Borouge shows agility to enter Chinese market

Borouge, the Abu Dhabi plastics maker, has partnered with a local affiliate of the Kuwait logistics giant, Agility, to break into the Chinese market and build a major new plant in Shanghai, it announced yesterday. The facility, composed of a shipping hub and compounding plant, will handle 600,000 tonnes of plastics a year in China by 2010. This is equal to Borouge's current production capacity, but only a small step in the company's ambitious plans to position Abu Dhabi as a major player in the global petrochemicals industry. Abdulaziz Alhajri, the chief executive of Borouge, said that he wanted to construct similar downstream facilities in other markets as well.

"The Shanghai logistics hub is one of several regional logistics hubs that will provide storage and logistics support for our operations close to our customers," he said. "It will enable us to provide a fast, flexible delivery service." The compounding facility will transform 50,000 tonnes of raw plastics into materials for use in China's car industry, according to Harald Hammer, the chief executive of Borouge's marketing arm.

Borouge is in the midst of a significant production capacity expansion at its home base in Ruwais that will see the firm producing two million tonnes of basic plastics per year in 2010, up from 600,000 today. The expansion will also allow the firm to produce polypropylene, a more complex and valuable plastic, in addition to the polythene the company makes today. The company is studying plans to add an extra 2.5 million tonnes of capacity by 2014, on top of the current expansion. In April, Mr Alhajri said the company had been guaranteed ethane feedstock, an ingredient in natural gas, from its parent firm, the Abu Dhabi National Oil Company (Adnoc), for the third-stage capacity increase.

Borouge is a 60-40 joint venture between Adnoc and Borealis, an Austrian petrochemicals firm, with Adnoc holding the majority stake. Borouge has prospered, even as the Austrian stakeholder has seen revenues fall on due to the steep rise in oil prices. Borealis reported a 48 per cent fall in net profit for the second quarter just over a week ago, as the price of naphtha, a key feedstock ingredient, grew in line with crude oil prices. Quarterly net profit was ?71 million (Dh403.8m), down from ?137m the year before, Borealis said.

Borouge, however, has not been hit by cost increases because it makes its polymers out of ethane, which it buys at a low fixed price set by Adnoc. Tony Potter, the director of Europe and Middle East olefins studies at CMAI, a petrochemical consultancy, said plastics makers in the Gulf had by and large benefited from high oil prices because they could charge more for their product without facing cost increases.

"Prices of olefins [and] petrochemicals in general are set by the economics of the naphtha industry," Mr Potter said. "Guys in Saudi Arabia or Abu Dhabi, their input costs don't change." @Email:[e-mail]