SABIC aims to break into the US plastics market with GE Plastics and China strategy

SABIC reaches for the US

03 December 2007 00:00  [Source: ICB]

REACHING THE elusive US market for polymers could be the greatest obstacle in SABIC's ambitious expansion plans.

CEO Mohamed 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 SABIC's European and Asiaan operations. The integration will represent an organizational 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," says Al-Mady.

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 No. 1 engineering plastics firm in the US and lower-cost production facilities it has elsewhere.

Once the integration of GE Plastics begins in December, 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," says Al-Mady. "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 labor, the 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 do," says Al-Mady. "We are seeing how we can do that effectively without jeopardizing 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 brushes 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 argues.

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

DEVELOPING CHINA

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

China remains a vital location for SABIC, says Al-Mady. 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 continues to be the same between the US and Europe, it may be difficult to [ship] product," he says. "But depending on raw material prices here and the value of the polymers, it may justify direct shipments in the future ."

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

Freight costs and the price differences still prohibit exports to the US, but al-Mady says that scenario could change in the future. The key would be an "inventive" solution to the logistics.

He denies industry talk that SABIC could seek to create a distribution center in Panama. That location would give the company access to both coasts of both North and South America.

He also demurs 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 says.

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

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

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

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

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