IRPC gives up on refining business

       IRPC Plc, a petrochemical manufacturer and oil refiner affiliated with PTT Plc,has decided to focus solely on the petrochemical business now that the increasing popularity of alternative fuels has dimmed the prospects of its refinery.
       "We've decided to move ahead to achieve our goal of being a leader in integrated petrochemical business. The refining unit will still be running only to serve our petrochemical units," said chief executive Pailin Chuchottaworn.
       Dr Pailin pointed out that IRPC's business strategy needed to be improved as part of its plan to rehabilitate the company's performance, which has underperformed in recent years.
       Atikom Terbsiri, senior executive vice-president for corporate strategy planning, said the refining industry was facing sluggish demand and a surge in supply, clouding the outlook of the industry.
       Factors curbing the demand include the global economic slump and the fast adoption of alternative fuels to replace conventional fuels, estimated to reach 20% in the future. Furthermore,large refinery players are entering the global market.
       "Under such a circumstance, refining margins are under pressure. Given both external and internal factors, we decided to change direction," Mr Atikom said.
       IRPC's new business strategy aims to transform its operation into the topquartile integrated petrochemical complex in Asia by 2014.
       The strategy involves improving production capacity, adding value, reducing cost, maximising asset value and investing in high-margin products.
       More investment is planned for the petrochemical unit to increase efficiency and expand the capacities of highmargin and high-growth products such as acrylonitrile-butadiene-styrene (ABS)and polypropylene.
       It also plans to commercialise its ports and tank facilities through possible joint-venture investments.
       Its 11,000 rai of unutilised land mainly in Rayong, Songkhla and Chiang Mai provinces, would be developed as industrial land serving local industries and some of the plots may also be sold.
       "To implement these plans, a $1.2-billion investment is planned over the next five years from our own generated cash flow. More loans will be sought if this is not enough as our lever-age is relatively low. Our debt-to-equity ratio is only 0.3 times," Mr Atikom said.
       Dr Pailin said the undeveloped assets had been a drag on the company's performance. He hopes the new business strategy will improve the company's return on invested capital (ROIC)to three times the current level in the next five years.
       "Our ROIC is currently at 8-9%. Compared to our peers, we have the capacity and potential to improve. So the target is to achieve a 23% return by 2014. This goal is possible when our initiatives are accomplished," he said.
       The executive expects crude prices,at $72 a barrel in Dubai, to stay at this level until the end of the year although short-term fluctuations cannot be ruled out.
       Crude prices at these levels will continue to suppress refining margins but the petrochemical industry is benefiting from improving demand in China, a trend also likely to continue until yearend.
       In any case, he expects an improvement in performance in the third quarter and further gains in the last quarter if petrochemical product prices continued to improve.
       IRPC shares closed yesterday on the SET at 3.44 baht, unchanged, in trade worth 102.6 million baht.