PET evolution

Octal is still a relative newcomer to the international petrochemical scene, only entering the market in December 2006 with 20 000 tonnes of capacity, then adding an additional 10 000 tonnes per year last September.

However, it is the scale of proposed expansion that has been garnering attention both inside the region and out. The new integrated complex will provide a further 300 000 tonnes of PET resin and APET sheet.

Company managing director Nicholas Barakat says the combined phases will then make the firm five times larger than the next producer of merchant APET, and will have the capacity to produce nearly 20% of the total industry output of the material.

The industrial zone in Salalah is itself still in its infancy, a factor that did not deter Octal from using making it the base of operations. “This site was a greenfield development in the purest sense of the word,” says Barakat.

“We had to set the land, build the pipelines, and build the tank farm, so the advantages of choosing Salalah had to be balanced against the associated costs of setting up in this environment. We’ve had to invest arround US$50 million just to get this site to where we want it to be.”

That said, now that the infrastructure is in place, and wholly owned by the company, there is potential to leverage this against newcomers, and lease certain facilities out to provide another revenue stream.

A principal driver behind choosing Salalah was the abundance of the raw materials used in PET production. As the whole polymer manufacturing industry base is realigning itself, Oman was selected as a good platform because it will enable the company to source its raw materials from all over the Gulf.

“By 2011 there will be a surplus of petrochemical and polymer products in the Middle East, so Salalah will allow us to play that market to our advantage. Being located outside the Strait of Hormuz also gives us a four-day advantage on shipping times.”

The port in Salalah is managed and operationally run by APM Terminals, a giant in the terminal management business worldwide, and one that has a proven track record operating in the Middle East.

“We want to be able to grow our exports significantly, and being next to an extremely efficient and fast growing port for transhipment is a major advantage.”

Because the port in Salalah isn’t burdened with significant domestic trade, its ability to act as a transhipment hub is improved. Major shipping lines Maersk and APL have added more port calls this year, and container throughput traffic is showing impressive growth.

“The quick logistical turnaround appealed to the export focused management team. Deliveries of APET sheet can be made to virtually any port in the world within 12 to 18 days.”

Rather than roll out several product lines, Octal has geared all of its investment and dedicated all of its capacity to polyester resin and sheet manufacture.

“We are a single product company focussed entirely on PET and APET. Many downstream polymer firms tend to make PVC sheet, OPS and polystyrene all under one roof. Our model is to get maximum economies of scale, and to concentrate on doing that and doing it well.”

The market Octal will be chasing is primarily consumer related PET packaging, a growing market worldwide. “PET resin and PET sheet, which is a rigid film, is what is used for producing the packaging such as the container cold drinks are sold in at a Starbucks. It’s a rigid film that is punched into shape, so it’s very malleable to a wide array of market sectors.”

Barakat says that the finished facility will offer unparalleled economies of scale through advanced production techniques, and that the firm is already making significant headway with the some of the world’s largest consumer packaging companies in the food and consumer goods sectors.

“One of the products we are capable of producing is the resin used to manufacture soft drink and bottled water PET bottles. That is a 14 million tonne market growing at a million tonnes per year. It’s a highly competitive, highly fragmented market. But one that presents huge opportunity for growth.”

The sheet product is typically used in sandwich packaging, or cut fruits and salad boxes. It’s a solid container that has been formed in the past using PVC and polystyrene. Now the trend is shifting towards PET. There are several reasons for the move, but principally it is a product that is tried, proven, and people like it.

“Most products are now sold on a hook, whether it’s a shirt, food, screwdriver or electronic goods,” explains Barakat. “This enables retail outlets extra space through depth, reduced time wasted for repackaging, sorting and clearing up at the end of the day. Ultimately stores need less staff because the products are visible, the packaging is tough, so the items are protected, and it reduces pilferage considerably.”

