Mideast petchems shift to Asia/Africa on weak East Med markets

Focus story by Muhamad Fadhil

AMMAN, Jordan (ICIS)–Middle Eastern petrochemical producers are looking at diverting cargoes to the Asian and African markets amid declining margins and weak sales prospect in the conflict-ridden East Mediterranean (East Med) region, industry sources said on Tuesday.

“Confidence is hit. Producers are worried about selling into the East Med because of political uncertainty. Sales declined rapidly since the start of the year,” a Jordan-based trader said.

The East Med region includes Jordan, Syria, Lebanon, the Palestinian territories and Israel.

Syria under President Bashar al-Assad has been in civil war for three years now, with mounting death toll last estimated by the United Nations at 190,000.

“Very limited trade [has been seen] in Lebanon, Israel and Syria because of the non-stop unrest,” a Middle-East-based producer said.

Lebanon-based militant group Hezbollah continues to conduct counter-insurgent movements from its shores against Israel, which in turn, is involved in the still-unresolved Gaza crisis.

The latest episode of violence in Gaza started in June this year, with the abduction and killing of three Israeli teenagers allegedly perpetrated by Hamas, the main Islamist movement in the Palestinian territories. Israel retaliated by repeatedly bombing Gaza, where Hamas leaders were believed to be hiding, killing thousands of civilians in the process.

“These days, we are not sure what will happen to our cargoes in the East Med. Will the cargoes arrive on time? Will we get our payments? Everything is so uncertain. There is more stability in Asia, Africa and Europe,” said a Middle East-based supplier.

Jordan is the largest export market for petrochemicals in the East Med region, industry sources said.

“We still consider Jordan as the most important market in the East Med. However, we see declining orders in the past six months because of poor sentiment,” a Middle East producer said.

While not in the same predicament as its neighbouring countries, Jordan is beset by poor economic growth and is saddled with burgeoning public debt, industry sources said.

Jordan’s gross domestic and foreign debt grew to Jordanian dinars 20bn ($28.3bn) in the first six months of the year, up by 5.2% from end-2013, official data showed.

The country’s ballooning debt is largely attributed to the cost of accommodating hundreds of thousands of refugees from war-torn Syria since 2011.

Notwithstanding the influx of Syrian refugees into Jordan, the latter’s domestic demand for food and flexible packaging has remained weak, petrochemical industry sources said.

“Most packaged goods for the refugees already come pre-packed from aid groups,” an East Med-based trader said.

Most of Jordan’s plastic converters rely on orders from Iraq for finished goods.

Iraq, which is located northwest of Jordan, is in distress since July this year as a militant and fundamentalist group calling itself the Islamic State of Iraq and Syria (ISIS) took control of parts of Iraq and has perpetrated mass killings.

“Plastic demand in Iraq dipped significantly because of the violence caused by ISIS and its proxies,” said a Middle East trader active in Jordan.

The US has announced early this month a plan to escalate air strikes against ISIS in Iraq, and this time, including Syria, where the militant group is also seizing control of large swathes of territory.

ISIS – which is pursuing an extreme form of Sunni Islam with an aim to establish a Muslim caliphate in Syria and Iraq – responded by murdering Western hostages, including two American journalists, whose executions were videoed and posted online.

Meanwhile, continued threat of violence between Israel and Hamas is also severely impeding any form of business in the East Med region, a source close to an East Med buyer said.

“The [East Med] region offers a lot of potential. But, for now, we just want the violence to end before we make our next move,” said a source close to a Saudi petrochemical producer.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections