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SABIC CEO praises competition in petrochemical industry

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Hydrocarbon Engineering,

In a keynote address, Yousef A. Al-Benyan, SABIC’s acting Vice Chairman and CEO, told an industry conference that the Gulf petrochemical industry can grow its share of the global market, but must increase its competitiveness in order to do so.

“For the industry, the global outlook is strong,” Al-Benyan said. “SABIC projects ethylene demand growing three percent annually between now and 2035.” He continued, “We in the Middle East can grow our share of that market, but we will need to increase our competitiveness.”

Al-Benyan delivered his remarks at the 10th Annual Forum of the Gulf Petrochemicals and Chemicals Association (GPCA), where he serves as Vice Chairman. He told the assembled industry leaders that while the volatility of the oil markets and the overall global economy were important influences on the industry, the challenges it faces are structural in nature: a fast changing competitive landscape, increasing petrochemical self-sufficiency in several major markets, and a changing landscape in global trade relations.

Petrochemical companies in the area have been struggling with the fall of oil prices, both as product prices are linked to crude and cheaper oil erodes the competitive advantage, which Saudi manufacturers earned over non-oil producing nations due to subsidised energy and feedstock. SABIC announced a 29.4% drop in 4Q15 net profit, its sixth straight quarterly profit decline. The strain on the company could be worsened with the recent lift of Iranian sanctions with Iranian oil being reintroduced to the global market, a prospect that has already driven crude prices to a record 12 year low.

The energy renaissance in the US is one of the most significant developments that the industry has faced in recent years. This burst of production is conferring considerable price side advantages on US-based crackers.

“Right now, Middle East crackers are the most competitive in the world,” Al-Benyan said. “US crackers in the shale era are no longer high cost producers. Instead, they are now the most competitive in the world outside of the Middle East.”

Perhaps the greatest challenge that Gulf-based producers face is the changing terms of global trade. As major trade agreements such as the Trans-Pacific Partnership are concluded, with others in negotiation, Gulf-based producers are left exposed to the decisions made by the major trading blocks.

As a result, companies could improve business operations to make them more efficient. Increased investment in innovation and technology, as well as diversification into downstream manufacturing, would create more jobs than commodity plants. Finally, talent development and management should be given investment, especially for a business that is increasingly technical and demands a highly trained workforce.These and other steps can help ensure that the Gulf-based petrochemical sector continues as a source of prosperity and employment in a region facing one of the world’s greatest youth unemployment challenges.

In the future, SABIC is looking to extend its business into African and South East Asian markets, including Vietnam, Indonesia and Malaysia, where the opportunity has arisen to manufacture petrochemicals rather than sell them. To withstand the difficult market conditions, SABIC has taken it's own advice and has been implementing a cost cutting strategy and improving it's business operations in order to yield a benefit in the coming year.

“The petrochemical industry here in the GCC region has a proud history and many superb achievements,” he said. “We who are here today have a moral obligation to ensure that industry’s future is as exciting and path breaking as its past.” He continued, "A competitive environment is always healthy and this is the way we love to play, so we have no concerns at all," when asked if Iran's re-entry threatened market oversupply.

Adapted and edited from press release by Francesca Brindle

Additional sources: Reuters, Gulf News Energy 

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