BMI SINGAPORE CHEMICALS REPORT 2009

Published by BUSINESS MONITOR INTERNATIONAL LTD

Including 5-year industry forecasts

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SingaporeChemicalsReport 2009 ISSN: 1749-2084

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Singapore Chemicals Report 2009 Including 5-year industry forecasts by BMI

Part of BMI’s Industry Survey & Forecasts Series

Published by: Business Monitor International

Publication date: June 2009

Singapore Chemicals Report 2009

© Business Monitor International Ltd Page 2



CONTENTS

Executive Summary .........................................................................................................................................5

SWOT Analysis.................................................................................................................................................7

Singapore Chemicals Industry SWOT.................................................................................................................................................................... 7 Singapore Political SWOT..................................................................................................................................................................................... 8 Singapore Economic SWOT................................................................................................................................................................................... 8 Singapore Business Environment SWOT ............................................................................................................................................................... 9

Market Overview.............................................................................................................................................10

Industry Performance .......................................................................................................................................................................................... 13 Table: Singapore’s Chemicals Industry Output, 2004-2006 ................................................................................................................................ 14 Speciality Chemicals............................................................................................................................................................................................ 14 Electronic Chemicals........................................................................................................................................................................................... 15 Pharmaceuticals .................................................................................................................................................................................................. 16 Business Environment.......................................................................................................................................................................................... 16 Projects And Expansions ..................................................................................................................................................................................... 17 Earlier Developments .......................................................................................................................................................................................... 20

Industry Forecast Scenario...........................................................................................................................23

Table: Singapore’s Chemicals Industry, 1993-2012 (SGDmn) ............................................................................................................................ 24 Macroeconomic Forecast .................................................................................................................................................................................... 25 Table: Singapore – Economic Activity, 2006-2013.............................................................................................................................................. 28

Company Monitor...........................................................................................................................................29

Eastman Chemicals Singapore ............................................................................................................................................................................ 29 ExxonMobil Chemicals ........................................................................................................................................................................................ 31 Mitsui Chemicals ................................................................................................................................................................................................. 33 Dow Chemical Pacific (Singapore)) .................................................................................................................................................................... 35

BMI Forecast Modelling.................................................................................................................................36

How We Generate Our Industry Forecasts .......................................................................................................................................................... 36 Petrochemicals Industry ...................................................................................................................................................................................... 36 Cross Checks ....................................................................................................................................................................................................... 37





Executive Summary

Market Overview The Singaporean chemicals industry is one the largest sectors in Singapore. The Singaporean government

has been promoting the industry since the mid-1990s, with the aim of increasing the share of chemicals

and petrochemicals of total manufacturing output to 30% by 2010. The country has a chemical complex

on Jurong Island, Singapore, acting as a base for more than 94 domestic and international companies. The

chemical industry output accounted for about SGD98.1bn (US$65.05bn) in 2008, contributing more than

one-third the country’s manufacturing output.

Industry Performance Manufacturing output shrank by 13.5% year-on-year in December 2008. The growth of the sector was

affected throughout the year by the fluctuation in biomedical manufacturing output. The three-month

moving average index for December declined 10.5% and the seasonally adjusted month-on-month index

for December was 11% below that of the previous month. For the full year in 2008, total manufacturing

output dipped 4.1% compared with 2007. Fixed asset investment (FAI) in Singapore’s chemical industry

was reported at SGD8.55bn (US$5.68bn) for the January-December 2008 period.

Industry Developments

In January 2008 it was reported that Finnish refining and marketing company Neste Oil will be investing

SGD1.2bn (US$800mn) to build an 800,000 tonne per year plant to manufacture biofuel. The plant will

produce NExBTL, which is thought to be the cleanest renewable diesel available. The plant will use the

company’s proprietary technology and will use palm oil as the main input material. Construction will

begin in 2008 in the Tuas Industrial Zone with completion expected in 2010.

In February 2008 it was reported that Nikko Chemicals had invested SGD38.4m (US$ 25.4) in a new

surfactant plant to make ethoxylated surfactants that would be used in the cosmetic industry. The site is to

be built on Jurong Island over 1.2 hectares (ha) and is expected to be operating by 2009, producing 3,000

tonnes in its first two years. Later the month it was reported that the Germany-based LANXESS will

invest SGD823mn (US$545) in building a production plant on Jurong Island to manufacture 100,000

tonnes per year of butyl rubber. Construction will begin in 2009 and by 2010 supply of the raw material

required by the plant, Raffinate 1, will be delivered by Shell Eastern Petroleum to the site. The plant is

expected to require more than 200 staff once fully operational.

Meanwhile, in June 2008 Samsung and Sitronic opened a SGD1.36bn (US$0.9bn) 300mm silicon wafer

factory in Singapore. The factory, which began production in June, should have the capacity to produce

300,000 wafers each month by 2010, making it one of the largest wafer factories in the world. In October

2008 it was reported that Japanese firm Kanto Kagaku, which makes speciality chemicals, began



construction on a SGD30mn (US$19.9mn) manufacturing plant and laboratory based in Tuas. Operations

are expected to begin in the last quarter of 2009, when production of highly purified chemicals will begin.

SGD Future Risks

The economic downturn and weak demand is expected to have a significant effect on manufacturing

levels and immediate investment.

Singapore is also experiencing a threat from resource-rich countries such as Indonesia and Malaysia

where there are indigenous hydrocarbon feedstock resources and low production costs for petrochemicals.

If these countries improve their support infrastructure and, in the case of Indonesia, address political

stability concerns, they may attract business that might otherwise go to Singapore. Similarly,

diversification from oil to petrochemicals in Middle Eastern economies may provide new competition for

Singapore. China and India continue to increase their capabilities within this sector and this may also

influence Singapore’s position in the chemicals industry.

The introduction of the EU Registration, Evaluation, Authorisation and Restriction of Chemicals

(REACH) legislation is expected to be one of the biggest obstacles in the future of Singapore’s chemical

industry, and failure to educate chemical companies on compliance could result in a decrease of export

levels to the EU, which accounts for a significant proportion of Singapore’s exports.



SWOT Analysis

Singapore Chemicals Industry SWOT

Strengths Government-provided infrastructure, financial incentives and assistance in project implementation have all been central elements of Singapore’s investment promotion strategy

Companies in the chemicals industry find Singapore a compelling location, where they have ready access to a network of industry partners and service providers

Weaknesses Lack of indigenous resources could become a weakness

Opportunities Developments on Jurong Island to improve storage, handling and logistics

Jurong Island has been reclaimed through the amalgamation of seven islands off the southern coast of Singapore, for the purpose of housing the chemicals industry. The Institute of Chemicals and Engineering Sciences on Jurong Island will help research and development (R&D) in a major way

Beyond the attractions of lowered tariffs, free trade agreements (FTAs) also mean a more liberalised investment climate and closer co-operation through mutual recognition of standards and test results, all of which are likely to improve the operating environment for companies based in Singapore

Land and utilities are major cost components for the chemicals industry. The government has taken steps to reduce the price of industrial land, and is likely to continue to ensure that sufficient land at internationally competitive prices is made available to investors

Threats EU REACH Legislation restricting the freedom and mobility of chemical imports into the EU

Diversification of Middle Eastern economies

Development of surrounding resource-rich countries infrastructure in chemical production

Global economic downturn affecting demand for chemical products

Increased political instability in Malaysia or Indonesia could result in reduced economic growth within the region, negatively affecting demand for petrochemicals, fine and speciality chemicals, and also leading to a decline in foreign investment



Singapore Political SWOT

Strengths Singapore enjoys a very stable political system, following the country's second change of leadership in 40 years, which saw Lee Hsien Loong – son of the nation's founding father Lee Kuan Yew – take over as prime minister in 2004

Official promises have been made to eradicate Singapore's reputation as an overprotective nanny-state, with efforts to enhance freedom of expression

Weaknesses Singapore is not a properly functioning democracy. The ruling People's Action Party (PAP) has all but two seats in parliament, and the opposition is restricted from campaigning through tight control over political debate and frequent use of libel laws

The government has yet to improve the situation for the less well off in Singapore, with a rising wage gap between the top earners and the lowest paid

