One of the worst downturns in the history of the petrochemicals industry is set to deepen this year as companies grapple with a flood of new supply from the Middle East, says Borealis, the Austrian chemicals firm that is majority-owned by the Abu Dhabi Government. Yesterday's forecast suggested that major investments in petrochemical plants in Abu Dhabi and across the region would take several years to begin generating lucrative returns. But the down-cycle in developed markets could play to the Gulf's advantage as it speeds up the closure of higher-cost producers, a Gulf chemicals expert said.
Product prices suffered from an increase in production from the Middle East last year, and would likely remain low this year as well, said Mark Garrett, the chief executive of Borealis. Costs would also increase as a result of the start-up of two new production plants, he said. "With two major start-ups, more Middle East capacity coming online and a continuing difficult economy, we expect 2010 to be even tougher than 2009," Mr Garrett said in the company's earnings statement.
"This year's financial result is lower than what we recorded in the boom years but in light of the severe recession this is an outstanding achievement that goes beyond our record year of 2007." Borealis recorded a net profit of 13 million (Dh65.2m) for the fourth quarter, a vast improvement from the loss of 122m at the end of 2008, but a 71 per cent retreat from last year's third-quarter profit of 46m.
Borealis is 65-per cent owned by the Abu Dhabi Government-linked International Petroleum Investment Company and is a joint-venture partner in Borouge, the plastics producer that operates plants in Ruwais and uses low-cost natural gas supplied by the Abu Dhabi National Oil Company. It produces the majority of its plastics and chemicals in Europe, where it is subject to the volatility of natural gas and oil prices, but also receives more steady returns from Borouge, of which it owns 40 per cent.
Borouge is set to triple production this year with the completion of a new plant, and plans to complete a second major expansion by 2013. At that point, Mr Garrett said last year, the majority of Borealis' output would come from Borouge. Borealis' shift to Abu Dhabi is part of a wider trend of European and US companies shifting operations to the Gulf that was likely to continue over the next decade, said Abdulwahab al Sadoun, the secretary general of the Gulf Petrochemicals and Chemicals Association.
"I see this as the future centre of geography for the global petrochemical industry," he said of the Gulf. "It is becoming much more evident - many producers from the US, Europe closing down their facilities, ageing facilities I would describe them [as], and exploring opportunities for partnerships in the Gulf." Gulf producers would fare better this year than last as demand picks up in China, their key market, Mr al Sadoun said.
"It's primarily having to do with the biggest market for our products, which is China. The growth in China is really the engine behind the excellent performance of the petrochemical companies in the Middle East," he said. "We do expect 2010 will be better than 2009." email@example.com