The COVID-19 outbreak continues to create havoc across the globe, inflicting severe damage to growth of the global and regional economies. Consequently, prompting South East Asian companies in the plastics industry to downsize capital expenditure (capex) for 2020, as a measure to sustain the crisis. Also, they are compelled to undertake rationalization of certain operational expenditure plans including reduction of non-essential expenses and deferment of certain expansion projects to mitigate the impact of the outbreak.
The volatile macroeconomic situation has forced companies to take decisive steps to re-phase capex, in line with the current market conditions. Operators of petrochemical companies focus on strategic imperatives and reschedule their project timelines accordingly. Companies tend to delay project execution or postpone FIDs wherever possible. FIDs of PT Chandra Asri‘s Cilegon Polyolefin projects have been postponed by a year to 2022, while the start-up of JG Summit Petrochemical’s Batangas polyolefin project has been delayed from Q2 2020 to 2021. These delays, although necessary, can impact the profitability of companies extending the time taken for them to break-even.
Polymer capacity additions are largely concentrated in Indonesia, targeting growing domestic demand and to reduce the dependence on imports. Most of the upcoming capacity in Indonesia, Brunei, and Thailand are under initial stages of development. The progress of these projects may be delayed/postponed, depending on the demand dynamics and pace of economic recovery. However, projects which are in the final stages of development, are likely to move ahead, albeit with short-term impact due to the pandemic.
The pandemic has impacted the demand for petrochemical products and associated major end-use sectors, leading to uncertainty in the short-term. As a result, altering production and operation plans by lowering plant utilization rates or closing production units have become a norm for several companies looking to weather the current scenario. Most of the petrochemical producers in the region foresee no significant impact on the continuity of operations in the long-term. Producers are likely to regularly review their strategies, and/or invest in disruptive technologies to help tackle any such crisis in the future.