Dubai has 375 plastics companies or 40 per cent of the plastics businesses in the country, followed by Sharjah and Ajman. However, Abu Dhabi owns 95 per cent of oil and 92 per cent of gas reserves. The UAE plastics market is growing by 20 per cent year on year with imports of plastic parts increasing steadily. Image Credit: Gulf News Archives

The Middle East's plastics industry is projected to grow by 30 per cent annually, positioning the region as a petrochemicals hub on the back of infrastructure projects, booming populations and cutting-edge chemical parks, according to a new report released exclusively to Gulf News.

But despite the claims, some industry leaders disagreed with the growth rate.

"The number is quite big. The figure we have is a compounded annual growth rate of 12 per cent for the GCC, which is the highest in the world," Abdul Wahab Al Sadoun, secretary-general of the Gulf Petrochemicals and Chemicals Association (GPCA) said.

In either case, investments in chemical parks have fallen due to the global economic crisis, GCC countries continue to rely on plastics imports and environmental criticism pressures the industry, the report notes.

"The Middle East will have a significant bearing on the global plastics industry, with the region fast emerging as a petrochemicals hub backed by the advantages of low-cost feedstock and labour, fast growing demand in Asia and new technologies," according to the study Plastics: Middle East Market Intelligence Report.

The study was commissioned by the Expo Centre Sharjah and conducted by UK-based Ispy Publishing. It comes ahead of the Plastivision Arabia exhibition in May 2012 at the Expo.

Led by Saudi Arabia, the Gulf accounts for 11 per cent of the $600-billion (Dh2.2 trillion) global petrochemical industry. Over the next five years, the Gulf's market share of the global petrochemical industry will jump to over 17 per cent—highlighting the importance of this industry as the second biggest source of income for Gulf countries after oil, the report said.

In the same period, the GCC will increase petrochemical production by about 50 million tonnes and make a $57 billion capital investment in the industry, according to the GPCA.

Over 304 million tonnes of plastic will be produced worldwide in 2011 — representing a 5.3 per cent annual growth — and in three years about 5 per cent of plastics will be produced in the Middle East and Africa showing the industry's investment potential, according to estimates by Plastics Europe, an assoication of plastic manufacturers. The plastics industry is set to win a major share of the Arab industrial sector, as the region focuses on manufacturing for economic diversification.

The plastics and metal industries have absorbed 60 per cent of the total industrial investments in GCC countries like Saudi Arabia, Kuwait and the UAE and about 90 per cent in Bahrain, the report showed.

In the UAE alone, the plastics industry constitutes 80 per cent of the industrial units. "As economic diversification accelerates and the significance of [the] manufacturing sector increases, the plastics industry will grow rapidly as the region has a natural edge in the petrochemicals industry," the report said.

Rapid urbanisation, housing and infrastructure projects and the Fifa World Cup to be hosted by Qatar in 2022 will drive the demand for plastics in the region, according to the report.

Plastics packaging, with a global value expected to reach $180 billion in 2011, will dominate the industry's growth in the Middle East, the report said. But the region will also influence the global demand structure, providing investment opportunities for key industry players. Expansions in sectors such as construction, manufacturing, and transportation in the region will also fuel the use of plastic resins and their products, which are used for pipes and valves.

"The Middle East is expected to lead in the production and export of plastic resins [within] a few years, with polyethylene (PE) and polypropylene (PP) capacity in the region slated to double by 2015," the report said.

Biggest consumers

The biggest sectors that consume plastics are construction (9 per cent), food and beverage industry for packaging (7 per cent) and medical products such as syringes and blood bags (5 per cent), said Al Sadoun.

With a ready supply of oil, growing economies and mushrooming of infrastructure projects, the GCC is home to 7,500 plastics companies. Saudi Arabia has the lion's share with 51 per cent of the plastics industry by turnover and the UAE makes up 33 per cent.

Dubai has 375 plastics companies or 40 per cent of the plastics businesses in the country, followed by Sharjah and Ajman. However, it is Abu Dhabi that owns 95 per cent of oil and 92 per cent of gas reserves, the report observed. Despite this, the UAE currently imports about 60 per cent of its plastic raw materials mainly from Europe, Saudi Arabia, South Korea and Brazil.

