays due to slow land clearance ■ Plans to establish refinery and development of plastics and intermediate petrochemicals production Threats ■ Feasibility studies underway for ethylene cracker ■ Rising gas production could provide feedstock for petrochemicals production ■ Plans are not expected to lead to any initial olefins production, with the country continuing to rely on imported monomer feedstock for some time ■ The EU predicts Vietnam will not become a true market economy until 2018, and even this forecast is somewhat ambitious © Business Monitor International Ltd Page Vietnam Petrochemicals Report 2016 Political SWOT Analysis Strengths ■ The Communist Party of Vietnam remains committed to market-oriented reforms and we not expect major shifts in policy direction over the coming years The one-party system is generally conducive to short-term political stability ■ Relations with the US have witnessed a marked improvement, and Washington sees Hanoi as a potential geopolitical ally in South East Asia Weaknesses ■ Corruption among government officials poses a major threat to the legitimacy of the ruling Communist Party ■ There is increasing (albeit still limited) public dissatisfaction with the leadership's tight control over political dissent Opportunities ■ The government recognises the threat corruption poses to its legitimacy, and has acted to clamp down on graft among party officials ■ Vietnam has allowed legislators to become more vocal in criticising government policies This is opening up opportunities for more checks and balances within the one-party system Threats ■ Although strong domestic control will ensure little change to Vietnam's political scene in the next few years, over the longer term, the one-party-state will probably be unsustainable ■ Relations with China have deteriorated over recent years due to Beijing's more assertive stance over disputed islands in the South China Sea © Business Monitor International Ltd Page Vietnam Petrochemicals Report 2016 to the decision, although the country's own economic travails and a corruption scandal at project partner Petrobras were also a factor Instead, Braskem has opted for a smaller scale expansion at an existing complex Braskem's decision follows the cancellation of two major complexes in Qatar: Al-Karaana and and Al Sejeel Together, these would have added ethylene capacity of near 3mn tpa and up to 5mn tpa of derivative products The decision was prompted by the fall in oil prices, which reduced the competitive advantage of Qatar's ethane feedstock over naphtha The possibility of ethane supply constraints also raised the possibility of higher feedstock costs However, projects currently under construction are too far advanced to cancel, such as ExxonMobil's joint venture with QP which will see an ethane-fed cracker with capacity of 1.6mn tpa ethylene and downstream units including 1.3mn tpa of PE plants and a 700,000tpa ethylene glycol unit The complex is due on stream in Q415, although delays to engineering contracts could push the date back to 2016 Across the Arabian Gulf, in Iran new complexes are at risk of being delayed or cancelled The NPC aims to raise ethylene capacity at the Kavyan complex to 2mn tpa by 2015, making it the country's largest ethylene production site, but this could also be postponed The West Ethylene Pipeline, fed by Kavyan, is also in danger of failure and its route could be shortened, threatening the planned polymers plants that it supplies For Iran's plants to operate at reasonable levels of capacity utilisation, olefins output would have to increase by a third and polymers by a third, but the demand may not exist and may not have existed even without the sanctions regime Concerns over feedstock costs also prompted Sonatrach to cancel its joint venture with Total for a petrochemicals complex in Arzew, Algeria This ruled out a cracker with 1.1mn tpa of ethylene capacity and around 1.4mn tpa of derivatives capacities A slow, long-term oil price recovery would have a profound impact on both global PE and PP markets Western