JG Summit Petrochemicals Group

“Global economic uncertainty and ongoing trade tensions which began in 2018 carried through into the whole of 2019. The petrochemical business was beset with relatively high crude oil and raw material prices, whereas prices of petrochemical products fell sharply in 2019 as demand growth weakened and supply length increased, with the new start-ups in the Middle East and the US having started to flood the market. Petrochemical producers reached the year-end with product markets under pressure from slower demand and with a subdued outlook for 2020, which has just started to also be compounded by the worsening health situation in China. 2020 will prove to be a difficult year for the petrochemicals business but we will carry on and focus on the start-up before end-2020 of the new value-added businesses.”

- Patrick Henry C. Go,

President and Chief Executive Officer

JG Summit is a pioneer in the petrochemical industry in the Philippines, having two wholly-owned petrochemical investments operating its fully integrated world-class manufacturing complex in Batangas City, around 120 km south of Manila. These subsidiaries, JG Summit Petrochemical Corporation (JGSPC) and JG Summit Olefins Corporation (JGSOC), are collectively known as the JG Summit Petrochemicals Group (JGSPG).

2019 Financial Performance and Key Developments

In 2019, JGSPG was faced with a severely depressed petrochemicals market, primarily brought about by the global economic slowdown caused by the protracted US-China trade tensions.

Due to dampened market conditions, oversupply especially for linear low-density polyethylene (LLDPE) and also some production losses from operational issues, total capacity utilization for the polymer plants dropped to 63% in 2019, from 2018’s 69%. Owing to weak polymers demand, 2019 capacity utilization of the upstream cracker facility also had to be reduced to 67%, from 2018’s 94%.

Despite some optimizations from several successful swing runs of the polyethylene (PE) reactors, which helped allocate PE reactor production towards higher-margin high-density polyethylene (HDPE) grades rather than oversupplied LLDPE grades, total polymers production dropped 16% to 349 kilotons (kT) from last year’s 417 kT, in response to lackluster PE and polypropylene (PP) demand.

Combined revenues of JGSPC and JGSOC for the year dropped by 31% to Php30.1 billion, while EBITDA was only about a tenth of last year’s, at Php539 million. This covers net sales volumes of 649 kT of both export bulk chemicals and polymer products.

We have also successfully executed the bulk of our expansion projects in 2019. These projects will allow us to move further downstream with new derivatives namely Butadiene and Raffinate-1 from Mixed C4, and Benzene, Toluene and Mixed Xylenes from Pygas; and further diversify into value-added polymers with our polypropylene expansion and new bimodal polyethylene plant by 2020. In October 2019, we started our two-month complex-wide shut down for our plant’s turnaround maintenance, expansion project tie-ins, and reliability improvement initiatives.

5-Year OGSM

JGSPG has undergone series of strategic planning sessions in line with JG Summit’s strategic framework. In addition, we used JGSPG’s vision and mission statements as guidance in determining our long-term ambition, goals, strategies and plans in the coming years.

With the ongoing complex-wide expansion well underway, JGSPG is further expanding the business through relentless innovation and development of higher-value products, to then be able to access higher-margin markets. The company continues to strive towards operational excellence and is in constant pursuit of value-adding opportunities, which are levers towards sustaining profitable growth. We aim to accomplish all of these by ensuring the development of our people, by always carrying out our operations in a safe and efficient manner, and by being environmentally responsible in all aspects of our enterprise.

We have also set key strategic areas on where we shall play in order to achieve our ambition. First is prioritizing our domestic markets where we will maximize sales to current and prospective local customers. The Philippines has a sizeable domestic polymers and chemicals market that is still very much reliant on imports and therefore can benefit greatly from having a reliable local supplier. We will also serve close-to-home markets where we can take advantage of the Philippines’ geographical location vis-à-vis the South East Asian (SEA) and North East Asian (NEA) logistics. We could also realize value from arbitrage plays as the facility has the capability for loading deep sea cargoes to serve destinations such as the US and Europe which can be tapped whenever the opportunity arises. In addition, we shall optimize existing assets and investments. The available facilities allow us for expanding the product portfolio to include high-demand, high-margin fuels such as LPG and jet fuel. Lastly, we will strengthen direct linkages, i.e., target direct buying and selling where able. We will optimize direct supply and distribution channels for maximum margins.

Future Business Outlook

In light of the ongoing expansion of the petrochemical complex, key focus areas for JGSPG in 2020 are the timely, safe and successful execution of the ongoing projects; and the organizational readiness for the expanded operations for all functional groups, upcoming new products such as butadiene, raffinate-1, aromatics, bimodal and metallocene PE, and upcoming new businesses such as LPG trading, sales and marketing of local aromatics for chemicals use and gasoline blending.

While the ongoing COVID-19 global health pandemic is expected to severely impact the first two quarters of 2020, the new downstream products and upcoming fuel sales are expected to improve overall margins starting 4Q 2020, as the company starts to shift gears towards serving higher-value markets. Potential upsides are also carefully being studied, such as olefins importation to help maximize expanded polymer capacities, and the possibility of increased LPG sales for fuel use, both of which will depend on how market demand evolves in the coming months.

By 2021, all expanded and new units are expected be fully commissioned. To more efficiently support the business’s expanded requirements, JGSPG is currently augmenting its existing manpower pool with the necessary additional resources, bringing in more experience into the organization via aggressive recruitment for all levels including senior management.

Annual Report 2019

URC

RLC

CEB

JGSPG

RBANK