Opportunities Lee is proving himself a capable leader, moving away from the shadow of his father by repeatedly calling for more openness

Singapore is leading its regional neighbours in signing free trade agreements. Increased regional integration is likely to give the island more influence in Asia

Threats There are fears that Singapore's foreign policy alignment with the US will cause the city-state to become a target for terror attacks launched by Muslim extremists

The last election showed that segments of the electorate are becoming disenchanted with the PAP and its repression of opposition voices

Singapore Economic SWOT

Strengths Singapore's monetary policymakers have gained credibility by guiding the exchange rate to offset inflationary pressures while ensuring stable growth

Singapore's current account surplus remains over 20% of GDP and its external finances are in good shape. This is reflected by the world's credit-rating agencies, which continue to award Singapore top marks for external strength

Weaknesses The trade-dependent economy remains exposed to global trends in demand for electronic goods, which account for around half of Singapore's non-oil exports

Singapore faces a number of long-term economic problems. Competition from low-cost neighbouring countries is on the increase and its population is ageing rapidly

Opportunities In the face of regional competition for both exports and investment, the government is encouraging economic diversification to boost competitiveness. New areas being promoted are biomedical sciences, tourism, medical and financial services

Threats There is significant state involvement in the private sector, with the government refusing to disclose the assets of the Government of Singapore Investment Corp (GIC). The GIC is one of the world's largest institutional investors, managing foreign exchange reserves and government funds worth more than US$100bn. Without increased openness, investor confidence could be damaged and domestic growth hindered

Singapore's exporters will need to constantly adapt to competition from low-wage economies such as China and India



Singapore Business Environment SWOT

Strengths Singapore is the least corrupt country in Asia, according to Transparency International, a Berlin-based anti-corruption watchdog

Strikes and labour protests will remain rare, if not absent, in Singapore for the foreseeable future due to the government's autocratic insistence on a business-friendly environment. Policymakers will continue to use heavy-handed tactics to ensure the unions stay pliant

Weaknesses Political and economic stability has come at a price. The Singapore government censors the media and limits the distribution of foreign publications. The judiciary's record of siding with prominent politicians calls into question the true extent of its neutrality in any contract dispute involving a politically sensitive issue

Opportunities Due to the lack of progress at the World Trade Organisation (WTO), the Singaporean government has committed the country to sign 19 bilateral free-trade agreements. Singapore has already signed agreements with several countries, including the US, Japan, India and Australia

Singapore has one of the best business operating environments in Asia. This is reflected by Singapore's second place in the Index of Economic Freedom league table compiled by the Heritage Foundation and the Wall Street Journal

Threats Singapore is potentially at risk of a terrorist attack. The city-state has previously been identified as a target by Islamist militants from neighbouring Indonesia and elsewhere. Singapore's adjacency to the Malacca Straits means that its trade is vulnerable to international piracy



Market Overview

The chemical industry has always been a major pillar of Singapore's manufacturing sector. In 2008 the

industry's output totalled SGD98.1bn (US$65.06bn). This was a 16.65% increase from the year before

and represented more than one-third of Singapore's total manufacturing output. The chemical industry has

since overtaken the electronics sector as the largest contributor to Singapore's manufacturing output. The

chemicals cluster comprises petroleum refining, petrochemicals, and industrial and speciality chemicals.

In 1993, the Singapore government established an overall development plan for the chemicals industry.

This plan sets an objective for the chemicals industry to grow in proportion to the rest of the

manufacturing economy, and maintain a minimum of 21% of the nation’s total manufacturing output.

Singapore has successfully encouraged numerous foreign companies to invest in its chemicals industry by

offering incentives and providing infrastructure and seed-finance. Multinationals lead the nation’s

chemicals industry. The government continues to view chemicals as a significant area for future growth

and expects to increase chemical output.

Since the mid-1990s, the government’s strategy has been to move downstream, from petroleum refining

to petrochemicals and chemicals production. Also, the government expects to increase the share of

petrochemicals and chemicals in total manufacturing output to 30% by 2010. Domestic demand for

chemical coatings, flavours, fragrances, mineral additives and speciality chemicals has been increasing.

The government also has plans for encouraging industry integration as well as R&D in the sector. The

Institute of Chemical and Engineering Sciences was established on Jurong Island in 2002 to support the

SingaporeChemicalIndustry

Petroleum Petro-chemicals

SpecialityChemicals

ElectronicChemicals

Pharma-ceuticals

PolymerAdditives

ConsumercareSpecialities

Fragrances Silicon IsopropylAlcohol

HydrogenPeroxide &AmmoniumHydroxide



industry’s R&D efforts. It is a centre that promotes industry innovation, technology and research

partnership as well as offering a range of student training programmes.

The Chemical and Process Technology Centre was established for manpower training. Located on Jurong

Island it is owned by the Economic Development Board. It is the first live-training facility in the world

for training technicians and in 2008 The Chemical and Process Technology Centre partnered with training

provider Petrofac to help develop new talent. The nation aims to allocate more resources to research and

innovation to transform the economy to compete on knowledge, innovation and talent, along with cost-

effectiveness and efficiency. It will invest around SGD7.5bn (US$4.7bn) in the chemical sector during the

five years ending 2011 to sustain its innovation-driven growth under the Science and Technology Plan

2010.

Major chemical companies in Singapore include Singapore-based Chemicals Corporation of Singapore

and SembCorp, US-based Eastman Chemicals, Dow Chemical, Huntsman, Philips Petroleum,

Nexsol, Tate and Lyle and ExxonMobil Chemicals, Malaysian Gulf Chemicals, Japanese Hitachi

Chemicals, Mitsubishi Chemicals and Toshiba, Switzerland-based Lonza and CIBA (part of BASF),

and Australian-based Natural Fuel. Companies operating in Singapore that focus predominantly on

speciality chemicals include UK-based Imperial Chemical Industries (ICI), Witco, France-based

Rhodia, Switzerland-based Clariant, and Germany-based Degussa-Huls.

The Singapore Chemical Industry Council (SCIC) is the official body representing the chemicals industry

of Singapore in the private sector. SCIC was officially formed under the umbrella of Singapore

Manufacturers’ Association (SMA) in 1979, and is affiliated to the Association of South East Asian

Nations Chemicals Industries Club (ASEAN-CIC). In June 2007 it was incorporated as an independent

body.

In 1996, SMA restructured itself as the Singapore Confederation of Industries (SCI) to meet the needs of

manufacturers that faced new challenges in an ever-changing economic landscape. Joining the

restructuring exercise, the council merged with the Chemicals Industry Group under the SCI, which

formed the present council. The new group is now the only body that represents the chemicals industry in

Singapore. Its role has also been enlarged to include the petroleum sector as well as companies providing

supporting services in the chemicals industry, besides the producers.

The establishment of a chemicals industry cluster on Jurong Island is an integral part of the government’s

plan to develop the nation’s chemicals industry. This amalgamation project is intended to create major

economies of scale, including feedstock availability and transportation/handling through a centralised and

co-ordinated logistics-planning centre on the island. The island has more than 94 local and international

companies, which together have invested more than S$31bn into speciality chemicals and petrochemicals

manufacturing, oil refining and other support facilities.



The island was originally a group of seven small islands, which had housed refineries on Pulau Ayer

Chawan Island (the US-based Esso), Pulau Pesek Island (the US-based Mobil) and Pulau Merlimau

Island (Singapore Petroleum) since the 1960s. Since 1984, a petrochemicals complex on Pulau Ayer

Merbau Island has housed Petroleum Corporation of Singapore (PCS), Shell, Japan-based Sumitomo

Chemicals and Singapore-based The Polyolefin Company (subsidiary of Sumitomo Chemical), among

others. The new fully reclaimed Jurong Island has an area totalling 3,200ha, compared with the initial

1,000ha. The seven islands have been amalgamated by reclaiming the channels separating them. The total

reclaimed area is eventually expected to reach 2,209ha, and the island as a whole is likely to comprise

4.7% of Singapore’s land mass. The government’s strategy is to build an integrated manufacturing

presence on the island, so that sources of feedstock, utilities and logistics are all readily available to new

investors. Included are plans for a logistics hub that is likely to facilitate the movement of almost 22mn

tonnes of chemicals that are annually produced on the island.

Some of the projects on the island include ExxonMobil’s US$2bn investments in ethylene, polyethylene

(PE), polypropylene (PP) and oxo-alcohol production facilities reportedly representing the company’s

single-largest investment in Asia. Germany-based BASF (now also incorporating CIBA), the US-based

Celanese, Eastman Chemicals, Shell Eastern, Japan-based Mitsui Chemicals and Teijin, PCS and

Singapore Syngas comprise the other significant investors. The current operating composition of Jurong

Island includes four refineries, two ethylene crackers, two aromatics complexes, several downstream units

and considerable infrastructure. The Singapore government’s goal is to attract a total of 150 companies by

2010, with combined investment of SGD40bn (US$23bn).

The Jurong Island is advantageous for the speciality chemical players as they can leverage the benefits of

its cluster strategy. The three key benefits are:

The island offers customised infrastructural facilities to meet the needs of speciality chemical

companies. It is designed to allow speciality chemical companies to ramp up their operations quickly

with much lower capital outlays;

The companies have easy access to specialised services such including utilities and logistics. Utilities

such as water, steam and waste water treatment, as well as logistics services such as specialised

chemicals and warehousing, are provided by independent service providers;

The island facilitates a regular supply of feedstock for speciality chemicals companies.

Singaporean SembCorp Utilities provides integrated utilities to the chemical companies on Jurong

Island. It specialises in waste incineration and also produces and supplies specialised chemical feedstock.

Among the key utilities on offer are electricity, natural gas and steam. It provides steam and other key

utilities to chemicals and petrochemicals industry clients through its extensive pipe rack network on



Jurong Island. In addition it also provides water and waste water management, as well as operation and

maintenance services. It has a 70 tonnes per day incineration plant, the largest of its kind in Singapore.

The following graph displays net investment commitments made by the chemical industry in Singapore

until 2005. It displays a mixed trend, with the net investment rising in a particular year and falling in

subsequent years. Net investment in the chemicals industry was SGD11.6bn (US$7.70bn) in 2008, up on

SGD8.63bn (US$5.72bn) in 2007, a 34.41% rise in net investment.

An important development affecting the

chemical industry in Singapore is the

introduction of the EU’s REACH

legislation. Companies importing

chemicals into the EU or that contribute

as part of the supply chain to an eventual

EU export will have to register extensive

technical dossiers about their products

and potential risk factors to the European

Chemical Agency (ECHA). Companies

failing to meet these deadlines will not be

allowed to import into the EU and may

face fines or criminal charges. SPRING,

the government body to support

enterprise in Singapore, has a budget of

SGD1mn (US$0.66mn) and, together with the Singapore Chemical Industry Council (SCIC), will be

running workshops and offering support and information to enable companies to achieve compliance.

Industry Performance

Manufacturing output shrank by 13.5% year-on-year in December 2008. The growth of the sector was

affected throughout the year by the fluctuation in the biomedical manufacturing cluster. The three-month

moving average index for December declined 10.5%. The seasonally adjusted month-on-month index for

December was 11% below that of November. For the year of 2008, total manufacturing output dipped

4.1% compared with 2007.

According to the Economic Development Board (EDB), Singapore’s chemical output slumped 23.3% y-

o-y in December 2008. This decrease was attributed to weak demand causing a number of production and

maintenance shutdowns within the area of petrochemicals and specialty chemicals. Petroleum and

Petrochemicals also experienced reduced production levels due to a number of manufacturers tightening

their inventory control. Petroleum producers also experienced reduced refining margins. Throughout the

Net investment Commitments In Chemical Industry

2000-2005 (SGDmn)

0

500

1,000

1,500

2,000

2,500

2000 2001 2002 2003 2004 2005

Source: Economic Survey of Singapore



year the chemicals cluster has experienced maintenance shutdowns, which has affected their growth,

month by month. The overall output of the chemicals cluster for the year was down 3.6% on 2007. The

below graph shows the Index of Industrial Production for chemicals, petroleum, petrochemicals,

specialities and others for the period 2000-2005.

In 2008, the chemicals industry

contributed SGD98.1bn (US$65.10bn) or

37.82% of the total SGD259.34bn

(US$172.00bn) manufacturing output.

The chemicals industry reported

compound annual growth rate (CAGR) of

10% during 2001-2005, for a total of

SGD8.84bn (US$4.03bn). Fixed asset

investment (FAI) in Singapore’s

chemical industry was reported at

SGD8.55bn (US$5.68bn) in 2008. For

the January-December 2008 period,

Singaporean manufacturing output

decreased 4.1% y-o-y.

Table: Singapore’s Chemicals Industry Output, 2004-2006

2004 2005 2006

Overall output (SGDbn) 50.7 66.5 76.19

Chemical output as a % of manufacturing output in Singapore 28 32 32.5

Fixed asset investment (SGDbn) 1.6 1.9 2.56

Petroleum output (SGDbn) 27.8 39.9 46.06

Petrochemical output (SGDbn) 17.1 19.9 22.74

Specialty chemicals (SGDbn) 5.7 6.6 5.63

Source: Singapore Chemical Industry Council, Statistics Singapore

Speciality Chemicals

Speciality chemicals support key growth industries in the manufacturing sector, as they are used in

electronic materials, water and process treatment, surfactants, additives (polymer, lubricant and fuel) and

resin systems, including pigment, paint and adhesives.

Index of Industrial Production

2000-2005

0

20

40

60

80

100

120

140

2000 2001 2002 2003 2004 2005 2006

Chemicals Petroleum Petrochemicals Specialties Others

Source: Economic Development Board



Of the leading 10 flavours and fragrances companies in the world, nine have operations in Singapore.

These include players such as Switzerland-based Givaudan and Firmenich, and UK-based

International Flavours and Fragrances (IFF). They have located their creative hubs in Singapore, as it

is a strategic location that enables them to keep track of consumer preferences. The speciality chemicals

industry recorded an output of SGD6.86bn (US$4.55bn) in 2008. According to the EDB, this segment’s

annual output is expected to increase to SGD8bn (US$4.88bn) by 2010.

This segment has remained a consistent contributor to growth, despite continued price pressure

exacerbated by rising raw material costs. Singapore continues to be an attractive location for speciality

companies by offering a ‘total solution’ approach that combines the various aspects of the value chain

from service, innovation, technology and manufacturing, to regional distribution and marketing. 2008 saw

several major investments in the specialty chemicals sector including Nikko Chemical’s surfactant plant

and the proposed LANXESS butyl rubber production plant both located on Jurong island.

The government is now also focusing on developing new areas in specialities, which are expected to add

to the diversity and strength of this segment. Emerging areas with good potential include digital inks and

speciality ingredients. The demand for speciality chemicals from electronics and food manufacturing

industries has also been stimulated by regional export orders.

Electronic Chemicals

The electronic chemicals business segment in Singapore focuses on the semiconductor industry.

Electronic chemicals and materials output is forecast to increase to SGD3.5bn (US$2.13bn) by 2010 on

the back of high growth in semiconductor and display fabrication industries, where the nation has an

advantage in terms of technological innovation. Singapore has 12 operational semiconductor wafer

fabrication plants owned by leading players such as Taiwan-based UMC, Switzerland-based

STMicroelectronics and Singapore-based Chartered Semiconductor.

Within Singapore’s chemicals industry, there has been strong Japanese investment in electronic chemicals

and materials. Over the last few years, there have been new investments from leading players such as

Nagase, Stella Chemifa and Tama Chemicals, all drawn to Singapore by an emerging liquid crystal

display (LCD) industry, as well as the established semiconductor industry. In August 2008 SONY

invested SGD150mn (US$105mn) and opened a lithium ion battery plant in Singapore; their first in the

South East Asia region. Despite Singapore losing some manufacturing operations to lower cost regions,

according to the Microelectronics IC Design and System Association, the country is confident that growth

will be seen in the semi-conductor industry throughout 2009.

In August 2006, Singapore was home to 10 wafer fabrication plants. These include the world’s leading

wafer foundries: UMC, Taiwan Semiconductor Manufacturing Company (TSMC) and Chartered



Semiconductor. Overall, there has been growing domestic demand for electronic chemicals and

materials, and in 2008 SOITEC and Samsung Electronics together with Siltronic each opened wafer

fabrication plants in Singapore.

