x Abu Dhabi, UAESunday 21 January 2018

Gulf petrochems exports on track to rise

GCC producers export about US$53 billion worth of the raw materials for plastics a year, mainly to manufacturing hubs in the East.

Arabian Gulf petrochemical exports should increase by “a couple billion” dollars this year as Abu Dhabi completes an output expansion and a trade agreement takes effect, said a regional industry group.

GCC producers export about US$53 billion worth of the raw materials for plastics a year, mainly to manufacturing hubs in the East.

The Bali Package, a trade agreement to lower barriers to trade such as import tariffs and domestic subsidies, will also benefit Gulf producers by cutting clearance costs and shrinking lead times, cutting overall costs by 5 per cent, estimated Abdulwahab Al Sadoun, the secretary general of the Dubai-based Gulf Petrochemicals & Chemicals Association.

“We’re very pleased and excited about this and hopefully this will be implemented in a good spirit,” said Mr Al Sadoun. “Once this Bali accord is implemented, we do expect that there will be an increase of exports in terms of value by roughly around a couple billion US dollars.”

The agreement will save the global economy $400bn to $1 trillion by cutting the cost of trade by as much as 15 per cent, according to the World Trade Organisation, which is due to ratify the agreement in July.

In the petrochemicals industry, logistics costs stemming from shipping and customs clearance fees contribute 30 per cent of producers’ costs, said the GPCA.

The core of the increase in GCC exports will come from Borouge, the joint venture between Abu Dhabi and Austria’s Borealis that is doubling its production capacity to 4.5 million tonnes a day from 2.5 million tonnes.

It has opened several more offices in Asia as it seeks to increase its customer base by threefold to find buyers for the extra polymers amid slower economic growth in China and increased competition from a revival of North American’s industry driven by shale.

Its main targets are in automotives and infrastructure, riding on the urbanisation of China’s population and the growth of population centres in western China, the company’s chief executive has said.

Borealis is owned by International Petroleum Investment Company (Ipic) and Austria’s OMV, which is in turn part-owned by Ipic.

Last month, Saudi Basic Industries Corporation, the world’s biggest petrochemicals group by market value, reported a fourth-quarter profit of 6.16 billion Saudi riyals (Dh6.03bn), a 5.7 per cent increase on last year’s figure of 5.83bn riyals.

“Their margins were much lower, which means they were impacted by lower earnings,” said Iyad Ghulam, a research analyst at NCB Capital in Riyadh.

Sabic has been hit by lacklustre demand for petrochemicals as Europe’s economy grapples to overcome a financial crisis. Revenues at Sabic, which is cutting jobs and closing some plants in Europe, stood unchanged at 189bn riyals last year.

“We expect 2014 results to improve as there are forecasts of solid improvements in prices,” Bloomberg quoted the chief executive Mohammed Al Mady as saying in Riyadh yesterday. The company plans to expand its geographic footprint to markets in North America and China.

“We have a desire to invest in North America, as we like to participate in markets that present a challenge to us,” Mr Al Mady said. “We certainly want to invest in China as well, since it has the biggest market globally.”