Saudi petrochemicals sector reaches level of saturation

Aug 30, 2001 02:00 AM

The Middle East is one of the most important centres of petrochemical industry with Saudi Arabia as the key producer and exporter in the region. A major portion of Saudi Arabia's non-oil exports consisted of petrochemicals. Saudi Arabia's petrochemical industry began operations in the late 1970s and has been expanding ever since with the philosophy to add value to hydrocarbon products and to reduce the country's dependence on crude oil.
Global overview reveals that with a falling demand in Asia and a global oversupply of petrochemicals, the industry has reached a level of saturation. European and Middle Eastern petrochemical companies were also affected by the slow down of demand in Asian markets. In an industry where economies of scale are essential, the crisis can be seen as a wakening call to industry players to move towards massive restructuring through mergers, acquisitions and cost reduction.

For Middle East producers, the key markets are Asia and Europe while Saudi petrochemical companies are focusing on the Asian market. Middle East producers still have to work on developing new markets for their output and offering a wider range of products to existing markets such as Western Europe.
Petrochemicals are used almost in all industries and its performance is also influenced by the performance of other industries. The product overview of petrochemicals reveals that broad categories include Ethylene, Polyethylene, Ethylene Glycol, Propylene, Polypropylene, Styrene Monomer, Polystyrene, Methanol, Acetic Acid and BDO. Each such category has a distinct process with varied usage in the industries. Further, major suppliers are scattered around the world.

Saudi Arabia's petrochemical industry reveals that Saudi Arabia Basic Industries Corporation (SABIC) is a dominant force in the Kingdom. It is the largest petrochemical company in the Middle East and one of the major petrochemical players in the world. Through its subsidiary companies, SABIC provides the private sector with raw materials and technical expertise for producing a wide range of consumer products. SABIC's current product range includes five product groups, which are Basic Chemicals, Intermediates, Polymers, Fertilizers and Metals.
SABIC future performance and growth potential will depend on several factors including ability to improve its products, diversify its product range, controlled cost of production and to promote its products to new markets. In the WTO scenario, Saudi petrochemical companies will be more price-competitive in the global markets due to the abundance of hydrocarbon reserves in the Kingdom, when Saudi Arabia joins WTO. However, the entry to WTO is subject to various problems, one of the major is the Subsidies and Countervailing Measures.

Source: The Consulting Centre for Finance and Investment
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