Gulf petrochemicals industry has to make most of slump

08 February 2009
This may well prove to be the year the region’s petrochemicals industry fulfils its potential.

The Middle East has long been a contender in the global petrochemicals market, with plentiful supplies of feedstock and high revenues from its oil and gas reserves.

Yet while giant companies have been formed in other parts of the world in recent years, through acquisitions backed by high levels of debt, little has happened in the Middle East.

Only Saudi Basic Industries Corporation (Sabic) has stepped forward, buying the US’ GE Plastics for $11.6bn in 2007.

Other regional firms have focused on developing local infrastructure rather than building up positions as global players, and most deals with international companies were through joint ventures.

But the economic downturn is changing the dynamics of the industry. Some of the giant companies formed during the boom have been struggling under the pressure of debt, with the Netherlands’ LyondellBasell filing for bankruptcy protection for some of its subsidiaries.

Others are likely to follow as demand for their products continues to crash.

The Middle East is better equipped than most to cope with the downturn and emerge stronger in the coming years.

In that time, it is more than likely that both large and small companies will have to sell parts, if not the whole, of their businesses at nothing like their peak value.

Should they wish to, the Gulf’s state-run companies will soon be able to pick up global assets at attractive prices.

Even if they continue to avoid large international acquisitions, Middle East companies retain their advantage of cheap feedstock, meaning they can continue to beat the competition on price.

It seems the Middle East’s long-term approach is beginning to pay off and the coming year may well prove to be when the region’s petrochemicals industry fulfils its potential.

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