UPDATE 2-SP Chemicals scraps $1.5 bln Vietnam petchem project

(Adds company comments, background)

HANOI/SINGAPORE, May 12 (Reuters) - SP Chemicals, which makes chemicals in China, has scrapped a $1.5 billion naphtha cracker project in Vietnam due to poor economic conditions and as it aims to lean on growing Chinese petrochemical feedstock supply.

SP Chemicals, which delisted from the Singapore stock exchange in March, said it expected feedstock supply from within China to exceed demand over the next 10 years, as Beijing's stimulus plan kicks in, making redundant its plan to feed its downstream plant in Jiangsu province from Vietnam.

"It may no longer be feasible for SP Chemicals to invest in its own plants in Phu Yen to produce intermediate products to be shipped to China, as they would be readily available in China itself," the company said in an e-mail response to Reuters.

The project in Phu Yen, a coastal province in south central Vietnam, announced in 2007 and planned for completion in 2014, was to produce 800,000 tonnes per year (tpy) of ethylene under the first phase.

Vietnam wants to develop its oil and petrochemical industry to feed growing domestic demand.

The country just fired up its first refinery, the 140,000 barrels per day Dung Quat plant in south central Vietnam. It has given initial approval for a major petrochemical complex in north central Ha Tinh province in which Taiwan's Formosa could invest up to $15 billion, making the facility the largest foreign investment project in the country.

Both provinces hug the coastline.

CHINA PETCHEM

China's State Council said in February it would speed up the construction of major ethylene projects and close down some outdated capacity, without specifying how much it would spend on the stimulus plan.

But state media had reported earlier the petrochemical stimulus plan would include 400 billion yuan for the construction of dozens of new petrochemical projects.

"Coupled with the falling demand for China's exports, especially from the United States and Europe, we expect supply to exceed demand over the next 10 years," SP Chemicals said.

China will likely raise its total ethylene production by about 20 percent to more than 12 million tpy by end-2009 and possibly to more than 18 million tpy by 2011, from about 10 million tpy now, Chemical Market Associates Inc (CMAI) estimated.

The project cancellation was first reported by Vietnam's official Vietnam News Agency (VNA) earlier on Tuesday, quoting the provincial government of Phu Yen as saying it had received a letter from SP Chemicals to scrap the development.

"That's true, we've already sent the letter. We told them we want to put an end to the project," Lim Lye Hin, SP Chemicals' general manager for the Vietnam project, said over the telephone.

"The economic situation is not favourable for such a huge project. The petrochemical situation has also been hit since last year," he said.