Chemicals sector: Opportunities abound in this lucrative market

By Vineet Kumar

According to the GPCA (Gulf Petrochemicals and Chemicals Association, global demand for petrochemicals is expected to witness a rise in growth by 4 percent on an annual basis, which in turn is expected to drive investments in sustainable processes and products.

With eco-consciousness on the rise, chemical manufacturers are seeking introduction of products that provide optimum performance without causing damage to the environment. The chemical industry is focusing on following environment-friendly solutions in their entire supply chains, including logistics of hazardous content. For assuring adherence to highest safety standards, organisations in the chemical sector acquire international quality marks and hold proper certification.

The unexpected drop in prices of crude oil across the globe has caught some Middle East chemical manufacturers off guard, resulting in significantly lower profits, with many manufacturers skeptic about new investments. As the overall spending increased with enhanced margins, the rapid decline in oil prices commenced after the period of higher producer costs and exceptionally strong margins.

Feedstock has remained one of the major challenges faced by chemical industry. Owing to this, separation of closely related organic gases has become necessary. Removing propane from propylene gas is considered to be one of the challenges. So far, the procedure for separation of propane from propylene were based on energy-intensive differential adsorption or cryogenic distillation. These procedures depicted low to moderate separation. In the previous year, a new method to completely separate propane from propylene was developed, by researchers at Saudi Arabia’s King Abdullah University for Science and Technology, utilizing metal-based porous materials or metal cluster centers connected via organic linkers. This method provided great results in separation of propane and has been widely used across chemical sectors.

Key Trends

Three key mega trends observed in empowering chemical industry include intra-regional transportation network development, emerging industrial cities, and civil & commercial construction. As per GPCA, $4.3 trillion is expected to be spent on various projects through 2020. This has fuelled demand for construction chemicals & materials including concrete admixtures, paints & coatings, waterproofing compounds, adhesives & sealants, and flooring compounds. The demand growth for aforementioned chemicals might exceed the regional GDP growth through 2020.

Although Middle East possesses essential industrial resources such as utilities, human resources and raw materials, lack of advanced technologies has been impacting the manufacturing processes. The key trends expected to shape the Middle East chemical sector in the short- and long-term include,

• Acquisition of companies, boosting technology as well as production capacities
• Special incentives are offered by states to foreign investors possessing leading edge technologies
• Large joint ventures, structured for delivering specific benefits to each party
• Options for companies to license advanced technologies from foreign competitors
• Continuous innovation in product improvement and increasing research & development activities leading to success in downstream areas

One of the prominent countries of Middle East, Saudi Arabia, after recognizing the need to transform the region’s economy away from oil dependency, has set out a roadmap of ambitions for next fifteen years. Chemical companies in the Middle East are in need to pave a way out for supporting and facilitating the region, which already struggles for fundamental economic restructuring. This struggle is attributed to low oil prices which has led the region’s countries in diversifying their economies and reducing dependency on generating revenues from fossil fuel.

A plan was approved by the Saudi Cabinet at the end of April 2016, by setting it out through a document entitled, “Vision 2030.” This far-reaching programme aims to expand GDP share to 50 percent from non-oil exports of Saudi Arabia. Vision 2030 is expected to impact Saudi Arabia’s oil and petrochemical sectors. A key initiative involves offering a stake of up to 5 percent of oil major Saudi Aramco. This is expected to value Saudi Aramco at more than $2 trillion. Vision 2030 aims to transform Saudi Aramco from oil producing company into global industrial conglomerate.

Revenue raised by IPO, by transferring Aramco’s ownership to state’s Public Investment Fund, would be utilized for increasing value of the fund to Saudi Riyal 7 trillion from Saudi Riyal 600 billion. This would be the world’s largest sovereign wealth fund, providing the ability to substantially invest in global enterprise and companies. The chemical sector in Saudi Arabia is expected to benefit from the transformation in ways such as greater diversification in economy, development of new industries (notable defense and mining), and investment abroad. The demand for larger investments in petrochemicals and refining is expected to soar owing to monetization of natural resources in this region. Saudi Vision 2030 and several other programmes and initiatives have encouraged higher local production of business and consumer goods for domestic as well as export markets.

The largest chemical distributor in Middle East, Petrochem Middle East, has consolidated its position in this segment. This has led Petrochem to new heights, making it the largest distributor in Middle East. This is mainly attributed to company’s state-of-art distribution terminal at Jebel Ali, which has helped the company to increase its capacity for catering to the growing demand from PME customers. The increase in Saudi Arabia’s production capacity was also led by new multibillion projects such as the Sadara Chemical joint venture between Dow and Saudi Aramco. The increase in Saudi Arabia’s capacity has led the petrochemical industry to witness a notable growth in other GCC regions as well.

Author: Vineet Kumar is Consultant at Future Market Insights (FMI).

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