Europe and Asia would benefit greatly from more competitive feedstock and buoyant demand, while North America would experience lower integrated margins However, a prolonged period of low oil prices would put new Russian PE projects in jeopardy because of the resulting poor investment climate, leaving Russia as a net-importer of the chemical © Business Monitor International Ltd Page 49 Vietnam Petrochemicals Report 2016 China vs US Ethylene China & US Are Rivals In Ethylene 40,000 35,000 30,000 25,000 20,000 2013e 2014e 2015f 2016f 2017f 2018f 2019f China - Ethylene capacity, '000 tpa United States - Ethylene capacity, '000 tpa e/f = BMI estimate/forecast Source: National Sources, BMI The change in structure in the global market could lead a move to C4s, aromatics and heavier product lines, as well as the further development of bio-based and coal feedstocks for chemicals This will provide an advantage over purely ethane-fed crackers, which have a lower capacity to produce olefins other than ethylene In turn, this could protect the competitive edge of planned complexes based on mixed feed and naphtha-fed crackers, which are the majority due to come on-stream in Asia and the Middle East over the coming years © Business Monitor International Ltd Page 50 Vietnam Petrochemicals Report 2016 Global Ethylene Capacity By Region 2015 (%) Source: BMI © Business Monitor International Ltd Page 51 Vietnam Petrochemicals Report 2016 Europe - Brent On Board For A Bumpy Ride Shifting perceptions amongst market participants and the continued overhang of light sweet crudes will drive a slow and volatile increase in the price of Brent in Q4 As we have argued, the physical rebalancing of the market is underway However, this is a multi-year process, and a strong projects pipeline will continue to increase the crude overhang in 2016-2017 West Africa and the North Sea are among the key near-term growth regions, adding over 750,000 barrels per day (b/d) of predominantly medium and light sweet production in the Atlantic basin by 2017 Any substantial gains in the Brent price over the short term will thus be rapidly pared by profit-taking Export Uptrend Set To Continue North Sea & West Africa Crude Oil Loadings, '000 b/d Source: Bloomberg © Business Monitor International Ltd Page 52 Vietnam Petrochemicals Report 2016 Demographic Forecast Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model Not only is the total population of a country a key variable in consumer demand, but an understanding of the demographic profile is essential to understanding issues ranging from future population trends to productivity growth and government spending requirements The accompanying charts detail the population pyramid for 2015, the change in the structure of the population between 2015 and 2050 and the total population between 1990 and 2050 The tables show indicators from all of these charts, in addition to key metrics such as population ratios, the urban/rural split and life expectancy Population (1990-2050) 150 100 50 2050f 2045f 2040f 2035f 2030f 2025f 2020f 2015f 2010 2005 2000 1990 Vietnam - Population, mn f = BMI forecast Source: World Bank, UN, BMI © Business Monitor International Ltd Page 53 Vietnam Petrochemicals Report 2016 Vietnam Population Pyramid 2015 (LHS) & 2015 Versus 2050 (RHS) Source: World Bank, UN, BMI Table: Population Headline Indicators (Vietnam 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f 68,209 80,285 84,203 88,357 93,447 98,156 102,092 na 1.1 0.9 1.0 1.1 0.9 0.7 Population, total, male, '000 33,583 39,551 41,469 43,626 46,224 48,590 50,510 Population, total, female, '000 34,625 40,734 42,734 44,730 47,223 49,566 51,581 Population ratio, male/female 0.97 0.97 0.97 0.98 0.98 0.98 0.98 Population, total, '000 Population, % y-o-y na = not available; f = BMI forecast Source: World Bank, UN, BMI Table: Key Population Ratios (Vietnam 1990-2025) Active population, total, '000 Active population, % of total population Dependent population, total, '000 Dependent ratio, % of total working age © Business Monitor International