Business | Oil & Gas

Petrochemical industry to see slower growth

Bleak outlook amid global economic woes

  • Dow Jones
  • Published: 00:00 January 28, 2012
  • Gulf News

Davos: The petrochemical industry is likely to see slower growth this year than in 2011 as uncertainty looms over the outlook for the global economy, the chief executive of Saudi Basic Industries Corp, or Sabic, the world's largest chemical maker by market value, said yesterday.

"The petrochemical industry is following the gross domestic product of each region...but the growth won't be the same as last year, at least for the moment," Mohammad Al Madi told Dow Jones Newswires in an interview.

"The only thing that is sustaining petrochemicals at the moment is China," he said on the sidelines of the annual World Economic Forum here.

Petrochemical makers such as Sabic are boosting exports to and investments in Asia, notably China, to meet rapidly rising demand for chemicals and plastics used in the production of industrial and consumer products.

Earlier this month Sabic, the Middle East's largest listed company, signed a protocol of cooperation with China Petrochemical and Chemical Corp, or Sinopec, to explore new business opportunities. The protocol sets the foundation for a joint investment to build a new polycarbonate production complex with an annual production capacity of 260,000 metric tonnes.

"We are looking at expanding some smaller chemicals in China which will be announced later," Al Madi said. "But I don't see really many huge ethyelene plants being announced [by petrochemical firms] in the near future."

The European debt crisis is weighing on the performance of petrochemical firms but despite a "mild recession" in the Eurozone the chemical business there is doing fine, he said.

But the economic situation this year may not be as bad as people think, he said.

Sabic said earlier this month that its fourth-quarter net profit fell 10 per cent to 5.24 billion Saudi riyals (Dh5.1 billion), well short of some analyst expectations, due to a lower global pricing environment, slower growth in China and the European debt woe. The result well missed analyst forecasts at Cairo-based EFG-Hermes, which had expected Sabic to post a fourth-quarter net profit of 7.44 billion riyals, and at Riyadh-based NCB Capital, which had predicted 7.72 billion riyals.

Al Madi said that it is very difficult to predict how Sabic will perform this year, but the company "can always look at reducing costs if we find out we need to".

Sabic gains competitive edge

Arabian Gulf-based petrochemical manufacturers, including Sabic, have previously benefited from improved global economic conditions that have boosted demand for petrochemical products and plastics, used in consumer goods and such industries as automobiles.

Sabic is also benefiting at home from the low cost of such feedstock as natural gas. That is giving the company a competitive edge over many producers elsewhere that use naphtha, a crude derivative whose price has risen in line with oil prices. Sabic, which doesn't see the need to borrow this year despite the current global economic downturn. .

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