Pharmaceuticals

Pharmaceuticals are a part of the biomedical segment in Singapore. At the commencement of Singapore’s

Bio Medical Sciences (BMS) initiative in mid-2000, the goal was to double the BMS segment’s

manufacturing output from US$3.7bn to US$7.4bn by 2005. But robust performance in 2004 enabled the

nation to exceed that target by one-third, one year ahead of schedule. In 2008, pharmaceuticals

contributed SGD16.67bn (US$11.05bn), or 84.86% to the total BMS manufacturing output.

Meanwhile, regulatory changes should

help to boost pharmaceutical trade

throughout the Association of Southeast

Asian Nation (ASEAN) region.

Drugmakers in South East Asia will find

it easier to get Good Manufacturing

Practice (GMP) accreditation after a

major trade agreement was signed.

Upgrading facilities and processes will

require considerable investment in the

short term, but producers of

pharmaceuticals will eventually see a

significant upside, both domestically and

abroad. This is because consumers,

especially those on those low incomes, will increasingly appreciate the quality of medicines made in the

region. The Sectoral Mutual Recognition Arrangement for GMP Inspection of Manufacturers of

Medicinal Products is designed to remove barriers that impede the trade of pharmaceuticals between

ASEAN member states. A country's drug regulator will approve a drugmaker's plant and this certification

will be accepted by fellow ASEAN states, thereby reducing a duplication of effort. Full implementation is

expected by January 2011.

Business Environment

In Singapore, approval from the government is not needed for non-residents to start a business (except

when establishing banks and financial institutions). Foreign companies are allowed to establish

representative offices in Singapore after registration with the Trade Development Board. The government

allows 100% foreign ownership of Singaporean companies, although there are exceptions. To facilitate

VA Generated By Chemicals Commitment, 2004

Transport Engi-

neering8%

Precision Enginee-

ring9%

Biomedical Manufa-cturing

23%

Chemicals17% Electronics

40%

General Manu-

facturing Industries

3%

Source: BMI



the growth of Singapore’s ‘external’ economy, the government has been actively pursuing FTAs with its

trading partners. These agreements allow Singapore-based companies to export products at lower or

preferential tariff rates to FTA partners. Investment terms are also more liberal, thereby allowing

Singaporeans and Singapore-based companies to establish bases in the markets of their FTA partners.

Singapore has signed and implemented several FTAs. The agreement with Japan is especially important

to the chemicals industry, as it has cut tariffs on 95% of Singapore’s petrochemical and chemical product

exports to the country. Singapore-based chemical manufacturers now have better access to the Japanese

market, which the government hopes is also likely to encourage more investment on Jurong Island. In

May 2006 Singapore was engaged in talks with the EU regarding an FTA to strengthen trade and

investment ties.

The FTA between Singapore and the US became effective in January 2004. The FTA with the US should

enable Singapore’s chemicals industry to realise estimated tariff savings of SGD146mn (US$88mn) by

2010. In response to complaints from businesses, Singapore is pushing for lower operating costs.

Companies with pioneer status do not have to pay corporate tax in Singapore.

Apart from FTAs, the government of Singapore has also been focusing on tightening its intellectual

property (IP) laws, which is a major issue for many chemical and pharmaceutical players. In 2002, the

World Economic Forum and the Institute for Management Development ranked Singapore as the leading

country in Asia for IP protection. Internationally, Singapore is a member of many IP-related conventions

and organisations such as the Paris Convention, Berne Convention, Madrid Protocol, Patent Co-operation

Treaty, Budapest Treaty, Agreement on Trade-related aspects of IP rights, and the World Intellectual

Property Organisation.

Along with the government, the EDB has been the lead agency in developing strategic plans for the

chemicals industry and attracting investments. The overall strategy has been largely based on making

Singapore’s chemicals industry attractive to multinationals active in all phases of the chemicals process.

Excellent government-provided infrastructure, financial incentives and government assistance in the

implementation of projects have also been central elements in the government’s investment promotion

strategy, along with the FTAs. In addition, the government often assists investors by providing additional

investment capital or other financial support to projects. Examples of facilities where the government

holds a stake are the chemicals plants of Toshiba, Philips Petroleum, Lonza, SembCorp Utilities and

SembCorp Gas. Finally, Singapore’s political stability and business-friendly policies remain important

selling points for attracting foreign investment.

Projects And Expansions

In January 2008 it was reported that Finnish refining and marketing company Neste Oil will be

investing SGD $1.2bn (US $800mn) to build an 800,000 tonne per year plant to manufacture



biofuel. The plant will produce NExBTL, which is thought to be the cleanest renewable diesel,

using the company’s proprietary technology and will use palm oil as the main input material.

Construction will begin in 2008 in the Tuas Industrial Zone with completion expected by 2010.

In February 2008, Nikko Chemicals invested SGD$38.4mn (US$25.4mn) in a new surfactant

plant to make ethoxylated surfactants, which would be used in the cosmetic industry. The site is

to be built on Jurong Island over 1.2ha and is expected to be operating by 2009, producing 3,000

tonnes in the first two years.

In February 2008, as reported by Reuters, Singapore company Keppel Corp signed an

agreement with ExxonMobil to supply natural gas to ExxonMobil’s facilities on Jurong Island

with supply to commence in 2009. The length of the contract was not publicly disclosed but the

value of the contract was reported to be SGD$3bn (US$1.99bn).

In February 2008 it was reported that Germany-based LANXESS will invest SGD823mn

(US$545mn) in building a production plant on Jurong Island to manufacture 100,000 tonnes per

year of butyl rubber. Construction will begin in 2009 and by 2010 supply of the raw material

required, Raffinate 1, will be delivered by Shell Eastern Petroleum to the site. It is expected to

require more than 200 staff once fully operational.

In March 2008 GlaxoSmithKline raised its total investment in Singapore to SGD1.5bn

(US$1.0bn) with the launch of a new R&D pilot plant on Jurong Island. This is the latest plant

for GSK and aims to improve delivery of medicines to patients.

In March 2008 Procter and Gamble opened its first Asian-based perfume manufacturing plant

in Singapore.

In April 2008 Reuters reported that the BG Group PLC had signed an exclusive 20-year

contract to import Liquefied Natural Gas (LNG) into Singapore through Jurong Island’s import

terminal. Exclusivity exists up to 3mn tonnes per year and supply will commence in 2012. It is

expected that imports for 2012 will be between 0.8-1.2mn tonnes per year with capacity

increasing to 3mn tonnes per year by 2018. It is hoped that the import terminal will be expanded

to accept quantities of 6mn tonnes per year and even 10mn tonnes per year by the mid 2020s.

In June 2008 Reuters reported that Singapore firm Rotary Engineering had obtained contracts

with a value of SGD102mn (US$67.6mn) from Germany company Oiltanking Group. The

projects include construction of a chemical storage facility on Jurong Island and providing a

clean petroleum products facility also based in Singapore.



In June 2008 Samsung and Sitronic opened a SGD1.36bn (US$0.9bn) 300mm silicon wafer

factory in Singapore. The factory, which began production in June 2008, should have the

capacity to produce 300,000 wafers each month by 2010, making it one of the largest wafer

factories in the world.

In June 2008 Reuters reported that Gaz de France will take 30% in a joint venture with

Singapore Power to construct and run an import terminal for Liquefied Natural Gas (LNG) on

Jurong Island. Though neither company commented on the cost, the minister of trade estimated a

required amount of SGD1bn (US$0.66bn). Construction on the terminal, to include loading and

storage facilities, should begin in 2009.

In August 2008 Sony’s lithium ion battery manufacturing plant opened, which represents a

SGD150mn (US$99.4mn) investment. The plant is located in Tuas where Sony’s existing plant

is, and the new facility occupies 109,600m2. Expected output for the plant by 2010 is around

8mn cells each month accounting for more than 10% of the total out of lithium ion batteries by

Sony.

In November 2008 Norway company Renewable Energy Corp announced investment levels

SGD6.3bn (US$4.18bn) in the construction of a complex in Singapore designed for solar

manufacturing.

