The Gulf could emerge as a major petrochemicals producer soon as supply from giant projects come online, industry executives say.
In the GCC, “there’s already so much installed capacity that they will always be a major player in the industry,” said Udo Huenger, the Middle East Head of Germany-based BASF, the world’s largest chemicals producer.
Petrochemicals are the backbone of many industries and are used in everything from cars, to electronics, and clothing.
The Gulf’s share in global production capacity doubled to 6.6 percent in 2017, from 3.2 percent in 2000, according to the Gulf Petrochemicals and Chemicals Association (GPCA).
The setting up of major petrochemicals projects coupled with the development of new crude oil to chemicals technology by Saudi Basic Industries Corporation (SABIC) and its largest shareholder Saudi Aramco, will boost the GCC’s chemical capacity by nearly 34 percent in the next decade, the GPCA forecasts.
Huenger believes there will be enough demand in the market when those products hit the market. Africa, India, and Turkey are markets that are very close to the GCC, which is a “huge” market itself, he added.
“If you take out the trade war … there’s still a lot of [demand] growth to be tackled,” Huenger said, shrugging off concerns about a potential oversupply.
He hopes that firms will look at the capacities and demand in the market before making investments, “because that would basically ruin margins for everyone,” he explained.
Trade war pressures
At present, however, chemicals suppliers are stuck in a rut as trade war-related tariffs destroy their razor-thin margins.
BASF’s operating income fell 24 percent year-on-year during the period July to September, while its Saudi Arabian counterpart SABIC’s net profit plunged 86 percent in its latest quarter.
SABIC’s feedstock supplies were affected during the quarter after attacks on two key oil installations in the Kingdom.
At an industry event last week, the Riyadh-based petrochemicals maker’s CEO Yousef al-Benyan called for more consolidation and partnerships in the Gulf’s chemicals industry.
“2019 … is becoming the most challenging year for the global economy,” he said.
Global consumption levels are expected to recover as economic growth rebounds.
For as long as economic growth is predicted to pick up in the next five to 10 years, “we expect that on the demand side, there will be a positive element for the business,” said Fernando Gomez, the World Economic Forum’s chemicals and advanced materials head.
He also said that the regional petrochemical industry could position itself in a way to take advantage of changing market conditions.
“The relevance of the Gulf petrochemical industry is definitely not disputed,” said Gomez.SHOW MORE