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Petrochemical industry in Pakistan.

Pakistan's chemical industry, excluding fertilizer is still in the developing stage. The production capacity of the chemical industry's can meet only 10 per cent of the country's requirement. The fertilizer industry, however, has shown unprecedented expansion, specially in nitrogenous fertilizer with the result that currently the country has a surplus of urea fertilizer which is being exported.

The present chemical industry consists of basic chemicals, pharmaceuticals and synthetic fibres.

EXISTING PETROCHEMICAL

PRODUCTION FACILITES

* No production facilities for building block petrochemicals e.g. ethylene exist. Except Urea and other nitrogenous fertilizers, Pakistan is highly deficient in the local production of first generation petrochemical products. The main reason may be attributed to the absence of domestic facilities for cracking of natural gas and Naptha or also fractionation of lighter gasses from petroleum refineries. Local facilities apart from nitrogenous fertilizers are therefore confined mainly to the production of nylon and polyester fibres based on petrochemical related imported intermediate raw materials such as Caprolactum, PTA and M.E.G. In the olefins, Pakistan has a small plant of 5 thousand tons per annum capacity for manufacturing Poyvinyle Chloride (PVC) based on an out-dated acetylene process using molasses as raw material. The PVC production from this plant during the last five years has been in the range of 2000-5000 tons per annum. Another plant having annual manufacturing capacity of about 5 thousand tons of low density polyethylene (LDPe) has been lying unutilised since 70s. This plant was closed down due to out-dated technology unfavourable economies of production and heavy financial burden.

* Due to negligible local production, Pakistan has always been importing (apart from other various petrochemical products) nearly all her requirements of thermoplastic resins which include polyethylene (PE), Polypropylene (PP), Polyvinal Chloride (PVC), Polystyrene (PS) etc. The present annual imports of thermoplastic resins is estimated to be in the vicinity of 168,909 metric tons recorded during 1989-90.

PLASTIC PROCESSING

INDUSTRY

Despite the constraints in import of raw material and processing equipment, Pakistan's plastic processing industry has developed over the years. Currently the industry is capable of producing of various types of plastic products ranging from sophisticated items like pipes, wire and cables, to household items, footwear and packing material. The country's annual processing capacity consisting of more than 2000 processors is estimated to be around 80,000 metric tons with a major share of extrusion process followed by injection moulding.

Synthetic Fibres

The local production of synthetic fibres is limited polyamides and polyester fibres and yarn

Polymide (Nylon)

In total are three plants for the manufacturing of polymide fibre and yarn with a total capacity of about 3,000 metric tons. All three plants are based on imported caprolactum and the production of these plants during recent years has been in the vicinity of 3000 metric tons per annum.

Polyester

Until 1980, no facilities for the manufacture of polyester fibre and yarn existed and the requirements, were being met through imports. In 1982 two plants for polyester fibre/yarn namely National Fibres Ltd. (a public sector project) and ICI (a transnational corp) started their commercial production. These two plants have the capacity to produce 27,000 metric tons of fibre and 3000 metric tons of yarn. These plants are utilising imported DMT/TPA and ethylene glycol as basic feedstock. Additionally, eight polyester yarn manufacturing plants based on imported polyester-chips are in operation with a total capacity estimated to be 10,000 metric tons per annum.

Aromatics (BTX)

In 1979 National Refinery Limited established the production facilities of BTX. These are capable of producing 25,500 metric tons of BTX, out of which benzene is 5000 metric tons. Tolune 9,000 tons and Xylenes 11,500 metric tons. The plant is catering to local an export markets. In the initial years of operation the unit's production remained in the range of 10,000 - 13,000 metric tons. Recently the production has declined considerably because of limited domestic and non-availability of export markets.

THE PETROCHEMICAL

END-PRODUCTS MARKET

Despite constraints, the bulk of petrochemicals are imported, there are higher rates of duties and taxes on imports and restrictive import policies. Pakistan in the past has expanded its petrochemical end-product market. For example, in the case of plastic material the duty/tax rate is about 200 per cent of the C&F value. The petro-chemical products being consumed include plastic materials, synthetic fibres. synthetic rubber and detergents. Plastics.

