Vietnam petrochemicals report 2016

2016
www.bmiresearch.com

VIETNAM
PETROCHEMICALS REPORT
INCLUDES 5-YEAR FORECASTS TO 2019

Published by:BMI Research


Vietnam Petrochemicals Report 2016
INCLUDES 5-YEAR FORECASTS TO 2019

Part of BMI’s Industry Report & Forecasts Series
Published by: BMI Research
Copy deadline: November 2015
ISSN: 1749-2564

BMI Research
Senator House
85 Queen Victoria Street
London
EC4V 4AB
United Kingdom
Tel: +44 (0) 20 7248 0468
Fax: +44 (0) 20 7248 0467
Email:
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© 2015 Business Monitor International Ltd
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DISCLAIMER
All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of
publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor
International Ltd accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the
publication. All information is provided without warranty, and Business Monitor International Ltd makes no representation of warranty of any kind
as to the accuracy or completeness of any information hereto contained.


Vietnam Petrochemicals Report 2016
INCLUDES 5-YEAR FORECASTS TO 2019

Part of BMI’s Industry Report & Forecasts Series
Published by: BMI Research
Copy deadline: November 2015
ISSN: 1749-2564

BMI Research
Senator House
85 Queen Victoria Street

London
EC4V 4AB
United Kingdom
Tel: +44 (0) 20 7248 0468
Fax: +44 (0) 20 7248 0467
Email:
Web:

© 2015 Business Monitor International Ltd
All rights reserved.
All information contained in this publication is
copyrighted in the name of Business Monitor
International Ltd, and as such no part of this
publication may be reproduced, repackaged,
redistributed, resold in whole or in any part, or used
in any form or by any means graphic, electronic or
mechanical, including photocopying, recording,
taping, or by information storage or retrieval, or by
any other means, without the express written consent
of the publisher.

DISCLAIMER
All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of
publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor
International Ltd accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the
publication. All information is provided without warranty, and Business Monitor International Ltd makes no representation of warranty of any kind
as to the accuracy or completeness of any information hereto contained.

Vietnam Petrochemicals Report 2016

CONTENTS
BMI Industry View ............................................................................................................... 7
SWOT .................................................................................................................................... 8
Political ................................................................................................................................................... 9
Economic ............................................................................................................................................... 10
Operational Risk ..................................................................................................................................... 12

Industry Forecast .............................................................................................................. 14
Table: Vietnam Planned Petrochemicals Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Table: Vietnam - Petrochemicals Capacities, 2012-2020, '000tpa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Macroeconomic Forecasts ............................................................................................... 19
Economic Analysis ................................................................................................................................... 19
Table: Economic Activity (Vietnam 2010-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Industry Risk Reward Ratings .......................................................................................... 23
Asia Petrochemicals Risk/Reward Index ....................................................................................................... 23
Table: Asia Petrochemicals Risk/Reward Index Ranking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Vietnam Industry Risk/Reward Index ........................................................................................................... 27

Market Overview ............................................................................................................... 28
Industry Trends And Developments ................................................................................ 30
Company Profile ................................................................................................................ 33
PetroVietnam .......................................................................................................................................... 33
Vinachem ............................................................................................................................................... 36

Regional Overview ............................................................................................................ 38

Asia Overview ......................................................................................................................................... 38
Chinese Crackers Spark Concern as Crisis Blazes ........................................................................................ 39
A Rocky Surge in 2016 ............................................................................................................................ 41

Global Industry Overview .................................................................................................. 44
Feedstock Differentials: Respite for Europe ................................................................................................ 44
2016 Feedstock Outlook ..........................................................................................................................
Could US Gas Run out? ..........................................................................................................................
Market Outlook: Chinese Downturn ..........................................................................................................
Long-term Outlook .................................................................................................................................
Europe - Brent On Board For A Bumpy Ride ................................................................................................

