15 September 2010 10:46 [Source: ICIS news]
LONDON (ICIS)--The next phase of growth for the chemicals industry in the ?xml:namespace>
The analysts said a transition in the region away from new commodity chemical plants was being driven by three main factors: limited availability of gas-based feedstock; a focus on employment generation rather than exports; and economic diversification away from oil.
“This is good news for the global commodity chemical sector as it reduces the threat of potential oversupply,” said HSBC.
“However, it implies an end to the era of ‘easy growth’ for regional firms, as the addition of highly advantaged template commodity chemical plants is no longer feasible,” it added.
The bank’s analysts said the easiest way of dealing with limited feedstock and the need for employment-generating industries would be a shift towards downstream chemical manufacturing, although they added that there would be limits to how far the regional industry could go given the constraints created by limited local end-use demand.
“We believe the move towards true ‘specialty’ chemicals such as dispersants, fragrances and catalysts is probably the better part of one to two decades away,” said the analysts.
“However, ‘commoditised’ specialities and intermediate chemicals such as adhesives, coatings and engineered plastics can be made in the Middle East,” they said, adding that these products would require the Middle Eastern chemical industry to have recourse to both a new set of feedstocks and a new skill set.
The analysts said they expected to see greater involvement from national oil companies in the petrochemicals sector as several feedstocks required for downstream manufacturing are refinery streams.
They also said smaller players in the market would struggle to become part of downstream growth opportunities due to a lack of portfolio breadth and market access, and that his could lead to consolidation or overseas acquisitions.
“Based on our proprietary viability analysis of over 40 different downstream production options, we believe that the most viable route for the industry to take is that of producing ‘differentiated commodities’ rather than true specialty chemicals,” said the HSBC analysts.
These differentiated commodity products were likely to favour companies with scale, as it would offer them integration opportunities, leaving Saudi Arabia-based petrochemical major SABIC as the company with the strongest growth potential, the analysts added.
“SABIC currently trades in line with the regional chemical sector despite having superior growth prospects, which should ideally translate into a premium to the sector,” said the analysts.
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