Ltd 1990 2000 2005 2010 2015f 2020f 2025f 38,808 49,712 55,795 61,655 65,572 67,775 69,459 56.9 61.9 66.3 69.8 70.2 69.0 68.0 29,401 30,573 28,408 26,702 27,875 30,381 32,633 75.8 61.5 50.9 43.3 42.5 44.8 47.0 Page 54 Vietnam Petrochemicals Report 2016 Key Population Ratios (Vietnam 1990-2025) - Continued Youth population, total, '000 1990 2000 2005 2010 2015f 2020f 2025f 25,494 25,416 22,866 20,919 21,576 22,487 22,335 65.7 51.1 41.0 33.9 32.9 33.2 32.2 3,907 5,157 5,542 5,783 6,298 7,893 10,298 10.1 10.4 9.9 9.4 9.6 11.6 14.8 Youth population, % of total working age Pensionable population, '000 Pensionable population, % of total working age f = BMI forecast Source: World Bank, UN, BMI Table: Urban/Rural Population & Life Expectancy (Vietnam 1990-2025) 1990 Urban population, '000 2020f 2025f 13,815.9 19,568.8 22,971.6 26,853.7 31,391.9 36,120.7 40,780.9 Urban population, % of total Rural population, '000 2000 20.3 24.4 2005 27.3 2010 30.4 2015f 33.6 36.8 39.9 54,393.7 60,716.8 61,232.2 61,504.1 62,055.7 62,036.0 61,311.7 Rural population, % of total 79.7 75.6 72.7 69.6 66.4 63.2 60.1 Life expectancy at birth, male, years 66.0 68.4 69.3 70.2 71.2 72.1 73.1 Life expectancy at birth, female, years 75.1 78.1 79.2 80.0 80.6 81.1 81.6 Life expectancy at birth, average, years 70.5 73.3 74.3 75.1 75.9 76.7 77.4 f = BMI forecast Source: World Bank, UN, BMI Table: Population By Age Group (Vietnam 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f Population, 0-4 yrs, total, '000 9,211 7,244 6,751 7,265 7,740 7,601 7,108 Population, 5-9 yrs, total, '000 8,512 9,119 7,130 6,648 7,221 7,698 7,562 Population, 10-14 yrs, total, '000 7,769 9,052 8,983 7,005 6,614 7,187 7,664 Population, 15-19 yrs, total, '000 7,277 8,401 8,941 8,877 6,972 6,583 7,156 Population, 20-24 yrs, total, '000 6,570 7,610 8,242 8,764 8,803 6,908 6,522 Population, 25-29 yrs, total, '000 5,938 7,019 7,408 8,022 8,664 8,705 6,823 Population, 30-34 yrs, total, '000 5,079 6,300 6,863 7,223 7,932 8,572 8,616 Population, 35-39 yrs, total, '000 3,842 5,746 6,190 6,718 7,146 7,850 8,488 Population, 40-44 yrs, total, '000 2,447 4,938 5,663 6,096 6,640 7,065 7,766 Population, 45-49 yrs, total, '000 2,003 3,710 4,880 5,592 6,004 6,543 6,968 © Business Monitor International Ltd Page 55 Vietnam Petrochemicals Report 2016 Population By Age Group (Vietnam 1990-2025) - Continued 1990 2000 2005 2010 2015f 2020f 2025f Population, 50-54 yrs, total, '000 1,956 2,331 3,658 4,801 5,467 5,875 6,410 Population, 55-59 yrs, total, '000 2,033 1,873 2,223 3,501 4,625 5,275 5,681 Population, 60-64 yrs, total, '000 1,658 1,779 1,723 2,055 3,314 4,392 5,023 Population, 65-69 yrs, total, '000 1,402 1,759 1,599 1,551 1,894 3,066 4,081 Population, 70-74 yrs, total, '000 1,021 1,313 1,520 1,390 1,369 1,682 2,739 Population, 75-79 yrs, total, '000 747 977 1,073 1,254 1,158 1,150 1,424 Population, 80-84 yrs, total, '000 426 593 726 809 957 893 895 Population, 85-89 yrs, total, '000 221 334 382 479 541 649 613 Population, 90-94 yrs, total, '000 70 131 176 208 265 305 370 Population, 95-99 yrs, total, '000 15 40 52 73 88 114 133 Population, 100+ yrs, total, '000 11 16 23 30 39 f = BMI forecast Source: World Bank, UN, BMI Table: Population By Age Group % (Vietnam 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f Population, 0-4 yrs, % total 13.50 9.02 8.02 8.22 8.28 7.74 6.96 Population, 5-9 yrs, % total 12.48 11.36 8.47 7.52 7.73 7.84 7.41 Population, 10-14 yrs, % total 11.39 11.28 10.67 7.93 7.08 7.32 7.51 Population, 15-19 yrs, % total 10.67 10.46 10.62 10.05 7.46 6.71 7.01 Population, 20-24 yrs, % total 9.63 9.48 9.79 9.92 9.42 7.04 6.39 Population, 25-29 yrs, % total 8.71 8.74 8.80 9.08 9.27 8.87 6.68 Population, 30-34 yrs, % total 7.45 7.85 8.15 8.18 8.49 8.73 8.44 Population, 35-39 yrs, % total 5.63 7.16 7.35 7.60 7.65 8.00 8.31 Population, 40-44 yrs, % total 3.59 6.15 6.73 6.90 7.11 7.20 7.61 Population, 45-49 yrs, % total 2.94 4.62 5.80 6.33 6.43 6.67 6.83 Population, 50-54 yrs, % total 2.87 2.90 4.34 5.43 5.85 5.99 6.28 Population, 55-59 yrs, % total 2.98 2.33 2.64 