Saudi Basic Industries closes $3bn China petrochemical deal

SABIC will establish a 50-50 joint venture with Sinopec, the Chinese national oil company.

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Saudi Basic Industries Corporation (SABIC) received final approval from the Chinese government on Saturday to build a US$3 billion (Dh11bn) petrochemical complex in China, offering it a major foothold in the world's fastest-growing chemicals market. SABIC will establish a 50-50 joint venture with Sinopec, the Chinese national oil company, to build a plastics and chemicals complex in Tianjin, near Beijing, that will produce 3.2 million tonnes of products when it is completed in September, the company said in a statement.

The plant will be SABIC's first major manufacturing centre in China, and is a key link in the company's aim to become one of the world's top three chemical companies by 2020. It is now the largest publicly traded firm in the Middle East. SABIC's focus on China comes as the global economic crisis has quickened an ongoing shift in the nexus of the chemical business from the US and Europe to Asia and the Middle East. The petrochemicals sector is in its worst downturn in decades, with high-cost producers in older markets closing plants and facing bankruptcy.

"China is the world's largest petrochemical market," SABIC said. The plant will "strengthen SABIC's strategic goal of being the world's preferred supplier of chemicals." When the joint-venture was first announced over a year ago, costs were estimated at $2.5 billion, but the price tag grew as the size of the project was increased, Mohammed al Mady, the SABIC chief executive, told Al Arabiyatelevision yesterday.

"What changed is the scope of the project," he said. The complex will produce several derivatives of ethylene, a raw material used in a range of consumer products including plastics. The joint-venture will also continue to explore the feasibility of producing polycarbonate, a more sophisticated plastic, from the output of the Tianjin plant. In its World Oil Outlook issued this week, OPEC forecast that by 2013, the share of global ethylene production situated in the West would fall to 35 per cent from 47 per cent in 2007.

The Middle East's share would grow nine percentage points to 20 per cent, OPEC said, while the proportion of manufacturing capacity in the Asia-Pacific region would rise from 30 to 34 per cent. OPEC says that demand for basic petrochemical materials is anticipated to grow mainly in the Asia-Pacific, particularly China and India. *with Reuters cstanton@thenational.ae