Middle East: After Years Of Growth, A Profits Squeeze Lies Ahead

The depressed economic situation in Europe, a key market for chemicals from the Middle East, is having a negative impact on the region’s chemical producers. Europe’s reduced need for polyethylene, ethylene glycol, fertilizers, and other chemicals has redirected Middle East exports to China. But in that country they fetch lower prices, says Paul Bjacek, head of research for chemicals and natural resources at the consulting firm Accenture.

Another problem is the ethane shortfall, caused by high demand from the region’s power generators and petrochemical producers. Without a ready supply, Bjacek says, newer companies are instead turning to refinery-derived naphtha as a raw material. They are using it to build up their capacity for aromatics and other chemicals with more than two carbon atoms, including butadiene, propylene, and propylene derivatives.

To ease their heavy reliance on profit from basic petrochemicals and polymers, the region’s leading chemical companies also will continue their policy of diversification into specialty chemicals, says Tony Potter, an analyst with IHS Chemical.

Saudi Basic Industries Corp. is among the region’s leading companies in both profitability and product diversification. SABIC CEO Mohamed H. Al-Mady told delegates at a Gulf Petrochemicals & Chemicals Association meeting in Dubai late last year that the industry’s future now has more to do with technology and innovation than feedstock price.

“We need to direct our efforts toward offering our customers more technologically advanced and complex products,” he said.

A recent agreement between the carmaker Jaguar Land Rover and the government of Saudi Arabia to study plans for an automobile factory in the country indicates the level of industrial diversification that the region aims to achieve, Potter says. Change is happening, he adds, but it is “generally quite a slow process.”