Singapore Chemicals Industry Report 2009: Forecasts, Analysis and Competitive Landscape

Published by BUSINESS MONITOR INTERNATIONAL LTD

Singapore
Chemicals
Report 2009 ISSN: 1749-2084

Including 5-year industry forecasts

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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

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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
Chemical
Industry

Petro- Speciality Electronic Pharma-
Petroleum
chemicals Chemicals Chemicals ceuticals

Consumer Hydrogen
Polymer care Isopropyl Peroxide &
Additives Fragrances Silicon Alcohol Ammonium
Specialities Hydroxide

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



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
Net investment Commitments In Chemical
Industry
introduction of the EU’s REACH
2000-2005 (SGDmn)
legislation. Companies importing
chemicals into the EU or that contribute 2,500

as part of the supply chain to an eventual
2,000
EU export will have to register extensive
technical dossiers about their products 1,500

and potential risk factors to the European
1,000
Chemical Agency (ECHA). Companies
failing to meet these deadlines will not be 500

allowed to import into the EU and may
0
face fines or criminal charges. SPRING, 2000 2001 2002 2003 2004 2005
the government body to support
Source: Economic Survey of Singapore
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



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
Index of Industrial Production
37.82% of the total SGD259.34bn 2000-2005
(US$172.00bn) manufacturing output. 140

The chemicals industry reported 120

compound annual growth rate (CAGR) of 100

10% during 2001-2005, for a total of 80

SGD8.84bn (US$4.03bn). Fixed asset 60
40
investment (FAI) in Singapore’s
20
chemical industry was reported at
0
SGD8.55bn (US$5.68bn) in 2008. For 2000 2001 2002 2003 2004 2005 2006
the January-December 2008 period, Chemicals Petroleum Petrochemicals
Specialties Others
Singaporean manufacturing output
Source: Economic Development Board
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.



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
VA Generated By Chemicals
Commitment, 2004
throughout the Association of Southeast
Precision
Asian Nation (ASEAN) region.
Enginee-
Biomedical Transport
Drugmakers in South East Asia will find ring
Manuf a- Engi-
9%
it easier to get Good Manufacturing cturing neering
23% 8% General
Practice (GMP) accreditation after a Manu-
f acturing
major trade agreement was signed.
Industries
Upgrading facilities and processes will 3%

require considerable investment in the
short term, but producers of Chemicals
17% Electronics
pharmaceuticals will eventually see a 40%

significant upside, both domestically and
Source: BMI
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



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
1
Nominal GDP, SGDbn 221.1 251.6 257.4 238.0 243.8 256.2 273.1 289.8
1
Nominal GDP, US$bn 139.70 168.10 174.26 150.04 146.77 155.59 166.68 179.04

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

Nominal GDP per capita,
1
US$ 31,190 36,416 38,811 33,035 31,961 33,533 35,570 37,859
2
Population, mn 4.40 4.59 4.84 4.89 4.95 5.00 5.06 5.11

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

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

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



Company Monitor

Eastman Chemicals Singapore

Eastman Chemicals is a Fortune 500 company that manufactures and Address
Eastman Chemicals Singapore
markets chemicals, fibres and plastics worldwide. It provides key
Limited
differentiated coatings, adhesives and speciality plastics products. It No. 05-04 Winsland House 1
3 Killiney Road
is the world’s largest producer of polyethylene terephthalate (PET)
Singapore 239519
polymers for packaging, and is a major supplier of cellulose acetate Tel: +65-6831-3100
fibres. Fax: +65-6732-4930
Web: www.eastman.com
Eastman has 11 manufacturing sites in seven countries that supply
chemicals, fibres and plastics products to customers throughout the Key Statistics 2008
Global net sales: US$6.7bn
world. Eastman Chemicals’ oxo chemicals complex is located on Net pperating profit : US$1.1bn
Jurong Island. Asia pacific sales: US$1.18bn.

Key Personnel
The company has a US$200mn complex that includes a 150,000
Manager, Asia Pacific, logistics
tonnes per year oxo aldehydes plant, plants for 2-ethylhexanol and n- operations and supply chain
butanol, and plants for three speciality oxo products sold primarily to performance; chemicals and
intermediaries: Capt. Raymond
the resins, coatings and vinyl compounding markets: neopentyl- Heman
glycol (NPG glycol), Texanol ester-alcohol, and TXIB plasticiser. Customer supply chain manager:
Tom Morton
General manager, Singapore
Product Portfolio manufacturing: Mani Lakshmanan
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.



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 Address
1 Harbour Front Place 06-00,
more than 150 countries around the world, ExxonMobil Chemicals is
Harbour Front Tower One,
a global player in technology, product quality and customer services. Singapore 098633
Its products include olefins, aromatics, fluids, synthetic rubber, PE, Tel: (65) 6885 8000
PP, oriented polypropylene packaging films, plasticisers, synthetic Fax: (65) 6885 8405

lubricant base stocks and additives for fuels and lubricants. Web:
www.exxonmobilchemicals.com

The Singapore Chemicals Plant (SCP) is ExxonMobil Chemicals’ Key Statistics 2008 (Global)
single largest investment (US$2bn) in the Asia-Pacific. Comprising Revenue: US$459.579bn
five integrated units, this facility serves as a strategic supplier for Net income: US$45.220bn
ExxonMobil’s global shipping network.
Key Personnel
Chairman/CEO: Rex W Tillerson
In January 2006, ExxonMobil Asia-Pacific awarded a project co-
Executive vice-president:
ordination and services contract to a team of Foster Wheeler and Stephen D. Pryor
Worley Parsons for a potential project at its Singapore plant site. The Director: William R. Howell
project is named Singapore Parallel Train (SPT). In August 2006, Asia Pacific manufacturing
director: Jeffery W Davis
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



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.

Financial Highlights

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.


Singapore Chemicals Industry Report 2009: Forecasts, Analysis and Competitive Landscape

Singapore Chemicals Industry Report 2009: Forecasts, Analysis and Competitive Landscape

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