In October 2008 it is reported that Japanese firm Kanto Kagaku, which makes specialty

chemicals, began construction on a SGD30mn (US$19.9mn) manufacturing plant and laboratory

based in Tuas. Operations are expected to begin in the last quarter of 2009 when production of

highly purified chemicals will begin.

In November 2008 Soitec launched their 300mm Silicon wafer manufacturing facility in

Singapore’s Pasir Ris Wafer Fab Park. Spanning over 2.7ha and employing 100 staff, Soitec are

set to invest up to SGD700m (US$464) in Singapore in order to achieve a production capability

of up to 1mn wafers a year.

In November 2008 Lucite International’s new methyl methacrylate (MMA) plant located on

Jurong island began operating ahead of schedule and is expected to produce 120,000 tonnes per

year.

In November 2008 Katoen Natie, the Belgian Logistics company, announced plans to invest

SGD60mn (US$39.8mn) in an expansion of their storage and logistics terminals located on

Jurong Island. This move would create 300 jobs as well as increasing their storage and handling



capacity twofold. The expansion is earmarked for completion by June 2009 with plans to invest

a further SGD180m (US$119.5mn) in similar Singapore expansions over the next five years.

In December 2008 plans to expand Jurong International Business Park were revealed to include

a five hectare development resulting in 125,000m2 of area available to rent. Space is expected to

be available for lease by 2011.

In March 2009, SPRING announced a SGD1mn (US$0.66mn) budget to work with the SCIC

and offer support, workshops and information for chemical companies that are required to

become compliant under the EU REACH legislation.

In April 2009 it was announced that construction on the Jurong Island Rock Cavern storage

facility for 1.47m3 of oil will begin by the end of 2009. It is expected to cost SGD890mn

(US590mn) and will be constructed by Hyundai.

In April 2009 it has been reported that European major Royal Dutch Shell has shut in a 33,000

barrels per day (b/d) residue catalytic cracking unit at its refinery in Singapore. The long residue

catalytic cracking (LRCC) unit is a gasoline-making unit in the refining complex on Bukom

Island. Shell has said that it expects the facility to restart its operations on April 21 2009.

Earlier Developments

In November 2007, it was reported that Mitsui Chemicals Inc would invest approximately

SGD230mn (US$153.1mn) to establish a new plant on Jurong Island. Managed by Mitsui

Elastomers Singapore, the new facility will build on the company's previous investment in 2003

to produce TAFMER™.

In October 2007, Exxonmobil decided to set up its second world-scale steam cracking complex

in Singapore. Scheduled to start up in 2011, the new chemical complex will feature the latest,

state-of-the-art proprietary technologies. The project will be located at and fully integrated with

the company's existing site on Jurong Island, providing feedstock, operating and investment

synergies with both the chemical plant and refinery. The new complex will provide increased

flexibility to meet customers' needs by processing a broad range of feedstocks and converting

them into high-value products, such as new metallocene-based Vistamaxx™ specialty

elastomers, Exceed™ polyethylene resins and Exact® plastomers.

In September 2007, it was reported that, for the first time, the Chinese integrated energy and

chemical company, SINOPEC, also known as the China Petroleum and Chemical

Corporation, would have its range of lubricant oils produced in Singapore. The first barrel of



SINOPEC lubricant oil was released in June 2007, and marked the start of Singapore and

SINOPEC's collaboration to provide the latter’s products to consumers in the Asia-Pacific

region.

In August 2007, RohMax Additives GmBH, part of specialty chemicals leader Degussa,

extended its presence in Singapore by building its first facility in the Asia-Pacific region to

manufacture high performance lubricant additives on Jurong Island. The facility, built with an

investment of SGD20.7mn (US$13.4mn) and expected to open in 2008, will be one of the largest

of its kind globally. The new facility is expected to produce most of the VISCOPLEX®, the

company's brand of high-performance lubricant additives for use in automotive and industrial

applications, which will cater to the needs of the Asia-Pacific, Middle East and African markets.

In July 2007, Tate and Lyle opened their SPLENDA® Sucralose facility in Singapore. The

SGD300mn (US$196.1mn) facility also represents the company's largest investment in Asia.

The new plant will broaden their manufacturing base and help facilitate improved access to the

Asian and European markets.

In July 2007, BASF announced the setting up of a new Competence Centre for Organic

Electronics in Singapore. This SGD4mn (US$2.6mn) investment represents the second part of its

plan to expand its research activities in the Asia-Pacific region, which already includes a new

project on organic photovoltaics with the Institute of Materials Research and Engineering

(IMRE).

In June 2007, Chemical Specialties (Singapore) Pte Ltd (CSL) announced the setting up of a

specialty chemical contract manufacturing facility in Singapore. Located on Jurong Island, phase

one of the project will have three 85MeT capacity reactors and a 115MeT batch distillation unit

while the completed facility will eventually house more than 20 reactors ranging in capacity

from 20MeT to 200MeT.

In June 2007, Riken Vitamin Co. Ltd, a key global player in the specialty ingredients industry

announced the opening of its new application centre. Riken Vitamin's new centre is expected to

be the base to innovate and develop new products and applications for its customers outside

Japan. The application centre will possess the company's core molecular distillation technology

and, as such, will have top-of-the-line manufacturing capabilities to service its worldwide

clients.

In June 2007, British global pharmaceutical giant GlaxoSmithKline (GSK) announced the

opening of its new SGD20mn (US$13.2mn) medicinal chemistry laboratory at its R&D facility

in the local biomedical hub, Biopolis. This new flexi-laboratory enables researchers to adopt a



cutting-edge collaborative approach that combines both biology and chemistry research in the

same place.

In June 2007 , it was reported that Denka increased its substantial presence in Singapore with

two new plants – one in Tuas and the other on Jurong Island – worth SGD120mn (US$78.9mn).

With the two new plants boasting some of the world's most high-tech production facilities,

Singapore now has the distinction of being Denka's third largest production base.

In February 2007 it was reported that Petrochemical Corporation of Singapore (PCS) and Shell

Eastern Petroleum (Pte) Ltd had opened a new metathesis plant. The new SGD$80mn

(US$52.2mn) metathesis plant is expected to produce up to 200,000 tonnes per year of

propylene, in addition to the 650,000 tonnes per year produced currently by its two operational

naphtha crackers.

In January 2007 it was reported that Natural Fuel, a global group of renewable energy

companies headquartered in Western Australia, announced that they have chosen Singapore as

the site for their SGD$199.95mn (US$130mn) state-of-the-art biodiesel production facility.

Expected to be the largest biodiesel facility in the world, it is currently under construction on

Jurong Island, and was scheduled to begin production by the end of 2007.

In January 2007 it was reported that Davos Life Science, manufacturer of active ingredients for

health supplements, cosmeceuticals, functional foods, animal health and pharmaceutical

produced based on natural tocotrienols, had opened the world’s largest R&D centre dedicated to

tocotrienols, in Singapore.

In January 2007 it was reported that Mitsubishi Chemical Infonics Pte Ltd, one of the world's

leading producers of Organic Photo Conductor (OPC) drums, had opened its fourth

manufacturing line within its expanded plant on Jurong.

In November 2006, Japan’s Mitsui Chemicals unveiled plans to open its first R&D centre

outside Japan. The centre will be housed at the Agency of Science, Technology and Research's

(A*STAR) Institute of Chemical & Engineering Sciences (ICES), and will focus on the areas of

catalysis and asymmetric synthesis, two areas which Mitsui and ICES have joint research

experience as a result of their collaboration in 2004.



Industry Forecast Scenario

Singapore has experienced strong development recently in the chemical industry and 2007 was a record

year for manufacturing investment as a whole. Despite the economic downturn and planned maintenance

closures affecting production levels in 2008, Singapore still managed to attract notable investments within

the sector. One of the attractions to investors is the integrated industry opportunities offered at Jurong

Island and proposed developments to the area should ensure that Singapore is still an attractive location

for chemical companies. Improvements include development of the jetty to accelerate loading and

unloading turnover, the development of the Jurong Island Rock Cavern to extend storage, and the

development of leasable business space. While these developments keep Singapore’s chemicals industry

competitive, there are several factors that could limit Singapore’s success in the future. Increased

instability in Malaysia or Indonesia could result in reduced economic growth within the region, negatively

affecting demand for petrochemicals, fine and speciality chemicals, possibly leading to a decline in

foreign investment.

