Blaming others for Gulf petrochemicals downturn is no solution

03 November 2009

The petrochemicals sector is going through a cyclical downturn. Gulf governments are making oversupply all but inevitable

It has been a grim year for Gulf petrochemicals firms. Profits have collapsed and demand has fallen to the level it was at three years ago, even as fresh supplies of petrochemicals come on to the market.

Producers have been tempted to look for someone to blame and, sure enough, the Gulf Petrochemicals & Chemicals Association has pointed the finger at protectionist measures in China, Europe, India and the US, which it says violate international trade rules and unfairly harm its members, the Gulf’s main producers.

It is difficult to be sympathetic to such complaints, given the restrictions on free trade in much of the Gulf. Middle East producers themselves benefit from plenty of state support – not least in the form of artificially cheap gas feedstock. Saudi producers spend about $200 a tonne converting ethane into ethylene, for example, about a fifth of the price that South Korean producers have to pay.

The problems in the market are two-fold. The first is that the petrochemicals sector is going through a cyclical downturn and it is unfortunate for the Gulf firms that this is co-inciding with so many of their new plants coming on stream.

From August 2008 until March 2010, 15 million tonnes a year (t/y) of new ethylene capacity is being added in the Gulf, although there is already 17 million t/y of excess capacity in the global market. s

There is little that Gulf producers can do to prevent such swings in global demand, but the second problem is more within their control, and it comes down to supply.

Gulf governments have all pursued the same policies at the same time and are making oversupply all but inevitable.

In the longer run, petrochemicals firms need to find a wider range of customers at home and abroad and produce a wider range of products. In that way, they can help to position themselves to cope with future market cycles.

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