Background on Cluster
For some time now, the unions in the oil, petrochemical, energy and chemical industries have been meeting informally to share information on industry trends and brainstorm on solutions to common challenges faced by their industries. The group called themselves the Petroleum and Chemical Communication Committee (PCCC). Unions in the petroleum industry started the PCCC in the mid 1980s and over the years the grouping has expanded its membership to include unions in the chemical and, more recently, the energy industries.
At the last PECC meeting held on the 24 Jul 2002, the Committee decided to expand their role to include forging teamwork with the tripartite partners. The Committee decided to formalize the grouping as the Oil, Petrochemical, Energy and Chemical (OPEC) Cluster. This is the 4th cluster that has been formed.
Unions in the OPEC Cluster
CIEU, EMSEU, SRCEU, SSEU(Shell), UPAGE and UWPI are members of the OPEC Cluster. These 6 unions have a total of 20,124 members (36% are GB members) as at Jun 02.
Trends & Challenges for the Cluster
a. Industry Performance - Chemicals cluster attracted S$1.9 billion worth of investments in 2001, making it the 2nd largest contributor to manufacturing after the electronics and precision engineering cluster. Total output for 2001 was S$16 billion with a value add of S$5.5 billion.
b. Industry Outlook - EDB sees strong potential for growth in the long-term. Although the outlook for 2002 is uncertain and hinges on the strength of the global economic recovery, EDB expects to maintain the same level of investment commitments. Interest to invest in new activities remains firm. EDB is adopting a holistic approach to grow the breadth and depth of the chemicals cluster across both manufacturing and services in Singapore:
Innovation: Singapore is fast developing into a hub for innovative activities for both established chemical companies and start-ups. These companies capitalise on Singapore's ability to gain a first-mover advantage to innovate, apply new technologies and develop new solutions for the global and Asian markets:
Nurturing new areas: As EDB expands the breadth of the chemical industry, there would also be diversification into new growth areas, such as performance materials and alternative fuels. These new areas will further strengthen the existing base for future growth. EDB signed a Letter of Intent with BP Singapore to develop and supply the required hydrogen refuelling infrastructure for clean fuel cell cars, equipped with hydrogen-fuelled fuel cell power-trains.
E-enabling business: E-commerce continues to transform the business processes of many chemical companies as they leverage on Singapore's excellent infrastructure to introduce e-solutions. ChevronTexaco has chosen Singapore as one of its three global e-hubs. This hub will provide Internet connectivity and infrastructure, and serve as a centre of expertise for ChevronTexaco's Asia Pacific IT operations. GE Plastics e-Innovation Centre, supports the e-business efforts of GE Plastics in the Asia Pacific by facilitating online transactions and localising e-business applications developed in US for this region. The centre began its operations in Singapore in 1999 and is rapidly growing its activities here. The company expects Singapore to be its global e-business hub by 2005.
Creating business opportunities for specialised services: The growth of the chemical industry in Singapore has allowed it to reach a scale that encourages providers of specialised services to customise solutions for local needs. Supply Chain Management provider, Katoen-Natie SembCorp has announced the setting up of its Specialty Chemicals NODE which will provide tailor-made solutions for specialty chemical companies. Over time, EDB expects to see an increase in the scope of such specialised services for the chemical industry.
c. Trends
Mergers/ Joint Ventures and Acquisitions
In recent years, multinational companies in the petroleum, petrochemical and chemical sectors have merged and/or acquired by other companies in a bid to cut costs in a market where margins are under pressure and intense competition. The merger of Exxon and Mobil, Glaxo Wellcome and SmithKline Beecham are examples.
The drug industry's alliances and takeovers are a response to a mix of rising drug development costs and increasing sales pressures. Patents on existing blockbuster drugs are expiring. When a patent on a drug expires, the drug's maker can lose as much as 80% of sales to generic knockoffs. Between 2000 and 2004, drugs generating $43 billion in US patent revenue will expire.
The recent acquisition of Pharmacia by Pfizer may be the forerunner of more consolidation in the US$300 billion industry. Its largest US competitors - Merck and Bristol-Myers Squibb - may seek partners due to impending patent expiration and cheaper generic competition.
Globalisation
The traditional high capital cost of investments, technology and knowledge are no more barriers to entry of new producers for the chemical cluster global markets. Producers are no longer limited to the developed countries; developing countries such as China, Korea, Thailand, Taiwan, Singapore and Malaysia are competing for a share of the higher margin business.
Intensified Competition
The increased number of new producers has resulted in over supply and dumping of excessive production and price reduction. Market share and cost of production has become a critical factor for survival in the business as producers geared up to phase out the inefficient producers.
Shell is pushing ahead with the China project. It is ploughing US$4 billion to Nanhai - where the world-scale market is. Following its WTO entry, the Chinese appetite for petrochemicals is expected to soar more than 60 per cent by 2004, and by 100 per cent by 2006. The Opening of Malaysia's big petrochemical complex in Kertih, Trengannu signals yet more products competing in the depressed South-east Asian and South Asian market.
Drug makers faced increased pressure from health care group to keep future price increases at modest levels. Drug makers have been able to shorten the time for developing a breakthrough drug, they encounter competition sooner than ever. The new $1.4 billion arthritis medicine Celebrex from Monsanto Co faced a similar product from Merck within five months.
d. Impact
Job losses - 1,548 employees were retrenched in 2001 a 4-fold increase compared to 2000. Pzifer Inc takeover of Warner Lambert resulted in 8,000 job losses. Merger of Sandoz and Ciba-Geigy to form Novartis resulted in 14,000 job cuts.
e. Unions' response - skills upgrading, multi skilling, partnership at the workplace through implementation of productivity improvement, training and workplace health & safety programmes.
Recently, at the gathering by the Financial Services Cluster, I mentioned that we have to moderate our expectations of wage increases. The release of the 3rd Quarter flash estimates confirms that it is prudent to do so. Growth was only 3.7% over the same period last year. On this trend, we may expect to see growth for the year of about 3% only.
