PRLog (Press Release) – Mar 31, 2011 – Ethane availability and feedstock pricing will remain key to the future growth of the UAE's petrochemical industry, according to BMI's latest UAE Petrochemicals Report.
The country will be at a disadvantage compared with Qatar and Saudi Arabia, which have based their rapid and continuing expansion of its petrochemicals industry on the accessibility of cheap natural gas feedstock, whereas the UAE is more dependent on naphtha. An expected ruling by the Saudi government could see a large hike in domestic feedstock prices over the medium term, which should bolster the competitiveness of Abu Dhabi's expanding Borouge complex, although Saudi Arabia's production cost of basic chemicals will remain the cheapest in the world.
Demand for UAE petrochemicals exports has been led by China, which is seeing better than expected growth in orders. A large proportion of growth is related to inventory restocking and the extent to which this is sustained at this level is conditioned by the growth in the Chinese domestic market as well as the continued recovery in its exports of manufactured goods, which utilise imported petrochemicals. BMI does not believe that China can be relied upon to absorb everything that the UAE exports and it is likely that producers will become more reliant on the European market over the medium term.
Most fresh investment will be directed into downstream segments with greater specialisation and attention to more value-added niche markets. The UAE could easily establish world-scale third and fourth derivative units along the production chain downstream from Borouge, thereby strengthening its competitive advantage and diversifying away from commodity chemicals. The Emirates are seeking to utilise petrochemicals output in their industrial clusters, such as the Jebel Ali Free Zone in Dubai, to diversify their economies. The industry is geared to being a supplier to China's industrial base, locking it in with the fortunes of Chinese economy. The main risks in 2011 include the slowdown in Chinese growth, the effects of credit restriction and unemployment on US demand and the gloomy outlook for the European market. At the same time, the start-up of large-scale projects in the Gulf region is leading to a saturation of the Asian market, narrowing margins.
On the upside, the efficiency of the country's highly integrated petrochemicals industry should ensure competitiveness and secure profit margins over the medium term, although it will lack access to the competitively priced ethane feedstock used by petrochemicals operations in Qatar and Saudi Arabia. We also expect a rationalization of the Chinese petrochemicals industry, which will have to address the problems of overstocking, lower-than-expected demand growth and a drastic increase in volumes from the UAE.
In BMI's Middle Eastern Petrochemicals Business Environment Ratings matrix, the UAE has a score of 63.0 points, up 0.3 points since the previous quarter due to an improvement in country risk scores. It has jostled with Kuwait for third place in recent months, but while the UAE has undergone massive expansion, Kuwait has suffered as a result of policy reversals in the refining and petrochemicals sectors, which has affected its market risk score, while its overall country risk rating has fallen in line with global economic trends. Now, the UAE is just 0.1 point behind Qatar and 6.0 points ahead of Kuwait.
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