3.96 4.95 5.37 5.57 Population, 60-64 yrs, % total 2.43 2.22 2.05 2.33 3.55 4.47 4.92 Population, 65-69 yrs, % total 2.06 2.19 1.90 1.76 2.03 3.12 4.00 Population, 70-74 yrs, % total 1.50 1.64 1.81 1.57 1.47 1.71 2.68 Population, 75-79 yrs, % total 1.10 1.22 1.27 1.42 1.24 1.17 1.40 Population, 80-84 yrs, % total 0.63 0.74 0.86 0.92 1.02 0.91 0.88 © Business Monitor International Ltd Page 56 Vietnam Petrochemicals Report 2016 Population By Age Group % (Vietnam 1990-2025) - Continued 1990 2000 2005 2010 2015f 2020f 2025f Population, 85-89 yrs, % total 0.33 0.42 0.45 0.54 0.58 0.66 0.60 Population, 90-94 yrs, % total 0.10 0.16 0.21 0.24 0.28 0.31 0.36 Population, 95-99 yrs, % total 0.02 0.05 0.06 0.08 0.09 0.12 0.13 Population, 100+ yrs, % total 0.00 0.01 0.01 0.02 0.03 0.03 0.04 f = BMI forecast Source: World Bank, UN, BMI © Business Monitor International Ltd Page 57 Vietnam Petrochemicals Report 2016 Glossary Table: Glossary Of Petrochemicals Terms ABS acrylonitrile-butadiene-styrene MTBE methyl tertiary butyl ether AN acrylonitrile NOC national oil company AS acrylonitrile styrene OX orthoxylene bbl barrel PE polyethylene bcm billion cubic metres PET polyethylene terephthalate b/d barrels per day PG propylene glycol BR butadiene rubber PO propylene oxide btu British thermal units PP polypropylene DMT dimethyl terephthalate PS polystyrene EB ethylbenzene PTA purified terephthalic acid EDC ethylene dichloride PU polyurethane EG ethylene glycol PVC polyvinyl chloride EO ethylene oxide PX paraxylene GTL gas-to-liquids q-o-q quarter-on-quarter HDPE high density polyethylene SBR styrene butadiene rubber IOC international oil company SM styrene monomer JV joint venture TDI toluene diisocyanate LAB linear alkylbenzene tpa tonnes per annum LDPE low density polyethylene VAM vinyl acetate monomer LLDPE linear low density polyethylene VCM vinyl chloride monomer LNG liquefied natural gas y-o-y year-on-year MEG mono-ethylene glycol Source: BMI © Business Monitor International Ltd Page 58 Vietnam Petrochemicals Report 2016 Methodology Industry Forecast Methodology BMI's industry forecasts are generated using the best-practice techniques of time-series modelling and causal/econometric modelling The precise form of model we use varies from industry to industry, in each case determined, as per standard practice, by the prevailing features of the industry data being examined Common to our analysis of every industry is the use of vector autoregressions, which allow us to forecast a variable using more than the variable's own history as explanatory information For example, when forecasting oil prices, we can include information about oil consumption, supply and capacity When forecasting for some of our industry sub-component variables, however, using a variable's own history is often the most desirable method of analysis Such single-variable analysis is called univariate modelling We use the most common and versatile form of univariate models: the autoregressive moving average model (ARMA) In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor In such cases, we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting BMI mainly uses OLS estimators and in order to avoid relying on subjective views and encourage the use of objective views, BMI uses a 'general-to-specific' method BMI mainly uses a linear model, but simple non-linear models, such as the log-linear model, are used when necessary During periods of 'industry shock', for example poor weather conditions impeding agricultural output, dummy variables are used to determine the level of impact Effective forecasting depends on appropriately selected regression models BMI selects the best model according to various different criteria and tests, including but not exclusive to: ■ R2 tests explanatory power; adjusted R2 takes degree of freedom into account; ■ Testing the directional movement and magnitude of coefficients; ■ Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value); ■ All results are assessed to alleviate issues related to auto-correlation and multi-collinearity © Business Monitor International Ltd Page 59 Vietnam Petrochemicals Report 2016 BMI uses the selected best model to perform forecasting Human intervention plays a necessary and desirable role in all of our industry forecasting Experience, expertise and knowledge of industry data and trends ensure analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not Sector-Specific Methodology Plant Capacity The ability of a country to produce basic chemical products depends on domestic plant capacity The number and size of ethylene crackers determines both a country's likely output and also its relative efficiency as a producer We therefore examine: ■ Stated year-end capacity for key petrochemicals products: ethylene, propylene, polypropylene, polyethylene and other petrochemicals; ■ Specific company and/or government capacity expansion projects aimed at increasing the number and/or size of crackers and downstream processing facilities; ■ Government, company and third-party sources Chemicals Supply A mixture of methods is used to generate supply forecasts, applied as appropriate to each individual country: ■ Basic plant capacity and historic utilisation rates Unless a company imports chemicals products for domestic re-sale, supply is expected to be governed by production capacity; ■ Underlying economic growth trends The chemicals industry is highly cyclical Strong domestic or regional demand should be met by increased supply and higher plant utilisation rates; ■ Third-party projections from national and international industry trade associations Chemicals Demand Various methods are used to generate demand forecasts, applied as appropriate to each individual country: ■ Underlying economic growth trends The chemicals industry is highly cyclical Strong domestic or regional demand is expected to require larger volumes of either domestically produced or imported olefins (ethylene, propylene), polyolefins (PE, PP) or downstream products; © Business Monitor International Ltd Page 60 Vietnam Petrochemicals Report 2016 ■ Trends in end-user industries Strong demand for motor vehicles, construction materials, packaging products and pharmaceuticals imply rising demand for basic chemicals; ■ Government/industry projections; ■ Third-party forecasts from national and international industry trade associations Cross Checks Whenever possible, we compare government and/or third party agency projections with spending and capacity expansion plans of the companies operating in each individual country Where there are discrepancies, we use company-specific data, such as physical spending patterns to determine capacity and supply capability Similarly, we compare capacity expansion plans and demand projections to check the chemicals balance of each country Where the data suggest imports or exports, we check that necessary capacity exists or that the required investment in infrastructure is taking place Risk/Reward Index Methodology BMI's Risk/Reward Index (RRI) provide a comparative regional ranking system evaluating the ease of doing business and the industry-specific opportunities and limitations for potential investors in a given market The RRI system is divided into two distinct areas: Rewards: Evaluation of sector's size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development This is broken down into two sub-categories: ■ Industry Rewards This is an industry-specific category taking into account current industry size and growth forecasts, the openness of market to new entrants and foreign investors, to provide an overall score for potential returns for investors • Country Rewards This is a country-specific category, which factors in favourable political and economic conditions for the industry Risks: Evaluation of industry-specific dangers and those emanating from the state's political/economic profile that call into question the likelihood of anticipated returns being realised over the assessed time period This is broken down into two sub-categories: ■ Industry Risks: This is an industry-specific category whose score covers