Continuous solid demand from China and India to drive growth of Middle East petrochem industry

20-Dec-11

Continuous solid demand from Asia, particularly China and India, and increasing European appetite for the Middle East products will drive the region’s growth and absorb output from the new capacities, as per global management consulting firm AT Kearney. However, the industry will also focus more and more on the regional GCC markets to serve local economic development and facilitate the move towards downstream chemical and manufacturing. Finding the right balance between international expansion and local downstream development will be the key strategic challenge for the regional players next year. However, a separate study by AlixPartners showed that overcapacity threatens GCC petrochemicals profitability while chemical companies in the Middle East have benefited significantly from the availability of and proximity to oil and natural gas feedstock, production of many petrochemical products in the region will exceed demand significantly over the next few years, leading to low utilization rates and poor margins for less competitive companies.The study revealed that a major driver for this threat is the huge expansion of production capacity in the GCC coming on stream in the next 3 to 5 years. For example, approximately 50% of the new build global capacity for C2 based chemicals will be located in the GCC. Much of this new production is for the fast growing Asian markets, leaving the GCC chemicals sector exposed if the growth in Asia slows. Use of polystyrene may drop to only 50% of current demand and use of PVC from 80% to only 60%. Dr Jorg Fabri director of AlixPartners and author of the study said that "Chemical companies in the region will need to improve operational efficiency, especially in light of a potential further downturn in the global economy. This is a highly competitive and extremely cost sensitive industry."