Chemical companies in the GCC will need to take “decisive action” to remain competitive in the face of growing regional and global headwinds, SABIC CEO Yousef Al-Benyan said, cited by ICIS.
The Gulf chemical industry’s historical reliance on abundant, low-cost feedstock is no longer a guarantee for competitive performance, Al-Benyan added, noting that “changes are necessary.”
“For decades, part of our success in the region was based on access to advantaged feedstock. We can no longer rely on that…Global trends show that cheap raw materials are becoming available elsewhere,” said the SABIC chief, who also serves as chairman of the Gulf Petrochemicals and Chemicals Association (GPCA).
Moreover, chemical companies in the region that have based production mostly on natural gas liquids (NGLs) like ethane and propane will have to face the reality of a prolonged slump in crude prices, which has given naphtha-based producers a competitive advantage.
“That makes our region’s products less competitive in Europe,” Al-Benyan said.
Gulf chemical firms also face higher costs for utilities, given the end of subsidies on crude oil-related products in certain countries in the region, as well as proposals in some states to link local feedstock costs to higher global prices.
“Finally, the most basic cost of all, manpower, is likely to rise as well due to wage escalation. All of these factors eat away at our profitability,” said Al-Benyan.
“GCC [chemical] players need to take decisive actions to combat these trends, which undermine our region’s competitiveness to deliver growth, profitability and long-term sustainability,” he added.
Globally, protectionist trends in North America, Europe, and Asia are another challenge for the region’s chemical players, the CEO said, noting that “trade blocs and barriers are increasing” worldwide.
“If we have to pay higher import tariffs on top of already higher costs and other unfavorable economic conditions, this only makes circumstances even more difficult for us,” he said.
A key concern is growing production in Asia, particularly China, which is an important market for GCC chemicals.
“The long-term challenge will be China’s declared intention of satisfying most of its rising petrochemical demand from domestic sources, which will leave limited room for exports from the GCC region,” Al-Benyan said.
“I believe we can meet this challenge, but only by increasing customer focus and through more efficient commercial and operational strategies,” he added.
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