potential operational risks to investors, regulatory issues inhibiting the industry and the relative maturity of a market • Country Risks: This is a country-specific category in which political and economic instability, unfavourable legislation and a poor overall business environment are evaluated to provide an overall score © Business Monitor International Ltd Page 61 Vietnam Petrochemicals Report 2016 We take a weighted average, combining Industry and Country Risks, or Industry and Country Rewards These two results in turn provide an overall Risk/Reward Index score, which is used to create our regional ranking system for the risks and rewards of involvement in a specific industry in a particular country For each category and sub-category, each state is scored out of 100 (100 being the best), with the overall Risk/Reward Index score a weighted average of the total score Importantly, as most of the countries and territories evaluated are considered by BMI to be 'emerging markets', our index is revised on a quarterly basis This ensures that the index draws on the latest information and data across our broad range of sources, and the expertise of our analysts Indicators The following indicators have been used Overall, the index uses three subjectively measured indicators, and 41 separate indicators/datasets Table: Petrochemicals Risk/Reward Index Indicators Rationale Rewards Industry Rewards Cracker capacity, current year Objective measure of sector size Cracker capacity, future year Forecast of sector development Downstream capacity, current year Objective measure of domestic demand Country Rewards Financial infrastructure Score from BMI's Country Risk Index (CRI) to denote ease of obtaining investment finance Poor availability of finance will hinder company operations across the economy Trade bureaucracy From CRI Low trade restrictions are essential for this export-based industry Physical infrastructure From CRI Given the size of manufacturing units, sector development requires strong supporting power/water/transport infrastructure Risks Industry Risks Industry regulatory environment Subjective evaluation against BMI-defined criteria Evaluates predictability of operating environment Country Risks Structure of economy From CRI Denotes health of underlying economic structure, including seven indicators such as volatility of growth, reliance on commodity imports, reliance on single sector for exports © Business Monitor International Ltd Page 62 Vietnam Petrochemicals Report 2016 Petrochemicals Risk/Reward Index Indicators - Continued Rationale Long-term external economic risk From CRI Denotes vulnerability to external shock, which is the principal cause of economic crises Long-term external financial risk From CRI Denotes vulnerability of currency/stability of financial sector Institutions From CRI Denotes strength of bureaucracy and legal framework and evaluates level of corruption Long-term political risk From CRI Denotes strength of political environment Source: BMI Weighting Given the number of indicators/datasets used, it would be wholly inappropriate to give all sub-components equal weight Consequently, the following weighting has been adopted Table: Weighting Of Indicators Component Rewards Weighting, % 70, of which - Industry Rewards 65 - Country Rewards 35 Risks 30, of which - Industry Risks 40 - Country Risks 60 Source: BMI © Business Monitor International Ltd Page 63 [...]... process in Vietnam is complicated, requiring approval from many ministries, which can delay projects leading to lower project economies and disincentive to invest If these issues are dealt with, Vietnam could become a serious player in South East Asia's petrochemicals market © Business Monitor International Ltd Page 16 Vietnam Petrochemicals Report 2016 Economic Trends In Vietnam Factors Influencing Petrochemicals. .. 