[SINGAPORE] A potential merger between Dow Chemicals and DuPont could unleash a new force in Asia's growing petrochemical sector with combined regional sales of nearly US$17 billion to compete in an industry dominated by Middle East and East Asian firms.

News of advanced talks between the US rivals on a merger to forge a group with a market capitalisation of over US$120 billion broke this week, amid reports that this could be followed up by a split into companies focused on agriculture, specialty chemicals and materials.

Both Dow and DuPont declined to comment on Wednesday.

Whether as a newly created company or a subsidiary of a huge parent, it could create a petrochemical business with research operations in top consumer China, manufacturing in the trading hub of Singapore and feedstock facilities in two of the main export hubs, Saudi Arabia and the United States.

Such a combination would offer a challenge to Asia's established players such as Japan's Sumitomo Chemical, Taiwan's Formosa Petrochemical Corporation and South Korea's Lotte Chemical. "Anyone who is in that realm could be a little bit daunted," said Ee Foong Ewe, vice-president for ICIS in Asia, an energy and petrochemical consultancy.

He said that a merger would allow the firms to consolidate production and focus on growth areas in Asia.

Dow Chemical and DuPont have already benefitted from the US shale boom that has provided cheap feedstock to allow them to produce petrochemicals more cheaply.

So far, Asia-Pacific is the second smallest region for the companies behind North America and Europe-Middle East-Africa but ahead of Latin America. Their combined 2014 sales for Asia-Pacific were US$16.84 billion, or 18 per cent of joint sales.

This is only slightly below Sumitomo Chemical's global sales of US$19.5 billion in 2014 and over half of Taiwan's Formosa's worldwide sales of US$30 billion.

An often overlooked part of the oil industry, petrochemicals are used in manufacturing and construction, and also in all forms of plastics.

Analysts say global revenues could approach US$1 trillion early next decade and the industry is currently benefitting from the almost two-thirds fall in crude oil prices since 2014, resulting in healthy margins.

With demand in North America and Europe peaking due to slow growth and pressure to use less plastic, established chemical firms are seeking new markets.

This has shifted their focus to Asia, where demand for petrochemicals and plastics, in particular, remains strong.

Dow Chemical and DuPont have independently invested in petrochemical research laboratories in Shanghai, employing hundreds of scientists.

DuPont has three manufacturing sites in Singapore, while Dow Chemical has invested in petrochemical export facilities in Saudi Arabia, where Sadara Chemical, Dow's joint venture with state-run oil firm Saudi Aramco, started operations this month.

A source at a large petrochemical firm in South Korea said he did not expect an immediate impact on the market if there was a merger, but said given the potential size of any deal his group was closely watching events.

REUTERS