InterviewGE Plastics expands SABIC’s reach

05 November 2007 23:42  [Source: ICIS news]

By John Waggoner

HOUSTON (ICIS news)--Reaching the elusive US market for polymers could be the greatest obstacle in the expansion of Saudi Basic Industries Corporation (SABIC), Chief Executive Mohamed al-Mady said in an interview on Monday.

Al-Mady, who joined SABIC at its inception in 1976, has just completed the acquisition of GE Plastics and is on the verge of integrating the largest US engineering plastics firm with Europe and Asia. The integration will represent an organisational achievement virtually unprecedented for a Saudi Arabian business.

“If there is one thing I would like to be remembered for, it’s creating the best human resources development plan in the kingdom of Saudi Arabia,” al-Mady said of the changes he has implemented in the company over the years.

Rather than operate the company as a stand-alone enterprise, GE Plastics will be technologically integrated with the rest of the company, enabling SABIC to obtain the maximum benefit from the know-how of the number one engineering plastics firm in the US and lower-cost production facilities it has elsewhere.

Once the integration of GE Plastics begins next month, the company will seek to answer one of the most intriguing questions circulating in the industry: how will SABIC reach the distant but promising US market for its diversified portfolio of products produced from low-cost feedstock?

“We were doing things without focus, now we are doing things with focus,” al-Mady said. “This gave our people room to think, to plan, to evaluate the business they have.”

Given the difficulties of forecasting, the complexities of the supply chain and the delays that are cropping up in projects worldwide due to a scarcity of labour, high cost of raw materials and soaring energy costs, reaching the US market is no easy task.

“We have not really come up with a complete strategy and plan that we can put a stamp on it and say fine, and we’ll do it,” al-Mady said. “We are seeing how we can do that effectively without jeopardising our profitability.”

The acquisition of GE Plastics is a major inroad to the goal of expanding SABIC’s sales.

SABIC acquired GE Plastics at a time when US car makers have been plagued in recent months by low demand. Al-Mady brushed aside those concerns.

The cyclical nature of the US auto industry and its history of recovering from previous crises suggest that the current downturn will not last, he said.

“These things may have a short term effect,” he said. “We are very lucky that we bought the company in the twilight of this financial crisis.”

An important next step is to develop its proposed cracker projects in China, which will help the company reach the US market for its diversified portfolio of products. SABIC still faces delays on its proposed cracker projects in China after three years of patient negotiations, al-Mady said.

China remains as a vital location for SABIC as a potential exporter into the US market, al-Mady said in an interview. Sky-high freight costs and the distance from existing facilities in Europe and the Middle East make China the most appealing solution as SABIC seeks logistical inroads to the US.

“If the price differential will continue to be the same between the US and Europe it may be difficult to bring product,” al-Mady said. “But depending on raw materials prices here and the value of the polymers, it may justify in the future direct shipments.”

The company has recently shipped test materials to both US coasts, according to industry sources. Al-Mady confirmed that this material was produced primarily in Saudi Arabia, except for engineering plastics material produced in Europe.

Freight costs and the price differential still prohibit exports to the US but al-Mady said that scenario could change in the future.

The key would be an “inventive” solution to the logistics, he said.

Al-Mady denied recent talk in the industry that SABIC could seek to create a distribution centre in Panama. That location would give the company access to both coasts of both North and South America.

He also demurred on the possibility of building a port terminal in the US that could handle bulk shipments, which arrive bagged but must be debagged to comply with US trade requirements.

“I am sure there are creative ways to go around it,” he said.

SABIC’s projects in the kingdom remain mostly on track despite rising costs and delays with its two big ethylene projects scheduled to go on stream in 2008.

“All plans are going forward, but there were delays and increased cost in some of the plants that we have planned,” he said.

Apart from slight delays, the Sharq and Yansab cracker projects should not be delayed by more than a few months. Al-Mady said projects in the kingdom share with others in the Middle East concerns about scarcity of manpower, increased material costs, high energy prices, and transportation costs.

“Contractors are still stretched out so we are very lucky that the delays are still manageable and the increased costs are still manageable, so most of our plans will materialise in the second half of next year,” he said.

By: John Waggoner
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