Robust demand from Asia to fuel Gulf petrochemical industry in 2012

14-Dec-11

The petrochemical industry in the Gulf Cooperation Council (GCC) countries is expected to continue on its growth path in 2012, global management consulting firm A.T. Kearney said in its outlook for the sector. "Continuous solid demand in Asia, particularly China and India, and increasing European appetite for the Middle East products will drive the growth, and absorb the outputs of the new capacities. But the industry will also focus more and more on the regional GCC markets to serve local economic dev-elopment and facilitate the move towards downstream chemical and manufacturing," A.T. Kearney told Gulf News. "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, a global business advisory firm, 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 utilisation rates and poor margins for less-competitive companies," said AlixPartners. 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 3-5 years. 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%, as per AlixPartners.