46
47
48
48
52

Demographic Forecast ..................................................................................................... 53
Table: Population Headline Indicators (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

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Vietnam Petrochemicals Report 2016
Table: Key Population Ratios (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Table: Urban/Rural Population & Life Expectancy (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Table: Population By Age Group (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Table: Population By Age Group % (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Glossary ............................................................................................................................. 58
Table: Glossary Of Petrochemicals Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Methodology ...................................................................................................................... 59
Industry Forecast Methodology ................................................................................................................ 59
Risk/Reward Index Methodology ............................................................................................................... 61
Table: Petrochemicals Risk/Reward Index Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Table: Weighting Of Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

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Vietnam Petrochemicals Report 2016

BMI Industry View
BMI View: Vietnam is set for a surge in refining and petrochemicals capacities in the next five years as
investors seek to establish new operations in the Southeast Asian country. Strong growth in end markets and
Vietnam's position as a global manufacturing hub are driving production, although there are enduring risks
associated with land acquisition and regulatory approval as well as regional market over-supply.

Currently, limited capacity leads to a reliance on imports for domestic conversion and end-product
manufacturing. With refinery developments in the pipeline, Vietnam will be able to increase capacities,
particularly for polypropylene and ethylene in the medium term. However, slow land clearance and
financing problems delay these projects, postponing capacity increases by a number of years.

The main risks will come from both domestic and external influences. Domestically, the slow rate of land
clearance for projects is delaying progress. This is adding years and raising costs to completion, leading to
projects being scaled back. Externally, the industry is faced with the onslaught of cheap US-based
production flooding the Asian market, while it will be dependent on refineries for feedstock, which is likely
to be more expensive than shale-derived ethane. However, the Vietnamese industrial base is likely to favour
the orientation of petrochemicals development with its emphasis on polypropylene and aromatics.
■

In the January-November period of 2015, chemicals production was up 5.7% y-o-y and rubber and plastic
output grew 12.7% on the back of 9.7% industrial growth. However, the small base of local chemicals
and petrochemicals production ensured that rising consumption led to a surge in imports.

■

A surge in capacity is expected in the medium term, with the completion of new refinery-based
complexes operated by Nghi Son Refinery & Petrochemical and Vung Ro Petroleum, adding 700,000
tonnes per annum (tpa) of paraxylene and 1.27mn tpa of polypropylene capacities to the industry.

■

The PTT-Aramco joint venture complex is expected to start up in 2021, adding 1.4mn tpa of ethylene
and 800,000tpa of polyethylene capacities to the Vietnamese industry.

• With little current domestic petrochemicals activity, Vietnam scores poorly in BMI's Asia
Petrochemicals Risk/Rewards Index. However, its position has improved marginally since last year, with
its score rising by 0.1 points to 42.9 points. Vietnam's position has been enhanced by a modest
improvement in long-term country risk, although it is still weighed down by poor institutional, financial
and external risks. It lies in last place in the regional ranking, 4.0 points behind the Philippines and will
remain there until new capacity comes onstream and the business environment improves.

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Vietnam Petrochemicals Report 2016

SWOT
Vietnam Petrochemicals Industry SWOT Analysis

Strengths

■

Self-sufficiency in oil production gives a feedstock advantage, which helps in the
development of the petrochemicals industry.

Weaknesses

■

Well placed to cater for the Chinese demand for petrochemicals.

■

Has attracted some foreign investment for polyvinyl chloride (PVC) production.

■

Petrochemicals product portfolio is more or less limited to PVC.

■

Scarce refining capacity.

■

High input costs for petrochemicals production.

■

Limited interest from foreign petrochemicals majors in investing, while partners have
dropped out of past projects.

Opportunities

■

Project delays due to slow land clearance.

■

Plans to establish refinery and development of plastics and intermediate
petrochemicals production.

Threats

■

Feasibility studies underway for ethylene cracker.

■

Rising gas production could provide feedstock for petrochemicals production.

