Dubai: The Gulf Petrochemical and Chemical Association (GPCA) is confident investors will not put their cash in Iran over the regional’s petrochemical sector.
Iran is looking for around $85 billion (Dh312 billion) in foreign investment to rebuild its petrochemicals industry — roughly the same amount Arab Gulf’s petrochemical sector was worth in revenues in 2014 — $88 billion.
The petrochemical industry is under stress with low oil prices and a weak economic outlook in China putting pressure on profit margins. The Arab Gulf industry hopes that an increase in production will make up for falling revenues that fell as much as 30 per cent in the 12 months after June 2014 when oil prices started their collapse.
But an increase in Middle East volume is likely to put further pressure on the industry — particularly Saudi Arabia, which accounts for 63 per cent of petrochemical production in the Arab Gulf.
Iran anticipates it will be able to increase petrochemical exports by up to 25 per cent by the end of 2016 once sanctions are lifted — which is expected to be sometime early next year.
But GPCA, which represents the region’s biggest petrochemical producers, does not believe the Arab Gulf industry will be competing for investment with Iran in the near term.
“[Iran] will not have an immediate impact,” Adul Wahab Al Sadoun, Secretary General of the GPCA, told reporters at his offices in Dubai on Wednesday.
Petrochemicals are used in the construction, automotive and electronic industry. And so a slowdown in China, the world’s second biggest economy, is softening demand; meanwhile, the Middle East construction industry is not big enough to make up for the downturn.
Regional production increases are also unable to grow as fast as it has in the past due to gas shortages — except in gas rich Qatar. The Arab Gulf petrochemical industry is estimated to increase capacity by 7.5 per cent this year, according to the GPCA, lower than the compound annual growth rate (CAGR) of 10.9 per cent between 2004 and 2014.
Iran does not face the same shortages. It has vast oil and gas reserves and has said it will rapidly increase production when sanctions are lifted and so there are no feedstock barriers for expanding production of products such as ethylene and propylene, which are used to make most plastics.
But Al Sadoun affirmed that he is not concerned about losing out on investment in Iran, despite calling Iran — and Iraq, which is also looking to boost its petrochemical industry, “wild cards.”
“Geopolitics will be revealing,” he said, suggesting financiers may be wary of putting a lot of investment into Iran in the early days considering the country has been under some form of sanctions for a quarter of a century.
Al Sadoun said the Arab Gulf sector will look to Africa to make up for falling revenues out of China.
“We are well positioned to capture a growing market share [in Africa],” he said, however, he also said logistics infrastructure on the continent was challenging.
In the medium term, the Arab Gulf sector is likely to consolidate through a series of acquisitions and mergers, Al Sadoun said.