Over the last decade, MEGlobal has continued to grab a larger share of the world’s MEG market. The question is,
where will the company go next?
As the global economy continues to climb out of the economic recession of 2008, growth in demand for basic necessities, especially in developing regions will remain robust.
Producers of Ethylene Glycol, a key raw material used in a wide variety of products and applications including the manufacture of polyester fibres, polyethylene terephthalate resins, antifreeze formulations and other industrial products, are among those who have seen a rapid growth in businesses.
According to a report by Grandview Research, the global market volume for ethylene glycols was 16,511 kilo tons in 2013 and is expected to reach 22,815.4 kilo tons by 2020, growing at a CAGR of 4.7% from 2014 to 2020.
The Asia Pacific region which accounted for 66.5% of total market volume in 2013, is expected to dominate this global ethylene glycols market.
The region, which has become the world’s manufacturer of textiles and automotive parts, is also set to see the fastest expansion in demand for ethylene glycols with market growth expected to average 5% from 2014 to 2020.
As the GCC looks for new ways to diversify its economy and create higher value products, while also strengthening its presence in international markets, one company has emerged as a leader in the ethylene glycols markets.
MEGlobal, a joint venture between Dow Chemical Company and Kuwait’s Petrochemical Industries Coporation, has this year, celebrated its rapid ascension to global leadership in ethylene glycol markets over the last decade.
By utilising the large scale production capacity, global distribution network and technological strengths of both partners, MEGlobal has managed to build a customer base that closely reflects international demand with revenues over $3 billion and customers in over 25 countries.
For Dow, the pursuit of an asset light strategy where it moved from an overall portfolio perspective and into more specialised products, has helped the multinational expand from simply being a pure commodity business.
At the same time, PIC was looking to become a more global business, with investments outside of Kuwait. Both have benefited from MEGlobal’s proven ability to reach markets that matter, connecting with customers such as Octal, and Indorama.
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For both stakeholders, the MEGlobal business has been an astounding success, one that allowed it to bring all its managers, investors and customers together in Alberta, Canada to celebrate its tenth anniversary earlier this year. The ‘Ashra’ event was attended by members of the MEGlobal business and representatives from both PIC and Dow Chemical Company.
“China and South East Asia is about 50% of MEGlobal’s revenues and the Middle East, Turkey and India is our second largest global region, accounting for almost 20% of our revenues,” says Dr. Ramesh Ramachandran, CEO of MEGlobal. “We expect the combination of China, South East Asia and METIP to be almost 75% of our revenues in the future since the end use markets are growing at the fastest pace in these regions.”
Going forward, it is apparent that both partners remain confident in the company’s approach to the market. MEGlobal has certainly been an exercise in the formation of a successful joint venture. And by all accounts and measures, the company has exceeded expectations in the last ten years.
“Ten years ago, when this Joint Venture was proposed, we expected it to be moderately profitable,” said James Fitterling, executive vice president of Dow Chemical Company at the Ashra event.
“MEGlobal has easily surpassed expectations. The strategy has been validated many times over through year-after-year performance,” he added.
For PIC, such strong joint ventures with partners like Dow Chemicals, have allowed the company to report net profits of over $1.2 billion for the financial year ended March 31, 2014. “Our joint venture strategy has been to seek partners with strengths that complement our own and that create a synergy that results in a successful operation,” says Assad Al Saad, CEO of Kuwait’s PIC.
In many ways, it has also been a very unique exercise in partnership-forming for PIC. “Unlike the traditional JV model, where a Western entity is invited to help upgrade regional feedstock resources, MEGlobal did the opposite,” remarks Dr. Ramachandran. “A Middle East petrochemical powerhouse, PIC, went west and acquired assets in Alberta, combining the marketing prowess with their regional production in Kuwait and established a global joint venture,” he explains. But the question on everyone’s mind is what’s next for MEGlobal?
“The challenge that MEGlobal has now is growth, MEGlobal needs to grow to maintain its market share,” explains Raja Zeidan, business vice president, feedstock & hydrocarbons risk management at Dow Europe GmbH, and board member of MEGlobal. But Zeidan, like many others who also attended the company’s Ashra event, remains confident of about the future. “I believe there are viable opportunities for MEGlobal to grow and even expand this market share,” he says.
But naturally, this is easier said than done, especially in an industry where new entrants from China and North America are capitalising on new technologies which allow MEG to be produced with feedstocks like methanol and coal. But the company’s leadership remains confident in the way things are going at the moment.
“Our results have been appreciated by the owners and at present this strategy works for them and for us,” adds Dr. Ramchandran who is also adamant about ensuring that the same strategy remains the same.
“MEGlobal’s strategy will remain consistent to be the global market leader in the world of MEG and DEG. We will not diversify into other products at this stage. Our core competency is the focus on the MEG market and our customers. Any dilution of this focus could have a negative impact.” At the same time, the company will continue to pursue a strategy that allows it to utilise the strengths of both its partners.
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“The reason we are able to focus is that we only worry about excellence in safety, manufacturing and marketing. All other functions are outsourced to the best service provider in the world – the shared services group of the Dow Chemical Company,” says Ramachandran.
Ultimately, under the guidance of PIC and Dow, Ramesh plans to ensure that the next phase of growth for the company comes through organic investment in MEG plants. But this will also be expansion that is calculated and careful.
“We will not grow for the sake of growing. Profitable growth is what our owners expect of us,” he warns. “We can all learn a lesson in humility from the mistakes made by other commodity producers notably the PTA industry.”
“Look at the irrational expansion where new PTA capacity almost tripled in three years in the world, now the entire industry is struggling and expected to come into balance in 2023,” he adds.
More specifically, when it comes to dealing with new competition coming from the company’s Eastern and Western markets.
“We will expand at locations where we are sure that our feedstock advantage will benefit our customers and our shareholders,” he says.
“We can never predict the future, but our focus at MEGlobal needs to remain firmly on safety and satisfying our customers.”
Facts:
– $1.2 bln PIC earned this much last financial year partly because of its succesful joint ventures.
– 16,511 Kilo tons – Ethylene Glycol market volume in 2013.
– 22,815 Kilo tons – expected Ethylene Glycol market volume by 2020.