The country has targeted a manufacturing output of US$300bn by 2018, with the majority being

contributed by the chemicals industry. It is anticipated that petrochemical and downstream investments in

Jurong Island will help the government to achieve this objective.

Thus far, Singapore has been progressing in the petroleum refining and petrochemicals sector despite its

lack of indigenous resources, and in 2008 Singapore launched initiatives to improve its independence

from Indonesia and Malaysia for importing materials, particularly liquefied natural gas. However,

Singapore could still experience a threat from resource-rich countries such as Indonesia and Malaysia,

where there are indigenous hydrocarbon feedstock resources and low production costs for petrochemicals.

If these countries improve their support infrastructure and, in the case of Indonesia, address political

stability concerns, they may attract business that might otherwise go to Singapore. Similarly,

diversification from oil to petrochemicals in Middle Eastern economies may provide new competition for

Singapore. China and India also continue to increase their capabilities within this sector and this may

influence Singapore’s position in the chemicals industry.

Singapore looks set to continue making investments in R&D projects and it is hoped that coupled with

extensive IP resources, Singapore will remain attractive for companies looking to not only research but

also implement new technologies. Though the economic downturn and weaker demand is expected to

affect manufacturing levels and immediate investment, Singapore will continue with long-term expansion

goals to establish itself as a significant figure in the global chemical industry.



Singapore has received significant investment in renewable energy from key companies. However, should

the government remain resistant to clean energy subsidies these companies will be unable to offer

competitiveness in price, which could affect the performance of this sector.

The introduction of the EU REACH legislation is expected to be one of the biggest obstacles in the future

of the Singapore chemical industry and failure to educate the chemical companies on compliance could

result in a decrease of export levels to the EU, which account for a significant proportion of Singapore’s

EU exports.

Table: Singapore’s Chemicals Industry, 1993-2012 (SGDmn)

Year Imports Exports Domestic exports Manufacturing output Total output

1993 9,614.94 7,662.84 4,463.98 5,154.4 5,387.4

1994 10,113.64 8,418.01 4,695.63 5,918.7 6,203.0

1995 11,385.11 9,999.27 5,621.24 6,865.1 7,177.4

1996 10,939.52 9,885.26 5,626.23 7,163.1 7,489.1

1997 11,267.85 11,135.60 6,650.00 9,339.0 9,707.0

1998 10,280.37 11,832.30 7,163.22 10,156.7 10,508.2

1999 11,212.44 15,325.70 10,392.59 13,869.9 14,370.2

2000 13,282.47 16,488.00 10,718.00 15,943.8 16,406.2

2001 12,181.34 17,632.00 12,059.33 15,791.8 16,767.8

2002 12,990.03 20,817.00 15,283.00 21,430.5 22,451.0

2003 15,381.00 32,196.00 25,169.00 26,489.00 27,994.4

2004 18,404.00 38,947.00 30,923.00 28,974.50 30,985.59

2005 20,744.00 43,611.00 34,526.00 31,627.70 34,104.15

2006 22,695.00 49,070.00 39,544.00 34,390.83 37,313.32

2007 24,510.60 52,014.20 42,521.20 37,226.02 40,586.96

2008 25,981.23 54,614.91 43,597.26 40,108.43 43,906.45

2009f 23,619.30 49,649.92 39,633.87 36,462.21 39,914.95

2010f 24,445.98 51,387.67 41,021.06 35,747.26 39,132.31

2011f 26,890.57 56,526.43 45,123.16 49,273.72 41,754.173

2012f 29,579.63 62,179.08 49,635.48 52,529.88 44,551.70

f = forecast. Source: BMI



For 2008, chemicals industry imports are estimated at SGD25.9bn (US$17.38bn). However, there is

forecast to be a sharp drop in 2009 due to falling demand, with the market recovering from 2010. The

value of exports for 2008 is forecast to be SGD54.6bn (US$36.6bn). Again the export market is expected

to be hit hard in 2009 as orders from overseas dry up.

The manufacturing output for chemicals is also forecast to suffer a contraction in 2009 as domestic GDP

slumps. Recovery will not begin in earnest until 2011 as the country is suffering severe export declines

across most sectors.

Macroeconomic Forecast

Full Effects Of Recession To Be Felt In H109

Advance estimates by Singapore's Ministry of Trade and Industry (MTI) showed that the economy is

feeling the full brunt of the global slowdown. Almost all sectors of the economy remained weak with the

exception of the construction sector. We are maintaining our bearish -7.2% GDP forecast for 2009 as we

do not foresee any positive catalyst over the medium term that may boost economic output. This is

roughly in line with MTI's most recent GDP projections of a contraction of between 6.0-9.0% this year.

The first quarter of 2009 was characterised by economic contraction across much of the world as the full

brunt of the global recession started to hit the real economy. Asia - which in general has a high

dependence on exports - has been severely affected by falling demand for its goods in the US and Europe.

Singapore, which relies heavily on trade to fuel GDP growth (total exports amount to more than 200% of

GDP), has been one of the worst affected by the global recession. Indeed, advance estimates by the

Ministry of Trade and Industry (MTI) indicated that Singapore's GDP shrank by a massive 11.5% y-o-y

in Q109, far worse than the 4.2% contraction registered in Q408. On a seasonally-adjusted annualised

basis, GDP shrank by 19.7% quarter-on-quarter (q-o-q) in Q109, compared with a contraction of 16.4% in

the preceding quarter, indicating a further deceleration of economic activity going into 2009.

These poor figures are not surprising as we have been decidedly bearish on the global economy and have

maintained that Singapore's economy will under-perform its regional peers in 2009. We recently lowered

our outlook for the global economy, forecasting global growth to come in at -2.3% in 2009 (in US dollar

nominal GDP-weighted terms) as we took into account the negative economic data that have been

released this year. Importantly, we are anticipating GDP to shrink by 3.3% and 3.6% in the US and the

Eurozone (key export destinations for Singapore), respectively, and this is also reflected in our dismal

outlook for Singapore's economy in 2009. We are projecting the city-state's GDP to shrink by 7.2% this

year. Meanwhile, the government has also revised down its projections for GDP growth. It now envisages

a contraction of between 6.0-9.0%, which is markedly worse than its previous estimate of a contraction of

between 2.0-5.0%. Thus, the government's new forecast is roughly in line with our own.



The slowdown in Q109 was broad based, with declines seen in most sectors. The manufacturing industry

remained weak, with output falling by 29.0% y-o-y, highlighting the decidedly bad performance thus far

this year. The figure is much worse than the 10.7% decline in output registered in Q408, indicating a

severe reaction from manufacturing firms in response to a sudden falloff in demand, following the

financial meltdown over the same period. Within the segment, the electronics and precision engineering

components continue to be the worst performers. Given our poor outlook for Singapore's main trading

partners, we do not foresee this sector recovering in 2009, although we do expect the rate of decline in

manufacturing output to begin moderating in the coming quarters. Meanwhile, construction output

remained surprisingly robust, growing at 25.6% y-o-y in Q109. The figure was an improvement over the

18.5% increase registered in Q408, possibly on the back of an existing backlog of orders. However, we

also expect growth rates in this sector to fall over 2009 as new projects become less forthcoming.

We were concerned about Singapore's services sector despite it holding up relatively well in Q408, and

our worries were well founded as the island's services output fell by 5.9% in Q109, compared with a

contraction of 1.3% in the preceding quarter. The wholesale and retail trade sector, and the transport and

storage sector, were the worst hit. However, this is to be expected given the onslaught of poor export data,

container shipments and retail sales numbers that were released earlier. Going forward, we do not expect

the external sector to recover significantly in 2009. Likewise, we envisage falling tourist arrivals and

lower private consumption to continue to drag on retail sales. With no clear catalyst in sight to boost the

services sector, we expect it to perform poorly in 2009.