The UAE plastics market is growing by 20 per cent year on year with imports of plastic parts increasing steadily, the report said.

The biggest player in the market is Saudi Arabia with the highest per capita consumption of plastics in the Middle East with a whopping 40 kilograms per person (twice as much as any other GCC country) and it is the Middle East's largest producer of polyethylene by volume, the report showed.

"This provides impetus for growth and vast business opportunities for plastics manufacturing and related industries. The past ten years' growth suggests that Saudi Arabia will become as dominant in the petrochemical sector as it in presently in petroleum," the report said, pointing to Saudi Arabia's multi-billion investments in infrastructure.

Further expansion in petrochemical production will continue in the region. Polymer production will grow from 24 million tonnes in 2011 to nearly 34 million tonnes by 2016, the report forecasts. Borouge, a joint venture between the Abu Dhabi National Oil Company and Austria-based Borealis, for example, plans to add 2.5 million tonnes of annual polyolefin production capacity by mid-2014.

Hurdles

Industrial centres such as the Abu Dhabi Polymer Park in the UAE and Rabigh Conversion Industrial Park in Saudi Arabia were built to attract foreign investors. However, investment in the parks and local consumption of plastic downstream products slowed due to the recession, the report said.

"Governments hope that growth in plastics processing will stimulate economic growth and create employment opportunities for the growing population of underemployed young people," it said.

The industry, which was criticised for its environmental impact, has to address sustainability issues, it added. "Innovation is needed for a competive industry in Research and Design and human resources," said Al Sadoun.

Capitalising on opportunities

Dubai: Gulf countries must bridge the huge gap between their abundant hydrocarbon reserves and the relatively low petrochemical production capacity to create sustainable value-added opportunities in sectors from aviation to packaging, experts say.

"Without a doubt this is a strategic option for Abu Dhabi and GCC oil producers. Producing more products in the production chain adds more value economically and socially," Abdul Wahab Al Sadoun, secretary-general of GPCA, told Gulf News.

This could create employment opportunities for young GCC nationals and reduce reliance on imports, he added.

The GCC accounts for only 2 per cent of the global plastics conversion market, which converts the raw materials into saleable items using various processes such as extrusion and injection moulding, according to a study titled Plastics: Middle East Market Intelligence Report. This is projected to reach 9 to 11 per cent.

The IMF suggests that plastic conversion sectors in the GCC have the capacity to grow significantly faster than the Gulf's projected GDP figure for 2011.

Big gap

Out of the 25 million tonnes of plastic resins produced in the Gulf annually, only about 3 million are converted into finished and semi-finished industrial and consumer plastic products, according to the Gulf Petrochemicals and Chemicals Association (GPCA).

Using plastics in making end products in the aviation, automobile and packaging sectors is a massive opportunity, experts say. "Instead of using aluminium and steel in planes and cars, use plastic for light weight vehicles and fuel savings," said Al Sadoun. Reducing the weight of a jetliner by just one pound saves $1,000 in fuel during the jetliner's lifetime.

The use of plastics in car parts makes up 15 per cent of the car's total weight and Dreamliners have 17 to 18 per cent plastic in them, he said. "This indicates that these sectors are important for the plastic industry and the nationalisation of these sectors is very important for Abu Dhabi and the GCC."

Governments in the Gulf must encourage private sector investment in the petrochemical downstream production by providing infrastructure and funding opportunities, said Al Sadoun.

The investment opportunities are "excellent" provided the raw materials, infrastructure and funding are available but there is a longer return on investment period because industrial return is usually slow, he said.

Seeing the region's potential to become the world's leading hub for plastic processing due to the abundant resource base, industrial players are recognising and using the growth opportunities here.

An increasing number of partnerships and technology licensing arrangements are enhancing the production capabilities in the region.

One example is Abu Dhabi's chemical City Chemaweyaat designed to enhance the capital's chemical industry production. It is jointly by the International Petroleum Investment (40 per cent), Abu Dhabi Investment Council (40 per cent) and Abu Dhabi National Oil Company (Adnoc) (20 per cent).

However, Saudi Arabia is expected to lead in the downstream conversion industry, given its broad plastics portfolio in the region.