FocusGPCA '10: GCC producers optimistic on emerging markets

09 December 2010 06:30  [Source: ICIS news]

By Prema Viswanathan

petrochemical storage tanksDUBAI (ICIS)--Petrochemical producers from the Gulf Cooperation Council (GCC) region are cautiously optimistic about achieving good netbacks in 2011, they said on Thursday, supported by strong demand in emerging markets such as China, India and South America.

"While petrochemical demand in the developed world is not expected to grow at a spectacular pace, emerging markets such as China, India and Brazil are showing exponential demand growth, above GDP levels," said a senior executive with a leading Saudi Arabian petrochemical company.

The executive, who wished not to be identified, was speaking with ICIS on the sidelines of the 5th Gulf Petrochemicals and Chemicals Association (GPCA) forum being held in Dubai, the United Arab Emirates.

GDP growth in China and India was expected to cross 9% and 8% respectively in 2010, and petrochemical demand growth was set to grow at an even higher pace, another GCC producer said.

Similar sentiments were expressed by the American Chemistry Council's chief economist, Kevin Swift, who said in New York this month that during the next two years, the most rapid growth would occur in the emerging nations, most notably in China, India and Brazil, while South Korea, Singapore and Taiwan would present good growth prospects through 2012.

Another positive for the GCC producers was that the spectre of overcapacity which had haunted them at the GPCA forum this time last year seemed to have receded. Most of them heaved a sigh of relief that the price collapse they had feared did not come to pass.

On the contrary, prices of most products have been rising sharply in recent months, barring some volatility, with at least one GCC producer, who wished not to be identified, expressing concern of downward pressure on prices in the second half of next year.

"The fundamentals are still strong in key markets such as India and China, where domestic demand continues to be strong," said William Yau, CEO of Borouge's marketing arm.

Borouge has been growing its distribution and compounding presence in China and extending its reach to untapped areas in a bid to pre-empt a skewing of the demand-supply balance in the future.

Other producers like SABIC and Saudi Aramco have been embarking on joint ventures in China to get closer to key customers.

But concerns over trade barriers continue to worry Middle East producers.

"The structural imbalance between developed and developing economies following the global economic downturn has led to more protectionism in the developing countries," said SABIC CEO, Mohamed Al-Mady.

India has recently imposed anti-dumping measures on polypropylene (PP) imports from Saudi Arabia and Oman, unleashing fears among GCC producers that other key markets such as China may emulate the Indian example.

Another worry is the dearth of gas feedstock in some of the GCC countries, notably Saudi Arabia.

"Natural gas is available in Saudi Arabia in the long term, but in the near term there could be shortages as extraction projects are not moving ahead at a fast pace," said a senior official with a Saudi petrochemical company.

Meanwhile petrochemical end-users in the GCC were concerned that their margins would be further squeezed if prices continued to climb in 2011 on the back of higher crude and feedstock prices.

PP homopolymer grade prices, for example, rose by about $80/tonne (€60/tonne) to $1,400-1,420/tonne CFR (cost & freight) GCC for December cargoes from November levels.

"We were hoping for [an easing] in polymer prices by end 2010, but now that looks like wishful thinking. It is becoming extremely hard for us to pass down our raw material costs to our customers," said a PP converter in Dubai.

The three-day annual GPCA forum runs through 7-9 December.

($1 = €0.75)

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By: Prema Viswanathan
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