Sayed Rashi Husain, vice president of Saudi Al-Azzaz Establishments shines a light on the petrochemical scene in Saudi Arabia
What are the factors that could stifle regional growth?
There are three main factors that could stifle the growth of the petrochemical industry in the region; the credit constraints, shortage of qualified and skilled labour, and also the fall in Chinese imports. The majority of companies target the Chinese market as growing chinese production could affect the exports from the region.
Do you think that the competition between Saudi and Iranian producers will benefit the region?
Competition is very healthy for the industry in this region and we see competition between both parties over the Turkish market as they want to control and dominate the sector. Iranian companies have got the product, but they have been restrained from exporting it. Also the majority of their plants will go on stream soon. On the other hand, Saudi petrochemicals companies get a tremendous cost advantage in regards to cheap feedstock. How I look at it is that the whole region should coordinate between the major players.
There has to be a lot of coordination between the GCC companies as well as with the Iranian companies, to allow the regional petrochemical industry to stand on its own two feet. If they start fighting among themselves it won’t be good for the industry in this region so this has to change in the years to come.
Are Saudi Arabian petrochemical companies still able to secure funding to finance their projects?
Yes. They are able to source funds, but the question that concerns companies is at what cost do they source the funds? Funds are not available at the same level as they have been over the last few years. The pricing is going to change for various reasons. Firstly, the Al Qusaibi and Saad issues (Saudi Arabian investment companies currently having trouble with the major banks). The conflict between these two companies will spread fear among banks. International banks may review the projects, especially in the back drop of rather brittle demand. Compare this to the past when it used to be very easy to get a loan – just by mentioning the name of a family, you would receive the money.
Do you think growing through acquisition is a good idea for Saudi Arabian petrochemical companies?
It is good idea, but it can pose some difficult questions. A good example is SABIC’s acquisition of GE Plastics. There is a big question mark over the price SABIC paid ($11.6 billion) and if it is still impacting on the company’s annual statement. Still, acquisitions can be a great way for growth as they allow the company the opportunity to acquire the necessary technology and it gives you the footprint into new markets. A company can grow globally by acquisitions.
Feedstock prices will be reviewed by 2011. How this will affect the local petrochemical companies?
It will have an affect yes, but it will not take the whole cost advantage away from the Saudi petrochemicals companies. If the price goes from 75 cents per million Btu to $1.1 or $1.2 per million Btu, there will still be a cost advantage to Saudi firms. Hopefully by that time the industry will be mature and it will be able to cope with the new situation and the challenges it will bring. And we may see investment in other parts of the world like North Africa.
Al-Azzaz Establishments is a trading and consulting house based in Al Khobar, KSA, established in the early 1980s. It supplies raw material products, chemicals and ingredients to the petrochemical industry and to the resin producers in the region.