■

Plans are not expected to lead to any initial olefins production, with the country
continuing to rely on imported monomer feedstock for some time.

■

The EU predicts Vietnam will not become a true market economy until 2018, and even
this forecast is somewhat ambitious.

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Vietnam Petrochemicals Report 2016

Political
SWOT Analysis

Strengths

■

The Communist Party of Vietnam remains committed to market-oriented reforms and

we do not expect major shifts in policy direction over the coming years. The one-party
system is generally conducive to short-term political stability.

■

Relations with the US have witnessed a marked improvement, and Washington sees
Hanoi as a potential geopolitical ally in South East Asia.

Weaknesses

■

Corruption among government officials poses a major threat to the legitimacy of the
ruling Communist Party.

■

There is increasing (albeit still limited) public dissatisfaction with the leadership's tight
control over political dissent.

Opportunities

■

The government recognises the threat corruption poses to its legitimacy, and has
acted to clamp down on graft among party officials.

■

Vietnam has allowed legislators to become more vocal in criticising government

policies. This is opening up opportunities for more checks and balances within the
one-party system.

Threats

■

Although strong domestic control will ensure little change to Vietnam's political scene
in the next few years, over the longer term, the one-party-state will probably be
unsustainable.

■

Relations with China have deteriorated over recent years due to Beijing's more
assertive stance over disputed islands in the South China Sea.

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Vietnam Petrochemicals Report 2016

Economic
SWOT Analysis

Strengths

■

Vietnam has been one of the fastest-growing economies in Asia in recent years, with
GDP growth averaging 6.5% annually between 2000 and 2014.

■

The economic boom has lifted many Vietnamese out of poverty, with the official
poverty rate in the country falling from 58% in 1993 to 17.2% in 2012.

■

Vietnam has been strengthening its trade and aid ties in a bid to increase exports and
diversify its export sector.

Weaknesses

■

Vietnam still suffers from fiscal deficits, leaving the economy vulnerable to global
economic uncertainties. The fiscal deficit is dominated by substantial spending on
social subsidies that could be difficult to withdraw.

■

The heavily-managed and weak currency reduces incentives to improve quality of
exports, and also keeps import costs high.

Opportunities

■

WTO membership and the ASEAN economic integration in 2015 should give Vietnam
greater access to both foreign markets and capital, while making Vietnamese
enterprises stronger through increased foreign competition.

■

The government has continued to move forward with market reforms, including
privatisation of state-owned enterprises, addressing the high level of bad loans in the
banking sector as well as liberalising the banking sector.

■

Urbanisation will continue to be a long-term growth driver. The UN forecasts the
urban population rising from 32% of the population in 2013 to more than 50% by the
early 2040s.

Threats

■

Although inflation has subsided in 2014, complacency by the State Bank of Vietnam
on this front could result in a decline in investment.

■

The potential for an escalation of political tensions with China over sovereign claims
to parts of the South China Sea could have a negative impact on the economy.

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Vietnam Petrochemicals Report 2016

SWOT Analysis - Continued
■

Market reforms could progress at a much slower pace as the government remains
cautious about ceding ownership to foreign investors.

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Vietnam Petrochemicals Report 2016

Operational Risk
SWOT Analysis

Strengths

■

Vietnam has a high number of university graduates with skilled degrees and a high
literacy rate for its income level.

• In addition to a number of regional and international flight options, Vietnam has an
extensive inland waterway system.

• Growing levels of foreign investment encourage further trade and spin-off industries.
• Vietnam's rate of violent crime is generally low, and foreigners are unlikely to be
targeted.
Weaknesses

■

High number of incidences of industrial action.

• Underdeveloped rail capacity overburdens the road network.
• An underdeveloped banking sector decreases the options for keeping money in the
state.
• Vietnam's military forces are only a quarter the size of China's, meaning that Beijing
would probably prevail in any naval battle over maritime disputes in the South China
Sea.
Opportunities

■

Explosive growth in demand for tertiary education will increase the number of highly
skilled graduates in the medium term.

