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GPCA chairman calls on industry to adjust and consolidate to survive

November 28, 2016
Chemical Value Chain

The formal proceedings of the Gulf Petrochemical and Chemical Association’s (GPCA) annual forum kicked off in Dubai today.

Keynote speakers included Sultan al-Jabber, minister of state and CEO of Abu Dhabi National Oil Co.; Yousef al-Benyan, CEO of SABIC and chairman of GPCA; Abdulaziz al-Judaimi, business line head/downstream at Saudi Aramco; and Jim Fitterling, president and CEO of Dow Chemical. The mood at this year’s event is subdued as companies struggle to cope with low oil prices, diminishing availability of advantaged gas feedstock, and reduced profitability.

In an opening address, Yousef al-Benyan, chairman of GPCA, discussed markets such as Asia that are emerging as competitor regions and challenging the Arabian Gulf petrochemical industry to change and become more efficient and innovative. He talked of the “three C’s”—competitiveness, challenges, and changes—that will pave the way to future growth in the region. Under the conference theme, Competitiveness: Riding New Waves, Benyan cautioned the industry leaders present that the entire Mideast/Africa region generates only about €44 billion ($46.8 billion) in annual chemical sales against €676 billion in Asia, excluding China and India, and €500 billion in the Nafta region. “We are thus very exposed to changes in customer-demand patterns,” he said. “These can kill an industry far more quickly than the industry can adapt…Past performance is no guarantee of future results. The competitive landscape is shifting beneath our feet. The fundamentals are changing – not only for the GCC, but for the customer as well.”

As an example, he referred to feedstock availability and said that fracking in North America has changed the market picture entirely. With the advent of abundant shale-based ethane, the US ethylene industry has pulled itself up from the stagnation of the last decade. Mideast producers must ensure that the region transforms itself and leads the way, he said.

“We need to look at the dynamics of the industry for the next ten years, reshape our strategy and our offerings to each other and to our customers worldwide,” Benyan says. Referring to the second ‘C’, he says that the first challenge is to improve and make the industry’s asset base more efficient. “Many of our complexes are stand-alone with limited or zero inter-connection. This limits our ability to optimize production when product prices move. By comparison, in the US and Europe, the majority of crackers and consuming plants are connected by ethylene grids. That means the system can adapt quickly to changing circumstances,” he says.

Benyan urged the Gulf chemical industry to build regional capability and start attracting the high-end manufacturing operations that the region needs to transform itself and create high-quality manufacturing jobs. The establishment of more R&D centers in the GCC region is a positive sign, he says.

For the third ‘C,’ he says the industry is faced with three options: “First, we can continue doing what we are doing–in my opinion, this represents a dead end. The market is changing beneath our feet. If we continue walking the same path, we will discover one day that the floor is no longer beneath us.

A second option is diversification. “This holds a great deal of promise,” Benyan says. “We must engage more closely with our customers–better understanding their needs so we can bring them differentiated and specialized solutions. By making more complex products and competing for specialty applications, we keep more revenue in the region and create good-paying, high-quality manufacturing jobs.”

The third option is consolidation. “I believe the optimal way our industry can survive and thrive in the emerging global marketplace is by creating synergies and optimizing our assets,” Benyan says. “Many of our local producers are not integrated. They lack a global network and assets that can be leveraged. They lack the capital to make significant investments in technology and innovation that can create value.”

By Natasha Alperowicz

Source: Chemical Week

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