FocusGPCA '09: Global petchem leaders wary as overcapacity looms

10 December 2009 04:29  [Source: ICIS news]

By Pearl Bantillo

DUBAI (ICIS news)--Global demand for petrochemicals will continue to gradually pick up from here onwards, but the industry will have to tough it out because of overcapacity occurring in 2010, industry executives said on Thursday.

After having gone through a difficult phase since late 2008 - when demand slumped when the financial crisis hit, the industry still faces challenging times ahead, said industry leaders attending the 4th Gulf Petrochemicals and Chemicals Association (GPCA) summit - the largest annual gathering of petrochemical players in the Middle East.

Major players like ExxonMobil and Shell would have their huge petrochemical complex in Singapore up and running next year, targeting the China market, which itself would have more capacity coming on stream. The same is true for the Middle East.

“There is an unprecedented amount of new capacity coming on and that suggests that industry utilization rates will be low and I think that is going to be with us for sometime,” said Stephen Pryor, president at ExxonMobil Chemical.

Economies are still recuperating from the damage of the recession and demand for petrochemicals - closely linked to the level of economic activities - was not expected to make a strong come-back.

“Demand … is recovering a little bit but supply is growing rapidly as well. The whole balance will play out in the next quarters. 2010 will be a very important year,” said Ben van Beurden, executive vice president at Shell Chemicals.

“We need to have a lot of economic recovery in order to soak up all the additional supply that’s coming up,” he said.

The world economy should be able to grow 3.1% next year, following a projected 1.1% contraction in 2009, based on the World Economic Outlook of global financial stability watchdog, the International Monetary Fund (IMF).

Pryor said global demand for petrochemicals would likely grow at around GDP levels next year.

Demand recovery this year had been underpinned by China’s strong consumption, induced by a massive fiscal stimulus package of its government amid the global recession.

“There are elements of a weak recovery so you’re seeing the [petrochemical sales] volumes improve somewhat. It’s a little bit uneven. It depends upon the sector. Some sectors are doing better than others,” said Pryor of ExxonMobil.

Petrochemical products are used in a wide variety of industries such as construction, automotive and food packaging, among others.

“There is some room for optimism – things have not normalized but things have improved,” said Mohamed Al-Mady, president of Saudi Basic Industries Corp (SABIC).

Major economic pump-priming across the world also helped propped up other economies in the world with Asia
leading the global recovery.

Global economic growth would be weak next year but at least it would no longer be a recession, said Brad Bourland, chief economist at Jadwa Investment Co and managing director of Proprietary Investments.

Stimulus measures implemented by governments were likely to remain in place, said Bourland, to allow economies to recover from the worst downturn they had in decades.

A weak economic growth amid growing capacity additions, however, “limits the scope for sharp increase in prices” for the petrochemical industry, Bourland added.

“2010 will be a year with a lot of uncertainties. There are plenty of signs that show the worse may be behind us. But at the same time, I’m also a realist, you can’t hope to get everything right in terms of timing, outlook and prediction,” said van Beurden of Shell Chemicals.

The three-day GPCA meeting this year titled “Breaking Through the Crisis and Pursuing Sustainable Growth” drew more than 1,000 participants from all over the world.

The conference will end Thursday.

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By: Pearl Bantillo
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