Retail stores worldwide have cottoned on to the fact that putting small, high value, goods in bigger packaging it makes them much more difficult to conceal and steal. Ink toner cartridges, iPod accessories and razor blades are just a few examples or where PET packaging has been introduced on a global scale.

“APET offers great mechanical and optical properties with both merchandisers and thermoformers. It’s a product which enables brands to convert their packaging needs to APET, while keeping up to date with consumers high demands for convenience packaging.”

APET is the fastest growing material for the clear rigid plastic packaging of food and consumer products. Its clarity, gloss and toughness make it an ideal material for goods that require product protection while retaining shelf impact. The majority is used for the packaging of fresh foods, especially dairy products, where its oxygen barrier properties make it an ideal choice.

With the boom in PET packaging has come a need to differentiate one manufacturer from another. Standard PET production has become more efficient, but ever-tightening margins have demanded that even more end product be generated from feedstock supplies.

“This is an area where we really feel we have, for the time being, an unassailable lead on the competition. We made a large investment in R&D and are focused on process optimisation. This means we have a first-class product that provides users with greater yields as the specifications have been greatly narrowed,” says Barakat.

With one metric tonne of Octal’s product, packagers can make more units than with products from other suppliers. “Ultimately this is the most important measure of efficiency. Secondly, we will have scale on our side. Octal will be five times larger than its closest competitor and the only truly integrated manufacturer.”

Octal’s drive for efficiency and improved production yields have been geared around supporting thermoformers’ strategies for cost reduction. “This is vital because 80% of the product cost is resin. The enhancements we’ve made to production techniques enables us to deliver, on a repeat basis, tolerances for sheet thickness previously unheard of in the thermoforming sector.”

State of the art sheet processors have been shown to deliver much greater productivity and product uniformity.

“Plus or minus five percent is the standard tolerance or variation on sheet thickness in the industry, meaning that there could be a 20 micron variation from suppliers on 400 micron sheet. Thanks to caliper control technology and integrated software programs, we’ve been able to show that the tolerance can be reduced to plus or minus one percent.”

These integrated processes and prodution techniques mean customers can order thinner gauge sheet and know exactly how many packs they can get from the material they buy, enabling them to save money and increase their yields for specific end use applications.

In order to capitalise on its investment Octal has to reach global markets and raise awareness of its capabilities. “The parent company’s principal office is in Dallas, where we have our customer support and international sales. We also have an office in Shanghai to monitor that important market, and support US sales operations, and we plan to open a European hub office in the very near future.”

With focus on the downstream sector growing across the Middle East, Barakat says it’s vital that regional polymer and plastics manufacturers take the right approach in order to benefit.

“The Middle East can definitely become a net exporter of plastic products if the right model is adopted early enough. Making a product and going through a broker to market it probably won’t be that successful for a number of reasons, the most significant danger is that the Middle East will pump in all this investment and the value added will go to the West.”

To succeed in a global market for end goods, companies need market traction, and the ability to know the customers. For real success, Barakat says, companies have to be integrated right trough the entire downstream model and have their marketing strategies in place.

“I think the companies that will succeed will be the ones with the confident to become product manufacturers and get over the whole freight issue. Freight costs are going up with the price of oil so the indigenous producers have an instant weight and size advantage. The more finished the product, the less material needs to be put in the shipping container.”

The firms that emerge victors after all this investment will be the ones that can strike a delicate balance between the logistics planning and getting the most profit from the resin that they produce.

“It’s my view that by 2011 there will be a significant regional oversupply of raw products and that will drive a downward pressure on pricing. It’s possible we’ll see a lot of that resin finding its way onto containers, being shipped to the American Mid-West where it will be turned into finished goods, where the real value addition takes place.”

Striking deals with consumer goods manufacturers to meet their packaging needs is where Octal has set its sights. “Someone needs to capture this value chain. The really sizeable markets are still in the West and China. But with the right mix of ingredients, and an innovative approach I’m confident that we’ll capture a major slice of this business and be able to capitalise on a market hungry for efficient and low cost APET worldwide.”