Eastern eye

14 October 2005
By any measure, 2004 was a good year for Saudi Basic Industries Corporation (Sabic). Profits were up 112 per cent on the previous year to $3,800 million, while revenues rose by 47 per cent to $18,300 million, confirming Sabic as the biggest and most profitable public company in the Middle East.

This year is set to be even better. First-half profits reached $2,600 million - 84 per cent up on the same period in 2004. And with global demand for petrochemicals products soaring, the prospects for another bumper year in 2006 look equally good.

'We are hopeful that this year and next will be solid years for us in terms of petrochemicals prices and in terms of profits, because not much new capacity is planned in the next two years,' says Sabic vice-chairman and chief executive officer (CEO) Mohamed al-Mady.

After that however, the picture is more uncertain. A wave of new capacity, much of it in Saudi Arabia, will come on stream in 2007-09 and many analysts warn that the resultant increase in petrochemicals output, notably in the Middle East, will lead to a downturn in prices.

Al-Mady does not number among the doomsayers. 'We are taking the optimistic view that growth in demand in the emerging markets in China, India and Brazil, coupled with our strength, will allow us to get ahead of our competition,' he says. 'It is difficult to predict but I am an optimist. Most new capacity is scheduled to come in 2008-09. But the impact of that may be offset by some plant closures, growth in China and also some projects may slip. So the situation is not so bad as many people are saying.'

At the heart of Al-Mady's optimism is his vision of a huge increase in demand from the emerging markets of Asia, and particularly China. With year-on-year economic growth of 7-9 per cent, China's huge economy is already changing the face of the global economy. By 2050, its gross domestic product (GDP) is expected to reach about $45 trillion, compared with $1 trillion today, overtaking the US as the biggest economy in the world.

Addressing the annual general meeting of the European Petrochemical Association (EPCA) in Vienna in late September, Al-Mady said: 'We are witnessing a shifting of the centre of economic, population and petrochemical gravity eastward. This is an epic shift and deserves the attention of all planning exercises associated with meeting future global chemical demands.'

Al-Mady's words are not mere platitudes. Sabic is rapidly growing its presence in China and is developing plans for a world-scale facility in the country.

'Our main target is China,' he says. 'This is where the market is. We are looking to set up a large ethylene plant in China. It will have a 1 million-tonne-a-year [t/y] naphtha cracker. We also have a growing marketing network in place, with three offices already open and a new one that will open soon.'

Al-Mady believes this shift from West to East represents a major opportunity for the Middle East's, and particularly Saudi Arabia's, petrochemical industry.

'The Middle East, with its hydrocarbon resources and its strategic geographic location, has become the world's most attractive location for petrochemical assets,' he told EPCA members. 'For European petrochemical companies, it is an economic bridge to the rapidly growing Asian markets.'

Sabic's expansion in China is just one element of an expansion programme that will see Sabic invest $8,000 million in the coming three years to boost its production capacity to about 64 million t/y of petrochemical products by 2008, up from 43 million t/y today. The company is also considering a major expansion of its European facilities in Germany and the Netherlands.

However, the core of Sabic's expansion programme is a massive increase in its domestic capacity, including its two mega projects - the $3,000 million construction of

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