59.9 59.9 52.0 10 Philippines 30.0 51.2 37.4 75.0 66.6 69.1 46.9 11 Vietnam 33.3 44.5 37.2 60.0 54.3 56.0 42.9 12 Country Source: BMI © Business Monitor International Ltd Page 26 Vietnam Petrochemicals Report 2016 Vietnam Industry Risk/Reward Index With little current domestic petrochemicals activity, Vietnam scores poorly in BMI's Asia Petrochemicals Risk/Rewards Index However, its position has improved... Petrochemicals Report 2016 SWOT Analysis - Continued • Vietnam' s reliance on imported oil poses risks in the form of energy and fuel shortages • Corruption and inefficiency in the legal system • Anti-Chinese violence, as seen in May 2014, could be a harbinger of wider political and social unrest © Business Monitor International Ltd Page 13 Vietnam Petrochemicals Report 2016 Industry Forecast Vietnam is... 18 Vietnam Petrochemicals Report 2016 Macroeconomic Forecasts Economic Analysis BMI View: The Vietnamese economy will remain a regional outperformer over the coming years on the back of strong foreign direct investment (FDI) inflows and export resilience As such, we forecast Vietnam' s real GDP growth to accelerate to 6.6% in 2016, from an estimated 6.4% in 2015 Our long-held bullish outlook for the Vietnamese... shale-derived ethane However, the Vietnamese industrial base is likely to favour the orientation of petrochemicals development with its emphasis on polypropylene and aromatics © Business Monitor International Ltd Page 15 Vietnam Petrochemicals Report 2016 Upward Trend In Petrochemicals And Chemicals Output Production Indices (100 = 2010) Source: General Statistics Office of Vietnam On the downside, the... Monitor International Ltd Page 22 Vietnam Petrochemicals Report 2016 Industry Risk Reward Ratings Asia Petrochemicals Risk/Reward Index BMI View: The average Risk/Reward Index score for the Asian petrochemicals sector has fallen by a modest 0.1 point this quarter, although we see a potential pick-up in growth of regional giants such as China, India and Indonesia Overall, Asia's petrochemicals sector offers.. .Vietnam Petrochemicals Report 2016 Economic SWOT Analysis Strengths ■ Vietnam has been one of the fastest-growing economies in Asia in recent years, with GDP growth averaging 6.5% annually between 2000 and 2014 ■ The economic boom has lifted many Vietnamese out of poverty, with the official poverty rate in the country falling from 58% in 1993 to 17.2% in 2012 ■ Vietnam has been strengthening... and the US has also added to the pace of economic expansion However, this growth may be curtailed if growth in Vietnam' s biggest export market, the US, remains sluggish © Business Monitor International Ltd Page 27 Vietnam Petrochemicals Report 2016 Market Overview Vietnam has a poorly developed petrochemicals industry despite significant oil and gas reserves and a respectable sized refining sector relative... oil The Thai petrochemicals firm is still conducting a feasibility study and if this goes well, the facility could see construction begin in 2016 and come online by 2021 © Business Monitor International Ltd Page 28 Vietnam Petrochemicals Report 2016 These recent developments have led us to revise our forecasts Accounting for the additional capacity that Nghi Son and Vung Ro will add to the Vietnamese... Consumption 10 20 15 8 10 6 5 4 0 2013 2014 2015f 2016f 2017f 2018f 2019f 2020f Vietnam - Real GDP growth, % y-o-y (LHS) Vietnam - Industrial production, % y-o-y, ave (LHS) Vietnam - Vehicle production, units, % y-o-y (RHS) Vietnam - Construction Industry Value, Real Growth, % y-o-y (LHS) f = BMI forecast Source: National sources/BMI There is a strong basis for petrochemicals consumption growth going forward ... in South East Asia's petrochemicals market © Business Monitor International Ltd Page 16 Vietnam Petrochemicals Report 2016 Economic Trends In Vietnam Factors Influencing Petrochemicals Consumption... in Vietnam' s biggest export market, the US, remains sluggish © Business Monitor International Ltd Page 27 Vietnam Petrochemicals Report 2016 Market Overview Vietnam has a poorly developed petrochemicals. .. © Business Monitor International Ltd Page Vietnam Petrochemicals Report 2016 BMI Industry View BMI View: Vietnam is set for a surge in refining and petrochemicals capacities in the next five