Farabis product slate suggests that eventually the domestic market could offer the firm the greatest opportunities
Since its inception, Farabi has been a well-run business that has expanded gradually at its Jubail base. Most privately owned chemicals firms in the kingdom are similar in that they are small in scale and usually do not directly compete with the predominantly state-owned Saudi Basic Industries Corporation (Sabic).
However, the fact that the complex does not require a gas allocation means Farabi has been able to expand its operations without competing for feedstock with Sabic subsidiaries or larger listed companies.
Looking forward, Farabis product slate suggests that eventually the domestic market could offer the firm the greatest opportunities. Riyadh is pushing through a diversification plan that aims to support the industrialisation of the kingdom. This means small conversion industries aimed at fully utilising the countrys vast chemicals output are being encouraged. If smaller factories producing products such as solvents, sealants and paints proliferate, then the domestic market could be massive for Farabi.
The proposed new facility in Jizan suggests an exciting new chapter in the companys history. If Farabi decides to go ahead with the scheme, it will require significant finance, but with state-owned Saudi Aramco giving JEC its unequivocal support, the chances of success are greatly increased. However, there are still some risks and challenges that will face the firm.
The estimated budget for the proposed Jizan plant is double Farabis annual revenues. This is a massive risk for a privately owned firm to take on and will require a large volume of finance. The Saudi Industrial Development Fund could provide $70m of that figure in the form of a loan, but it is still an extremely hefty amount of money for the companys owners to arrange.
JEC and Aramcos involvement have a number of positives for Farabi, in that feedstock will be available. However, despite both these factors, Jizan is not Jubail Industrial City and there are several issues surrounding taking on a project in the remote area. Access to materials and resources is extremely limited compared with a well-established industrial city like Jubail. This means any budget estimate for the area will need additional funds to be factored in since there is a significant chance a project could be delayed.
Farabi is bucking the trend of small, privately owned petrochemicals plants in the kingdom in that it is thriving in current market conditions. If the Jizan scheme can be executed on time and on budget, then the long-term prospects for the company look extremely positive. However, that is a big if.
You might also like...
A MEED Subscription...
Subscribe or upgrade your current MEED.com package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.