Qatar re-opens chemical trades within GCC after diplomatic breakthrough

Author: Felicia Loo

2021/01/08

SINGAPORE (ICIS)--With Saudi-led Gulf Cooperation Council (GCC) members restoring relations with Qatar, polyethylene (PE) and polypropylene (PP) processors in Saudi Arabia can now supply products to the Qatari market.

Saudi PE and PP producers are thus hopeful of improved resin uptake following the historic event that brings optimism to the processing community in Saudi Arabia, the latter being a major processing hub in the Middle East.

Asia can also expect better and stable supply from the GCC region following the deal.

The GCC countries are typical import origins for polyolefins flowing into Asia, particularly into the Chinese market, said ICIS senior analyst Amy Yu.

“Restoration of diplomatic relations might mean that the PE cargoes’ transport and supply prospects [will] become more stable," Yu said.

The US was instrumental in brokering the diplomatic deal and ending the Middle East crisis.

Saudi Arabia, the UAE and Bahrain effectively ended their 3.5-year dispute with Qatar after signing a pact on 5 January aimed at strengthening the GCC.

The three countries, along with Egypt, in June 2017 cut trade, diplomatic and transport ties with Qatar, which was accused of supporting terrorism, which has been strongly denied by the gas-rich Middle Eastern country.

At the 41st GCC Summit held in Saudi Arabia on 5 January 2021, leaders of the six-member group, including Oman and Kuwait, signed the Al-Ula Declaration, which broadly called for unity and strengthening of relations between member states.

Following the reconciliation, intra-regional petrochemical undertakings will be elevated, with more businesses expected.

After all, Qatar is a major PE producer, and Qatar-origin PE can now be sold in the wider GCC markets. Cargoes can also now move via road, as against the sea route they had to resort to, when shipping material to Oman and Kuwait, two markets that continued to source PE from Qatar during the crisis.

Qatar will now be able to move cargoes to the East Mediterranean market of Jordan via road. They had previously resorted to shipping via sea during the crisis, as the land route was not available to them when Saudi Arabia had closed its borders to Qatar.

Also, PE and PP trade between Qatar and the UAE is expected to resume, with the restoration of the ties.

"Certainly, as Qatar is not producing PP, the resumption of easier importing routes could help recovering higher growth rates,” said ICIS senior consultant Fabrizio Galie.

“From the ICIS demand estimates, PP consumption in Qatar had some hit since 2017 from the embargo and then again since 2019 due to new VAT [value-added tax] applying.”

“We will probably see larger volumes coming, especially I’d say from the UAE, which was historically a reliable source of PP to the country prior to 2017," said Galie, adding that Borouge will be expanding PP capacity in the UAE later in 2021 – same for Saudi probably, but later.

According to Galie, Qatar’s annual average PP consumption was estimated at below 15,000 tonnes in the last four years (2017-2020) but it was around 25,000 tonnes in the preceding five years.

"So there could be incentive to restore larger processing capacity and get back to those levels soon," Galie said.

PP grades imported in Qatar include raffia and fibres for woven bags, jumbo bag, woven fabrics, straps, other fibres, plus bowls, and injection molding for trays, cups, containers, lids.

Meanwhile, tight supply and high freight rates resulting from a severe shortage in containers are factors set to impact polyolefin market in the Middle East in the first quarter of 2021.

Demand across the Middle East continues to make a gradual recovery, as countries attempt to fully return to pre-pandemic trade levels.

Middle Eastern PE cargoes will continue to see strong uptake in the backdrop of recovering post-pandemic demand.

The absence of US-origin PE across key global markets due to a lack of export availability is expected to keep the spotlight on Middle Eastern PE product.

Suppliers in the US have begun to issue January price increase letters to customers since mid-December 2020, indicating that the supply tightness resulting from a spate of disruptions in late Q3 and Q4 2020 continue to leave them with little export availability.

A recovery in terms of Middle Eastern PE resin demand growth versus 2020 levels is also poised to emerge, ICIS PE analyst Lorenzo Meazza said.

PE demand in the region is expected to grow by 5% versus 2020, with demand for packaging applications leading from the front.

Additional reporting by Nurluqman Suratman

Focus article by Veena Pathare and Felicia Loo

Photo: Saudi television anchor adjusts his headscarf in front of the logo for the 41st Gulf Cooperation Council (GCC) at the media center, in Al Ula, Saudi Arabia, on 5 January 2021. (Photo by Amr Nabil/AP/Shutterstock)

Visit the ICIS Coronavirus topic page for analysis of the impact on chemical markets and links to latest news.