• Vietnam is easily accessible from the main shipping routes, and growth in the number
of port facilities will provide adequate capacity.
• Increased foreign participation in the banking sector will increase the availability of
funds for loans.
Threats

■

Dysfunctional labour-management relations increase the risk of disruption and strike
action.

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SWOT Analysis - Continued

• Vietnam's reliance on imported oil poses risks in the form of energy and fuel
shortages.
• Corruption and inefficiency in the legal system.
• Anti-Chinese violence, as seen in May 2014, could be a harbinger of wider political
and social unrest.

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Vietnam Petrochemicals Report 2016

Industry Forecast
Vietnam is a rapidly growing market for chemicals and derivatives. A lack of plastics and rubber capacity
mean that domestic conversion and end-product manufacturing are reliant on imports, which have grown
fast in recent years. In the January-November period of 2015, chemicals production was up 5.7% y-o-y and
rubber and plastic output grew 12.7% on the back of 9.7% industrial growth. The small base of local

chemicals and petrochemicals production ensured that rising consumption led to a surge in imports.

The Vietnamese petrochemicals industry is set to move the country towards greater self-sufficiency in basic
chemicals and points the way towards future product diversification. In recent years, capacities have risen
but growth has been constrained by a lack of olefins production that can enable the country to capitalise on
its own domestic hydrocarbons resources and satisfy domestic demand. Refinery expansion will lead to selfsufficiency in refined products, ensuring significant potential in downstream production. Current plans
mean that until 2017 at the earliest, most downstream production will be reliant on propylene, butadiene and
aromatics streams produced by refineries, although naphtha streams could supply feedstock to domestic
cracker capacity.

Table: Vietnam Planned Petrochemicals Projects

Capacity ('000 tonnes per
annum)

Producer

Scheduled
completion

Propylene

150

Nghi Son Refinery & Petrochemical

2017

Polypropylene

370

Nghi Son Refinery & Petrochemical

2017

Paraxylene

700

Nghi Son Refinery & Petrochemical

2017

Benzene

150

Nghi Son Refinery & Petrochemical

2017

Polypropylene

900

Vung Ro Petroleum

2017

1400

PTT

2021

800

PTT

2021

Product

Ethylene
Polyethylene

Source: BMI

The development of the petrochemicals industry is closely tied to the expansion of the refining sector.
Vietnam's refining capacity will more than triple over 2015-2020, as the Vung Ro (160,720b/d) and the
Nghi Son (200,000b/d) come online by end-2017. Several more proposed facilities could see this figure
expand even further, though construction progress remains stunted amid insufficient funding. We maintain
our positive outlook on Vietnam's refining capacity growth over the next five years, which we forecast will

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more than triple, from 140,000b/d in 2015 to reach 500,720b/d by 2019. According to industry sources,
construction of the Nghi Son refinery was more than 60.0% complete by Q415, and is on course to become
operational by mid-2017.

At present, nearly all of the country's refining capacity is provided by PetroVietnam's Dung Quat refinery,
with total nameplate capacity of 140,000b/d. The country also has a smaller refinery, the Ba Ria-Vung Tau
refinery with a capacity of 2,612b/d.

Rising concerns about diminishing local crude feedstock and lack of sufficient investment incentives for
high-cost projects are dampening the outlook for these projects. In November 2015, Qatar Petroleum, one
of the joint-venture partners in the Long-Son plant project, announced its intention to withdraw from the
project.

As a result of the completion of the Nghi Son Refinery & Petrochemical and Vung Ro Petroleum from
2017, there will be a surge of polypropylene and aromatics capacities, Including 700,000 tonnes per annum
(tpa) of paraxylene and 1.27mn tpa of polypropylene capacity to the industry. After that, a PTT-led project
should start up in 2021 with a 400,000b/d refinery and downstream capacities of 2.9mn tpa of olefins and
2mn tpa of aromatic products with most of the petrochemical products exported.

