Market outlook: Zamil Chemplast fine tunes strategy

With instability affecting many regional markets, the Saudi Arabian producer is refocusing on domestic and new international markets

Zamil Chemplast, the Saudi Arabian polymer, chemical and rubber producer, is diversifying to markets beyond conflict zones of the Middle East as part of a growth strategy which includes seeking acquisitions and joint ventures with local and international polymer producers.

According to the group’s president, Adel Al Ghassab, political instability in nearby countries such as Syria, Libya and Yemen has had a big impact on domestic businesses.

“Business requires political stability and this is at a minimum here. Demand in some places is almost none, so you have to find new markets.”

To help sustain demand, family-owned Zamil Chemplast is seeking to grow its domestic business as well as new opportunities in Europe. He says demand is growing in Saudi Arabia, particularly for polyethylene terephthalate (PET), though competition is fierce. Multinational companies are exporting more finished goods, which drives demand for packaging. “Multinationals like Kraft, P&G and Unilever buy plastic packaging and fill it in Saudi Arabia for export to MENA (Middle East, North Africa) and European markets.”

Fast-moving consumer goods (FMCG), including the food industry, is a growth area, according to Al Ghassab who adds that around15% of the plastic produced in the Middle East is consumed there. Increasing local consumption could be beneficial for direct and indirect job creation. But he believes the local regulatory framework needs to be liberalised.

“There has been good progress and we still see investment coming to this country. Exports are still there despite political instability in neighbouring markets,” he added. Al Ghassab insists that local polymer producers cannot grab the region’s feedstock advantage unless they are upstream integrated. He says Middle East petrochemical producers are selling at international prices and are not passing any benefit of the natural gas price to the downstream end-users.

“There are only one or two integrated producers in the Middle East but there are 800 other producers,” he said.

ACQUISITION STRATEGY
Zamil Chemplast’s growth is focussed in three areas: organic growth from existing businesses, business development and acquisitions.

For acquisition targets, Al Ghassab prefers the GCC market though the company has international targets. The company has a track record in partnerships, which prove less expensive than acquisitions. Its partnership with European partners have grown over the years. Al Ghassab says it can offer expert local and regional knowledge as the company has 90 years of history and access to GCC and MENA markets. Targets should not conflict with the company’s existing portfolio and partnerships.

MESSAGE TO SUPPLIERS
Al Ghassab says he can source raw materials from different suppliers who are also keen to develop the local market, but he expects more from them. He hopes that more raw material will be produced and sold locally.

“This will provide more suppliers [for us], which means better competition. I call on all polyethylene (PE) and polypropylene (PP) suppliers in Saudi to really look at the local and Saudi market and open sales channels.”

Al Ghassab says one of the company’s biggest challenges is costs – not just raw materials but other costs that have increased rapidly over the last three to five years. “Not just inflation but manpower, the cost of living and machinery. The market will not easily allow us to pass on these costs. So we try to find ways to optimise our plant costs, especially labour costs, to keep our margins.”

Zamil Chemplast was formed in 2008 and is a sub-holding which manages Zamil Group’s portfolio of plastic, chemical and rubber assets.

The Zamil family owns the parent Zamil Group which was established in the early 1930s. It has around 150,000 tonnes/year of plastics capacity and 50,000 tonnes/year of chemicals.

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