Market and product

March 2 - Thailand`s IRPC Pcl, operator of Southeast Asia`s biggest integrated petrochemical complex, aims to spend $1.4 billion in the next five years on expanding capacity to meet rising demand, an executive said.

IRPC, valued at $2.6 billion on Thai bourse, plans to upgrade facilities to be among the top quartile of integrated petrochemical complexes in Asia within four years, Senior Executive Vice President for corporate planning, Atikom Terbsiri, told Reuters in an interview.

Other big Asian major petrochemical makers are expanding, especially those in South Korea that are seeking to boost supply capacity against Chinese and Middle East rivals. Another major rival is Taiwan`s Formosa Plastics.

"By 2014, we aim to boost return on invested capital (ROIC) to 22 percent versus last year`s nine percent," Atikom said.

"Size is not as important as scope. That means we focus on diversification rather than building a 1-million tonne cracker."

Under its five-year "Phoenix projects", IRPC would focus on maximising asset utilisation and 70 percent of its budget would be spent on capacity and product expansion, Atikom said adding that its olefins capacity will rise significantly.

At the midday break, IRPC shares were up 1.4 percent at 4.46 baht after reaching a five-week high of 4.48 baht earlier on news of the expansion. The overall market was 0.9 percent higher.

The stock has surged 134 percent over the past 12 months and is up 1.8 percent this year compared to a 0.9 percent drop in the Thai market since Jan. 1. That makes IRPC more expensive than its peers. IRPC trades at 11.6 times 2011 earnings, above the Thai market`s 10.6 percent.

Like most crackers in Asia, IRPC uses naphtha as its main feedstock to produce olefins, namely ethylene and propylene, which are the building blocks for plastics needed for the consumer, manufacturing and construction industries.

IRPC has annual capacity to produce 728,000 tonnes of olefins products and 367,000 tonnes of aromatics. Petrochemicals should contribute more than 50 percent of profit this year, he said.

REVENUE RISING

IRPC, 37 percent-owned by Thailand`s top energy firm PTT, expects 2010 revenue to rise at least 8-10 percent, in line with analyst forecasts, due to rising capacity as it had no major shutdowns this year, Atikom said.

The company was expected to post revenue of 183 billion baht ($5.6 billion) in 2010, up 10 percent from 166 billion in 2009, according to 10 analysts polled by Thomson Reuters I/B/E/S.

Its 2010 gross integrated margins, which includes both petrochemical and refinery operations, should be stable at around 2009`s $9.9 a barrel given sustained demand for petrochemical products helped offset weakness in the refinery business.

Margins in the first quarter of this year were expected to be above the $10 a barrel in the fourth quarter given strong demand for plastics pellets in China and the high spread between crude prices and some refined oil products such as fuel oil.

Demand for the plastic pellets should remain strong this year, thanks to two big events in China -- Shanghai China Expo in May and Asian Games in November, he said.

IRPC expected the run rate of its 215,000 barrel-per-day refinery would be around 70 percent this year, up from 66 percent last year, while its petrochemical complex would continue to run at 100 percent, he said.

"At the refinery run rate at 70 percent, it`s the optimum level to make our petrochemical plants run at 100 percent," he said, adding IRPC would use the remaining refinery capacity of 55,000 barrel a day to feed its petrochemical complex.

IRPC`s refining products have lower margin than other Thai refineries like Thai Oil, and the company needed an upgrade to produce value added products which offerer high margins.

The company planned to raise fund via bonds to refinance debt and finance expansion under the Pheonix scheme, he said.

"We are due to repay debt at about 13 billion baht during 2012-14. With low debt to equity ratio at 0.3 times, there is more room for us to borrow money," he said.

At the end 2009, IRPC generated earnings before interest, tax, depreciation and amortisation at around $200-300 million.

Atikom declined to comment about PTT`s plan to consolidate its downstream petrochemical business, which analysts said it could involve a merger between IRPC and PTT Aromatics and Refining Pcl.

PTT has said it expected to conclude the merger plan by the second quarter of this year.

IRPC, formerly Thai Petrochemical Industry, was Thailand`s largest corporate debt defaulter after collapsing under a mountain of foreign debt in the 1997/1998 Asian economic crisis. It has focused on improving efficiency and cutting costs since it completed a $2.7 billion debt restructuring in 2006. ($1=32.82 Baht)