The main risks will come from both domestic and external influences. Domestically, the slow rate of land
clearance for projects is delaying progress. This is adding years and raising costs to completion, leading to
projects being scaled back. Externally, the industry is faced with the onslaught of cheap US-based
production flooding the Asian market, while it will be dependent on refineries for feedstock, which is likely
to be more expensive than shale-derived ethane. However, the Vietnamese industrial base is likely to favour
the orientation of petrochemicals development with its emphasis on polypropylene and aromatics.

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Upward Trend In Petrochemicals And Chemicals Output
Production Indices (100 = 2010)

Source: General Statistics Office of Vietnam

On the downside, the business environment has not been conducive to investment in petrochemicals.
Vietnamese production will have to compete with imports from Singapore, Thailand and Malaysia, which
are currently major suppliers of plastic resins to Vietnam. To be able to compete with these established
players, petrochemical plants in Vietnam will have to be cost-competitive at least in domestic markets; and
this will require tax and non-tax incentives. Infrastructure is weak with a lack of port and road infrastructure
development causing supply bottlenecks. Moreover, the investment process in Vietnam is complicated,
requiring approval from many ministries, which can delay projects leading to lower project economies and
disincentive to invest. If these issues are dealt with, Vietnam could become a serious player in South East
Asia's petrochemicals market.

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Economic Trends In Vietnam
Factors Influencing Petrochemicals Consumption
10

20

15
8
10
6
5

4

0
2013

2014

2015f

2016f

2017f

2018f

2019f

2020f

Vietnam - Real GDP growth, % y-o-y (LHS)
Vietnam - Industrial production, % y-o-y, ave (LHS)

Vietnam - Vehicle production, units, % y-o-y (RHS)
Vietnam - Construction Industry Value, Real Growth, % y-o-y (LHS)

f = BMI forecast. Source: National sources/BMI

There is a strong basis for petrochemicals consumption growth going forward. The industrial sector, which
accounts for approximately 33% of the economy grew strongly in 2015. At 21% of GDP, manufacturing
accounts for the lion's share, accelerated by a robust 10% in 2015, driven by textiles and the automotive
industry, which are significant domestic consumers of petrochemicals products. Moreover, the
manufacturing sector will continue to see strong growth, particularly as it moves up the value chain into
higher value sectors.

Construction is a booming sector in Vietnam, providing strong support for growth in polymer pipes. We
maintain a positive outlook for Vietnam's construction sector and expect real growth of 5.9% in 2015 and to
average 6.1% per annum between 2015-2019. The outlook for Vietnam's residential and non-residential
building segments is improving. Easing developments regarding foreign ownership of property will help to
spur demand and construction activity.

Vietnam's autos industry is still in its infancy as producers typically import completely knocked-down kits,
which are assembled and sold domestically. The domestic parts sector is small at present, although the

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government is making it a priority. As such, the scope for growth in petrochemicals use by the automotive
supply sector is limited.

However, Vietnam has seen a flurry of announcements from foreign automakers declaring their intentions
to begin, or ramp-up, manufacturing activities in the country. We believe automakers are looking to
establish operations in the country to capitalise on large sales growth opportunities about to be unlocked by
the introduction of free trade between ASEAN members in 2018. However, we stress that that these
automakers will still face significant operational challenges in realising sales growth across the region over
the long run. Recent inflows of investment will provide support to Vietnamese vehicle production up to the
end of our forecast period in 2019 and we forecast output to grow an average of 13.2% annually over the
period.

