Anyone for plastics paradise?

In its quest for value addition, Saudi Arabia is aggressively marketing itself as an investment destination for the plastics industry. And processors from India are being wooed to set up shop in the Kingdom.

A delegation of Indian processors, just back from a visit, appeared impressed at what was on offer. The opportunities were discussed at a briefing organised by the Organisation of Plastic Processors of India (OPPI) earlier this week.

Plastics consumption in the Kingdom is currently about 1m tonnes/year as against production of around 7m tonnes/year. With polymer output set to spiral after the commissioning of new cracker complexes, raw material availability will not be an issue.
According to Dev Corp International, which is involved in developing plastics projects in the Kingdom, land is also not a problem and companies have a choice of setting up units either on the east or the west coast. The options include Jubail, Yanbu and the Plastic Valley in King Abdullah Economic City near Rabigh.

PetroRabigh, the Saudi Aramco-Sumitomo Chemical cracker and derivatives joint venture, is also setting up a plastics park at Rabigh. And the Saudi Aramco – Dow Chemical joint venture at Ras Tanura will also have a plastics processing zone.

Land is available for lease at $0.27/square metre/year, except for PetroRabigh where the rate is $1.35-$2.70/square metre/year including management fee.

Power costs are as low as $0.03/KWh. Funding should also not be a problem as soft loans are available from the Saudi Industrial Development Fund to cover up to 48% of the project cost. While Saudi law permits 100% foreign ownership, joint venture options are also available.

The Saudi government is also using the country’s location as a selling point. Processors can either export product to the neighbouring Gulf countries, Africa or Europe. The local market is also projected to expand as the government has adopted a cluster approach in developing the metals, automobiles, packaging and appliances sectors.

A few Indian processors were visibly excited by the opportunity. The Alpha Group has already signed an MoU with DevCorp to explore production of polyethylene bottles and speciality films.

But others were cautious with their principal concerns being availability of skilled manpower, living conditions in the Kingdom and competition from Chinese processors.

The Saudi government is reported to have set up institutes to train operators with the target being to churn out 300 operators every year. But experienced managers will have to be imported in the initial stages.

Saudi Arabia is one of the most sought after destinations for petrochemical investments because it offers the lowest priced ethane in the world. But I doubt if this advantage will be shared down the value chain.

It is still too early to say if the plastics strategy will work. It is a logical step forward and many of the advantages cannot be disputed. But China, especially its position in the global supply chain, will not an easy act to copy.

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2 Responses to Anyone for plastics paradise?

  1. Pranay 4 October, 2007 at 10:52 am #

    I look at this as a serious issue associated with plastic processing industry in India. Like Saudi Arabia, India also has ample supply of polymers. Even after that processors are finding Saudi as better option than India. Recent announcement of alpha group to setup processing unit in Saudi is indication of changing trend. Till now India was considered to be a good option for small, labour intensive units. But India is now loosing its edge because of its tax structure, reservation of SSI (applicable for many products of plastic processing industry, because of which big players can not enter those products and existing player not increasing unit size beyond certain level which is also reason for suboptimal size), non existence of any incentive for export, and higher duty for machinery import.
    If government does not change its policy related to petrochemical industry all growth plan of this industry could go for a toss.

  2. ProGasCasMash 4 December, 2008 at 4:14 pm #

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