03 April 2012 14:15 [Source: ICIS news]
DUBAI (ICIS)--The Gulf is in the process of diversifying into more value-added downstream petrochemicals, given the growth potential in both the domestic and export markets, members of the Gulf Petrochemicals and Chemicals Association (GPCA) committee said on Tuesday.
The key reason to diversify downstream is to create jobs for the Gulf’s younger demographic, GPCA committee members said prior to the third GPCA Plastics Summit, which will run from 3–5 April.
“[The] upstream petrochemical industry is chemical intensive, but not labour intensive,” GPCA general secretary Abdulwahab al-Sadoun said.
“Especially in Saudi Arabia, about half the population is below 25 years old. These are job seekers,” added committee member Manfred Klepacz, CEO of the industrial sector of Al Rajhi Holding.
Saudi Arabian producers are indeed diversifying their portfolios to encompass more downstream products, such as engineering plastics, synthetic rubbers and performance polymers like acrylate, Al-Sadoun added.
Regional governments are also playing their part to boost downstream sectors by providing infrastructure, he continued.
For example, Sadara Chemical Company – a joint venture between Saudi Aramco and US-based Dow Chemical – has a worldscale integrated chemicals complex in Jubail Industrial City II, connected by railway.
Not only are downstream petrochemicals becoming the hot topic, but new industry clusters targeted at converted plastics sectors – such as automotive and white goods – will emerge within the next five years, Klepacz added.
“Both automotive and white goods segments are currently not the main drivers in the plastic converting business [in the Gulf], unlike the packaging sector, which accounts for more than half of the plastics industry,” he added.
The second-largest plastics sector is the construction industry.
“Most of the export business of finished plastic goods is for packaging, because of the logistics advantage,” Klepacz said.
However, in order to encourage investment in the converting sector, converters have to remain competitive with companies in north Africa, Europe and the US, he added.
“Converters should take advantage of the close proximity to resins producers to reduce operational costs,” Al-Sadoun said.
Apart from operational costs, production costs could be reduced if the converter is able to buy resins locally, as resin costs account for 70% of the total production cost.
“[Gulf Cooperation Council]-based producers are expanding their product portfolios to [add] more value-added polyolefins resins, such as metallocene linear low density polyethylene [MLLDPE]. Converters who usually import MLLDPE will have better margins once these new capacities are added in the region,” Klepacz said.
“Besides resin prices, currency fluctuations and freight rates are also concerns for export-oriented converters,” he added.
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