The plastic market consists of resins, sheets and finished products. The plastic resins market (thermo-plastics) was originally estimated in 1990 to be in the vicinity of 152 thousands M.T. Polythylene and PVC materials were estimated to be at the level if 65 thousands and 47 thousands M.T. respectively during 1990. Requirements of polyprolene (PP) have been phenomenally increased form 17 thousands M.T. in 1985-86 to 62 thousands M.T. in 1989-90.

[Tabular Data Omitted]

Synthetic Fibre Yarns

The synthetic fibres market comprises polyester, nylon, viscose and acrylic. Polyester fibre and yarn have dominating share of about 70 per cent in the total synthetic fibres market. Polyester requirements for the year 1990 was estimated at around 75,000 MT with a major share of texturized/filament yarn (i.e. 70 per cent).

Synthetic Rubber

The market size of synthetic rubber is comparatively very small in view of the small local type and rubber products industry. The leading synthetic rubber is styrene butadine rubber (SBR). The present consumption of SBR is estimated to be 5,000 metric tons per annum.

Synthetic Detergents

With the increase in the standard of living and the higher rate of urbanisation the detergents market has consistently expanded. The current market size of synthetic detergents used for cleaning, washing and bleaching purposes in the house-hold sector is in the vicinity of 2000 metric tons per annum.

Thermoplastic Resins

The bulk of Pakistan's thermoplastic resin requirements is imported. The imports originates from number of countries such as USA, Western Europe, UK, Hungary, South Korea, Japan, China and Qatar, PVC imports are mainly from the China, South Korea and East European countries because of the relatively lower prices.

No production facilities for basic products such as ethylene, propylene, butadine and methonal exist in the country, with the result that nearly all the requirements of intermediate and end products of these first generation products are being met through imports. The present annual imports of thermoplastics (LDPE, HDPE, PP, PVC and PS) in the country is estimated to be over 0.1 million tons. The potential demand for thermoplastics is much higher than the import level, as their growth in consumption has been checked through various measures such as higher rate of import duty, levy of custom surchage, Iqra surcharge and restriction on import of certain types of plastic processing machinery, Despite these measures, the plastic processing industry in Pakistan is fairly developed and more than 1000 processing units are engaged in the manufacture of various types of plastic products ranging from sophisticated items to house-hold products and packing material.

DEMAND OF END-PRODUCT

IN ESCAP REGION (Including Pakistan)

The major thermoplastics end-products demand are of low and high density, Polyethylene, polypropylene, polyviny, chloride, polystyrene and Polyurethene which account for 90 per cent of total plastic demand. Out of these thermoplastics bulk demand is of PE, PVC and PP.

The petrochemical end-products demand projection (1980-90) of countries in developing ESCAP region (including Pakistan) were developed with the help of growth rates. For each country and individual; product, different growth rates were applied using 1980 consumption data (given below) as base figures. The growth rates for each country (including Pakistan) have been selected considering the past demand growth with respect of general economy, the growth in major consuming areas and expansion/establishment of basic petro-chemical production facilities. Generally, higher growth rates have been used for countries which still have a low penetration of petrochemicals and where basic or even down-stream production facilities have been established or are expected to be operational during the decade.

During 1985-90 period the demand for petrochemical end-products (thermoplastic) in the ESCAP developing countries including Pakistan increased from 6 per cent (1965-80) to 8 per cent annual compound growth rate. To meet the demand of petrochemical end-products in Pakistan the loans for setting up basic petrochemical facilities have been active since mid 1960, the time when the country's major industrial development took place. Subsequently the project has been included in almost all the develop took place. Subsequently the project has been included in almost all the development plans. Initially, the planned facilities were based on naptha feed. Later discoveries of associated gases suggested a shift to gas feed stock and another indigenous feed stock i.e. molasses has also been under consideration. Apart from the uncertainty of feed stock, the market limitations and resource contraints, the factor's which have been responsible for nonimplementation of plans are given below:-

* International market conditions * Continuous inflation resulting in increase in capital outlay * Lack of interest of potential sponsors i.e. transnational companies because of expected excess capacity in the developed regions. * Shifting of priorities to ther important sectors of governments.