GDP Breakdown Highlights Vulnerabilities

Breaking down Singapore's GDP into its component parts, we can see that the external sector plays a very

large role in its economy. Indeed, the net export component makes up about 20% of Singapore's GDP,

while gross fixed capital formation - which remains highly vulnerable to the state of the global economy -

makes up close to 30%. Therefore, we would expect Singapore's GDP to be dragged down in line with the

global contraction.

Singapore's non-oil domestic exports (NODX) fell by 17% y-o-y in March, a continued improvement

from the 23% drop in the preceding month. This suggests that January's massive 34% decline in exports

may have been a trough. Total exports and imports have also started to stabilise, falling by 21% and 28%,

respectively, in March, as opposed to 24% and 20% in February. Likewise, these figures are markedly

better when compared with the sharp drops registered in January. Meanwhile, total trade fell by 24.0% in

March. While the figures suggest that the declines in trade could be less marked going forward, we

reiterate that exports are likely to remain dismal in the coming months and thus continue to drag on the

city state's export-oriented economy.

Electronics as well as petrochemical exports, which form a large part of Singapore's total exports, remain

weak. Furthermore, exports to most of the island's key trading partners saw double-digit declines, with the



notable exception of China. Shipments to China rose by 14% y-o-y in March, following an 8% increase in

February, suggesting that a positive and improving trend may be emerging. This indicates that the

CNY4trn (US$585bn) stimulus package announced by Beijing last year may have begun to take effect.

However, it must be noted that while we are anticipating China's economy to outperform the major

economies in 2009, our outlook for the bulk of the global economy is far from sanguine. To be sure, we

are still very bearish towards the US, Europe and Japan, which have been the biggest drags on

Singapore's exports.

Indeed, while the rise in exports to China is encouraging, we highlight that China alone will not be able to

pull Singapore out of its economic slump. The island has a gigantic trade-to-GDP ratio at more than 3:1;

and, unless a sustained recovery in the global economy is seen, Singapore will continue to under-perform

its regional peers. We are currently projecting the global economy to contract by 2.3% this year and the

impact of shrinking external demand will be amplified in Singapore's case. Indeed, we have recently

revised down our trade outlook for Singapore for 2009. We are now anticipating total exports to fall by

16.0%, while total imports are forecast to decline by 15.5%. These figures are based on the assumption

that the decline in trade will moderate from the sharp drops seen in late 2008/early 2009 in the coming

months.

Domestic Demand To Falter

Domestic demand will be curtailed in the coming quarters as consumers cut back on discretionary

spending amid rising concerns about the economy. This is reflected in the poor retail sales figures in

recent months. As such, we are expecting private consumption to fall by 2.5% this year, thereby

contributing close to one percentage point (pp) of decline in GDP for 2009. Similarly, we expect gross

fixed capital formation to decline by 7.5% as investments start to dry up in anticipation of further

slowdowns in demand. This would drag down GDP by slightly over 2pps.

Government consumption should remain robust, growing by about 8.0% as the government took the

extraordinary step of dipping into reserves to reduce the impact of this downturn. This may boost GDP by

close to 1pp. In spite of the SGD20.5bn (US$14bn) 'resilience package' aimed at helping companies and

individuals through the current economic downturn, it must be noted that it is neither the government's

intention or within its ability to spend its way out of Singapore's recession. Instead, the budget is aimed at

helping companies retain employment. This is seen as a cushioning measure rather than the cure for the

downturn.

Given Singapore's dependence on the external sector, it is not surprising that the biggest drag on GDP

will be the fall in net exports. The decline in net exports will contribute more than 5pps of the -7.2%

decline we are forecasting for the island's economic output. As such, with limited domestic demand

growth potential, Singapore will have to weather the global downturn this year and rely upon a recovery

in the global economy in 2010 before achieving stable economic growth again.



Table: Singapore – Economic Activity, 2006-2013

2006 2007 2008 2009f 2010f 2011f 2012f 2013f

Nominal GDP, SGDbn 1 221.1 251.6 257.4 238.0 243.8 256.2 273.1 289.8

Nominal GDP, US$bn 1 139.70 168.10 174.26 150.04 146.77 155.59 166.68 179.04

Real GDP growth, % change y-o-y 1 8.2 7.7 1.1 -7.2 1.3 2.3 3.6 3.8

Nominal GDP per capita, US$ 1 31,190 36,416 38,811 33,035 31,961 33,533 35,570 37,859

Population, mn 2 4.40 4.59 4.84 4.89 4.95 5.00 5.06 5.11

Manufacturing production index, % y-o-y, average 1 14.1 7.2 6.0 -2.1 -3.4 3.3 4.7 5.2

Unemployment, % of labour force, end of period 3,7 2.7 2.3 2.4e 3.3 3.1 2.9 2.7 2.4

e/f = BMI estimate/forecast. Source: 1 Statistics Singapore, IMF, BMI; 2 Statistics Singapore, BMI; 3 Ministry of Manpower, BMI



Company Monitor

Eastman Chemicals Singapore

Eastman Chemicals is a Fortune 500 company that manufactures and

markets chemicals, fibres and plastics worldwide. It provides key

differentiated coatings, adhesives and speciality plastics products. It

is the world’s largest producer of polyethylene terephthalate (PET)

polymers for packaging, and is a major supplier of cellulose acetate

fibres.

Eastman has 11 manufacturing sites in seven countries that supply

chemicals, fibres and plastics products to customers throughout the

world. Eastman Chemicals’ oxo chemicals complex is located on

Jurong Island.

The company has a US$200mn complex that includes a 150,000

tonnes per year oxo aldehydes plant, plants for 2-ethylhexanol and n-

butanol, and plants for three speciality oxo products sold primarily to

the resins, coatings and vinyl compounding markets: neopentyl-

glycol (NPG glycol), Texanol ester-alcohol, and TXIB plasticiser.

Product Portfolio

The company’s product portfolio includes NPG glycol, TXIB

plasticiser, oxo aldehydes, oxo alcohols, 2-ethylhexanol, Texanol

ester-alcohol, among others. In Eastman’s oxo process, olefins such

as ethylene or propylene are reacted with syngas – a combination of

carbon monoxide and hydrogen – to produce oxo aldehydes, which

are then processed further to yield oxo alcohols and other products.

Sold to industrial customers, these products are used in drug and

pharmaceutical manufacturing, food and beverage containers,

coatings, paints, inks, varnishes and lacquers, cosmetics and

perfumes, automotive fluids, herbicides and pesticides and vinyl

products.

Address

Eastman Chemicals Singapore Limited No. 05-04 Winsland House 1 3 Killiney Road Singapore 239519

Tel: +65-6831-3100

Fax: +65-6732-4930

Web: www.eastman.com

Key Statistics 2008 Global net sales: US$6.7bn Net pperating profit : US$1.1bn Asia pacific sales: US$1.18bn.

Key Personnel

Manager, Asia Pacific, logistics operations and supply chain performance; chemicals and intermediaries: Capt. Raymond Heman

Customer supply chain manager: Tom Morton

General manager, Singapore manufacturing: Mani Lakshmanan



Financial Highlights

In 2008 Eastman achieved global sales of US$6.7bn with a gross

profit of US$1.1bn. The sales revenue for the Asia Pacific region

amounted to US$1.18bn. This was an increase of 8% on 2007. This

increase was largely attributed to the higher cost of raw materials

and energy resulting in higher selling costs.



ExxonMobil Chemicals

With petrochemical manufacturing and marketing operations in

more than 150 countries around the world, ExxonMobil Chemicals is

a global player in technology, product quality and customer services.

Its products include olefins, aromatics, fluids, synthetic rubber, PE,

PP, oriented polypropylene packaging films, plasticisers, synthetic

lubricant base stocks and additives for fuels and lubricants.

The Singapore Chemicals Plant (SCP) is ExxonMobil Chemicals’

single largest investment (US$2bn) in the Asia-Pacific. Comprising

five integrated units, this facility serves as a strategic supplier for

ExxonMobil’s global shipping network.

In January 2006, ExxonMobil Asia-Pacific awarded a project co-

ordination and services contract to a team of Foster Wheeler and

Worley Parsons for a potential project at its Singapore plant site. The

project is named Singapore Parallel Train (SPT). In August 2006,

ExxonMobil Asia Pacific authorised Foster Wheeler to start the early

phase of design work for the SPT.

In March 2007, ExxonMobil Chemical announced the successful

completion of the expansion of its steam cracker in Singapore. The

expansion project, announced in 2005, has increased the ethylene

capacity of the world-scale Singapore Chemical Plant by 75,000

tonnes per year to more than 900,000 tonnes per year.

In June 2007, the company announced that it will add 130,000

tonnes per year of capacity to its Exxsol™ hydrocarbon fluids plant

on Jurong Island. This will bring Singapore fluids production to

more than 500,000 tonnes per year. Commercial quantities of the

product from the new facility are expected to be available in the

fourth quarter of 2008.

In February 2008 Singapore’s Keppel Corp signed an agreement

with ExxonMobil to supply natural gas to ExxonMobil’s facilities on

Jurong Island with supply to commence in 2009. The length of the

contract was not publicly disclosed but the value of the contract was

Address

1 Harbour Front Place 06-00, Harbour Front Tower One, Singapore 098633

Tel: (65) 6885 8000

Fax: (65) 6885 8405

Web: www.exxonmobilchemicals.com

Key Statistics 2008 (Global)

Revenue: US$459.579bn

Net income: US$45.220bn

Key Personnel

Chairman/CEO: Rex W Tillerson

Executive vice-president: Stephen D. Pryor

Director: William R. Howell

Asia Pacific manufacturing director: Jeffery W Davis



reported to be SGD$3bn (US$1.99mn)

In August 2008 Exxonmobil opened a Dormitories and Safety

Training Centre located at its petrochemical project on Juron Island.


The company reported net income (global) of US$459.579bn in

2006, and revenue (global) was reported at US$45.220bn. This was

record earnings for the company, which displayed robust

performance across all of its business sectors.



Mitsui Chemicals

Mitsui Chemicals was established in Singapore in 1966. The

company has invested about US$900mn to expand its operations on

the island nation. These encompass Mitsui Phenol and Mitsui

Bisphenol Singapore, Mitsui Elastomers Singapore (MELS), MTK

Chemicals and Mitsui Chemicals Asia (MCA), the company’s Asia

Pacific headquarters. Mitsui Chemicals’ operations are carried out

through five business segments:

Basic chemicals – provides fibre intermediates, phenols,

industrial chemicals and chemicals fertilisers;

Petrochemicals – provides polythene, Polyethylene terephthalate

(PET) resin, elastomers, styrene, vinyl chlorine and

polypropylene;

Functional chemicals – offers resin proceed products, electric

and information materials. Functional polymerics include

urethane chemicals, performance polymers, fabricated polymer

products, crop protection, fine chemicals, pharmaceuticals and

healthcare products and dyestuffs;

Others – includes engineering, warehousing and freight

transportation.

Mitsui Singapore’s SGD220mn (US$134mn) phenol facility

comprises a key addition to the chemicals hub on Jurong Island. The

company has its regional headquarters, technical centres and four

manufacturing projects in Singapore.

In January 2006, Mitsui Chemicals merged its two subsidiaries

Mitsui Phenol Singapore and Mitsui Bisphenol Singapore to form

Mitsui Phenol Singapore. Mitsui Chemicals retained 95% stake in

the new company, while the remaining 5% is to be held by Mitsui &

Company. Mitsui Phenol Singapore operates a 250,000 tonnes per

year phenol and 150,000 tonnes per year acetone plant in Pulau

Sakra, Singapore. Mitsui Bisphenol Singapore has a 230,000 tonnes

Address

1 Raffles Place, No. 36-00 OUB Centre, Singapore 048616 Singapore

Tel: 65-6534-2611

Fax: 65-6535-5161

Web: www.mitsui-chem.co.jp

Key Statistics (For FY07-08)

Net sales: US$17.832bn

Net income: US$770mn Key Personnel

Chairman: Hiroyuki Nakanishi

President and CEO: Kenji Fujiyoshi

Executive vice-president: Toshikazu Tanaka

Senior managing directors: Akihiro Yamaguch, Yoshiyuki Shinohara, Keiichi Sano, Hirokazu Kajiura



per year plant at the same site.

In July 2007, the company established a new plant to augment

production capacity of Tafmer. The new plant will be managed by

Mitsui Elastomers Singapore Pte. Ltd. (MELS), a subsidiary of MCI,

manufacturing and selling TAFMER. This augmentation will allow

MCI to secure stable supply of the material, in response to rapidly

growing demand in Asia. Completion of the plant is expected by

December 2009 with commercial production beginning March 2010.


For FY07/08, Mitsui Chemicals reported net sales of US$17.832bn

and net income of US$770mn.



Dow Chemical Pacific (Singapore))

Dow Chemical is a leader in the production of plastics, chemicals,

hydrocarbons, herbicides, pesticides, performance plastics,

engineering plastics and polyurethanes. Other products include

polyethylene resins for packaging (including Styrofoam brand

insulation), fibres and films, as well as performance chemicals such

as acrylic acid. The company also manufactures commodity

chemicals (chlor-alkalies and glycols). Its smallest unit,

hydrocarbons and energy, makes petrochemicals.

The Singapore office is the sales/business centre for performance

chemicals, chemicals, liquid separations, engineering plastics and

polyethylene.


Sales for 2008 were US$57.5bn, 7.5% higher than 2007. Dow

Chemicals was affected by the economic downturn and its

performance in the final quarter of 2008 impacted negatively on the

financial performance of the entire year.

Address

260 Orchard Road, No.18-01 The Heeren

Singapore 238855

Tel: +65 835 3773

Fax:+65 834 0319Web: www.dow.com

Key Statistics- 2008 Net sales: US$57.51bn Net income: US$770mn

Key Personnel

President, chief executive officer and chairman of the board: Andrew N. Liveris

Executive vice-president, chief financial officer and member of the board of directors: Geoffery E.Merszei

Executive vice-president and chief technology officer: William F. Banholzer

Senior vice-president, basic chemicals: Carol A. Dudley

Executive vice-president, human resources,corporate affairs and aviation: Gregory M. Freiwald

Executive vice-president, manufacturing and engineering operations: Michael R. Gambrell

Executive vice-president, health, agriculture and infrastructure group: Heinz Haller

Executive vice-president, law and government affairs, general counsel and corporate secretary: Charles J. Kalil

Executive vice-president, business services, chief sustainability officer and chief information officer: David E. Kepler

Senior vice-president, hydrocarbons and basic plastics: Juan R. Luciano

Senior vice-president, performance products: James D. McIlvenny



BMI Forecast Modelling

How We Generate Our Industry Forecasts

BMI’s industry forecasts are generated using the best-practice techniques of time-series modelling. The

precise form of time-series model we use varies from industry to industry, in each case being determined,

as per standard practice, by the prevailing features of the industry data being examined. For example, data

for some industries may be particularly prone to seasonality, meaning seasonal trends. In other industries,

there may be pronounced non-linearity, whereby large recessions, for example, may occur more

frequently than cyclical booms.

Common to our analysis of every industry, however, is the use of vector autoregressions. Vector

autoregressions 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.

It must be remembered that human intervention plays a necessary and desirable part of all our industry

forecasting techniques. Intimate knowledge of the data and industry ensures we spot structural breaks,

anomalous data, turning points and seasonal features where a purely mechanical forecasting process

would not.

Petrochemicals Industry

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, but also its relative

efficiency as a producer. We examine:

Stated year-end capacity for key petrochemicals products, mainly ethylene but also propylene,

polypropylene, polyethylene and so forth. Government, company and third-party sources are used;

Specific company and/or government capacity expansion projects aimed at increasing the number

and/or size of crackers and downstream processing facilities.



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 will be governed by production capacity;

Underlying economic growth trends. The chemicals industry is highly cyclical. Strong domestic or

regional demand will 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 will require larger volumes of either domestically produced or imported olefins

(ethylene, propylene), polyolefins (polyethylene, polypropylene) or downstream products;

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 etc.

Cross Checks

Whenever possible, we compare government and/or third party agency projections with the declared

spending and capacity expansion plans of the companies operating in each individual country. Where

there are discrepancies, we use company-specific data as physical spending patterns ultimately 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.

BMI SINGAPORE CHEMICALS REPORT 2009

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