Table: Vietnam - Petrochemicals Capacities, 2012-2020, '000tpa

2012 2013e 2014f 2015f 2016f 2017f 2018f 2019f 2020f
Ethylene capacity, '000 tpa

0

0

0

0

0

Polypropylene capacity, '000 tpa

150

150

150

150

150

150 1,420 1,420 1,420

PVC capacity, '000 tpa

320

320

320

320

320

320

320

320

320

0

0

0

0

0

0

0

0

0

PE capacity, '000 tpa

0

0

0

0

e/f = BMI estimate/forecast. Source: BMI

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Vietnam Petrochemicals Report 2016

Macroeconomic Forecasts
Economic Analysis
BMI View: The Vietnamese economy will remain a regional outperformer over the coming years on the
back of strong foreign direct investment (FDI) inflows and export resilience. As such, we forecast Vietnam's
real GDP growth to accelerate to 6.6% in 2016, from an estimated 6.4% in 2015.

Our long-held bullish outlook for the Vietnamese economy has continued to play out well. According to the
latest data from the General Statistics Office, Vietnam's real GDP growth for the first three quarters of 2015
came in at an impressive 6.5% y-o-y, beating the Bloomberg consensus estimate of 6.4%. Continued export
resilience despite cooling regional demand, sustained foreign capital inflows to the country, and a recent
strong pick-up in domestic credit growth are some of the key drivers that will keep the economy on a strong
growth path. We therefore expect Vietnam to remain a regional outperformer. Accordingly, we are
maintaining our forecast for the country's real GDP to grow by 6.4% in 2015, before accelerating to 6.6% in
2016.

US And EU Markets Provide A Buffer For Exports Amid Regional Headwinds

The strong economic showing is due in part to a resilient export performance. Despite facing a challenging
regional environment, Vietnamese exports managed to expand at a respectable clip of 9.6% y-o-y for the
first nine months of 2015, which marked only a slight moderation from previous year's double-digit growth
performance. This owes to Vietnam's high exposure to the US and EU markets, which has provided a
cushion against dwindling regional demand. Both the US and EU markets account for around 40% of
Vietnamese exports.

Vietnam Remains Attractive To Foreign Firms

Vietnam has also remained an attractive investment destination for foreign firms, and its ability to continue
luring capital inflows will contribute greatly to its ongoing economic development. Based on the latest
official data, estimated realised foreign direct investment (FDI) inflows came in at USD8.5bn for the first
eight months of 2015, representing a 7.6% y-o-y increase over the same period in 2014. In particular, we
expect the bulk of foreign capital to continue flowing into the manufacturing sector, given the relatively low
wage rates and generous tax incentives that Vietnam has to offer, which will greatly reduce the cost of
production for foreign manufacturers. Moreover, the relatively low political risk in the country is also
generally conducive for businesses, although we note that corruption remains an issue, as with most

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emerging countries in the region. With foreign firms like South Korean giant Samsung making rapid
inroads to the country in recent years, we expect many more to follow suit. There is thus the potential for a
strong investment pipeline in Vietnam.

Entry Of Foreign Firms To Sustain Output Growth
Vietnam - Industrial Production, % chg y-o-y

Source: Bloomberg, BMI

Sustained Output Growth On The Cards

High frequency economic indicators are also pointing to sustained production growth over the coming

quarters. Industrial production expanded by 10.1% y-o-y in September, reflecting the underlying
fundamental strength of the manufacturing sector. Meanwhile, the purchasing managers' index (PMI) came
in at 51.3 in August, marking 24 consecutive months of expansion. A PMI reading of more than 50
indicates an expansion in manufacturing output.

Easing Of Foreign Property Ownership Rule Will Bring In More Investment Inflows

In addition, the real estate market is also set to perform well on the back of the government's relaxation of
the foreign property ownership rule in July 1, 2015. Several real estate developers such as Singapore-based

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CapitaLand and Mapletree are already expanding their operations into the Vietnamese market in a bid to
tap on rising property investment and development opportunities.