Establishment of petrochemical industry in Pakistan requires a basic policy decision at the highest level accepting the need for the industry's establishment and its economic constributions. Once this is done, a series of policy decision as well as institutional measures have to be taken for making the industry's establishment and operation a success. These decisions and measures include:-

* allocation of special fund for petrochemical end-product industry * Import duty concession on raw material * Tariff and other types of protection. * Tax incentives * Promotion of investment in downstream industries * Assistance in manpower training * Encouragement of local demand * Support services

Pakistan have presently small market size of petrochemical end-products as compared to their counter-part in the developed regions. The different in per capita consumption to develope and developing region (including Pakistan) is quite high. In 1981 the developing regions thermoplastics per capita consumption ranged between 2 and 6 kg. as compared to the developed regions per capita consumption was between 20 and 25 kg. This situation exists due to the reason given below:-

* That Pakistan is still in the initial stage of development * That she has a low per capita GDP with a low standard of living * That natural materials are easily available * That strong consumer resistance to switch over to synthetics (Petrochemicals) exist. * That markets restrict to Urban areas only to some extent. * That high rate of duties on (Primary products) and taxes and restrictive import policies and restricted the growth of petrochemicals.

Demand/Supply Gap

Present demand/supply gap of Petrochemical end-products for ESCAP region is given in aggregate forms as under:-

Present Petrochemical End-products Supply/demand Gap
 (Thousand Metric Tons)
Product 1990


Thermoplastics
LDPE 337
HDPE 386
PVC 495
PP 511
PS 280


PRODUCTION

At present facility for end-product (PVC) only exists in Pakistan with Acetylene (from Calcium Carbide) as raw material. Installed capacity is 4050 tons per year which is being utilised by 85 per cent. Other end-products are solely being imported to meet the coutry's requirements. Government's inconsistent policy, financial difficulty and lack of technical knowhow are the basic factors for non-establishment of Petrochemical industry.

Production of petrochemical facilities in developing countries including Pakistan is currently at a low level due to prevailing economic conditions. In developing countries the capacity utilisation generally is low also for reasons other than the economic conditions and market limitations. These factors are:-

* lack of training and experience of operating personnel; * defendence on developed countries for technical back-up; * low level of technical know-how; * non-availability of equipment spares and delay in procurements.

In developing countries under ESCAP region including Pakistan thermoplastics end-products production capacities during 1977 were 641 thousands. M.T. during 1979 these were 1,193 thousand M.T. and during the 1980 these were increased to 1570 thousand M.T. During three years Pakistan amongst ESCAP region countries has a lowest capacity from all other countries. There were 10 thousand M.T. during 1977, 5 thousand M.T. during 1979 and again 5 thousand M.T. during 1980 for PVC only. For Polythylene only 5 thousand M.T. was available during 1977. Against India's production capacity for PVC grew from 80 thousand M.T. to 132 thousand M.T. during 1980. Republic of Korea was on top in the production growth of end-product of petrochemical (thermoplastics).

CONCLUSION

The petrochemical industry is highly capital intensive requiring large amounts of capital out-lay. The aspect of the industry's financing is crucial as developing countries have limited capital resources. In developing countries investments in Petrochemicals compete with other priority areas, like provision of basic needs to the majority of the population and the development of infrastructure.

Since the bulk of the investment requirements for petrochemical plants in developing countries is in foreign exchange in view of nominal local import, and the major proportion of financing and raw materials have to be arranged from source countries. Therefore developing have keeping on relied on developed countries and UN-financial agancies for this vital industry. In - capability are the part of developing countries to arrange financing of this magnitude and supply of raw materials from oil producing countries will keep on hundles in the way of achieving self sufficiency in primary as well as end-products of Petrochemicals resins.
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Author:Islam, Mazharul
Publication:Economic Review
Date:Oct 1, 1991
Words:2207
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