Credit Uptick Reflects Robust Domestic Demand Conditions
Vietnam - Credit Growth, % chg y-o-y

Source: BMI,SBV

Strong Credit Uptick Reflects Robust Private Domestic Demand

Further informing our positive outlook for the Vietnamese economy is the recent strong pick-up in domestic
credit. Credit growth accelerated to 18.7% y-o-y in June, from 18.3% in the previous month, reflecting
strong underlying private consumption and investment demand. Meanwhile, the retail sales growth figure

for the first nine months of 2015 came in at a healthy clip of 9.8% y-o-y.

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Vietnam Petrochemicals Report 2016

Table: Economic Activity (Vietnam 2010-2019)

2010
Nominal GDP, USDbn
Real GDP growth, % y-o-y
GDP per capita, USD

2011

2012

2013

2014 2015f 2016f 2017f 2018f

112.9 134.6 155.5 170.4 185.8

2019f

190.3

199.9

224.0

252.2

283.5

6.0

6.4

6.6

6.4

6.4

6.3

1,267 1,496 1,712 1,859 2,007

2,038

2,121

2,358

2,635

2,940

6.4

6.2

5.2

5.4

Population, mn

88.4

89.3

90.3

91.4

92.4

93.4

94.4

95.4

96.4

97.3

Industrial production, % y-o-y, ave

14.1

10.9

7.0

5.9

7.6

8.4

8.6

8.6

8.5

8.5

e/f = BMI estimate/forecast. Source: National Sources/BMI

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Vietnam Petrochemicals Report 2016

Industry Risk Reward Ratings
Asia Petrochemicals Risk/Reward Index
BMI View: The average Risk/Reward Index score for the Asian petrochemicals sector has fallen by a
modest 0.1 point this quarter, although we see a potential pick-up in growth of regional giants such as
China, India and Indonesia. Overall, Asia's petrochemicals sector offers investors the opportunities to
realise considerable returns, reinforcing the region's status as the world's largest petrochemicals market.

The average Risk/Reward Index (RRI) score for Petrochemicals in Asia was 65 out of 100 this quarter, with
signs of growth in regional giants picking up as reform momentum gains traction. However, there is still a
substantial disparity throughout Asia. This translates into a significant divergence in rewards and risks
among the Asia Pacific infrastructure markets, and a sizeable 37-point differential exists between the topand bottom-ranked countries (South Korea with 80.1 and Vietnam 42.9) in our regional petrochemicals
index table. This wide dispersion presents investors with a range of rewards depending on their appetite for
risk.

The key findings from this quarter's update can be summarised as follows:
■

Exposure to the Chinese market slowdown has undermined the scores of Singapore and South Korea,
which will face a downturn in exports. However, South Korea remains at the top of the table.

■

Lower naphtha feedstock costs have helped revive growth prospects in Japan and Taiwan, lifting their
scores.

■

Australia's small petrochemicals sector is witnessing negative risk due to the declining availability of
competitively priced feedstock.

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Vietnam Petrochemicals Report 2016

Declining Chinese Risk Scores Undermine Regional Trend
Risk/Reward Scores By Country

Note: Scores out of 100, with 100 the best. Source: BMI

Much growth in China's petrochemicals sector has been underpinned by coal-to-olefins production in recent
quarters. This surge in capacity has driven down prices and threatened over-capacity in some segments at a
time of slow consumption growth. Structural imbalances within the Chinese economy - such as a weak
financial system, an overvalued property market, expensive infrastructure build-up, and huge industrial
overcapacity - are posing considerable negative risks. However, following declines in recent quarters, we
have not revised China's score further as the situation has not worsened, but stabilised.

India also faces threats to its rewards. Even though the historic win by the pro-business Bharatiya Janata
Party during the 2014 Lok Sabha elections improves the likelihood of policy formation and execution, as
well as greater coordination between ministries, other factors dampening petrochemicals activity are
unlikely to be resolved anytime soon. These factors include the high cost of domestic capital, high cost of
overseas inputs due to a relatively weak Indian rupee and the numerous business environment issues that
continue to delay infrastructure development (eg, environmental clearances, land acquisition, convoluted
bureaucracy).

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