Petrochemical firms urged to boost their home markets

Domestic demand will shield the Gulf's pet-chem producers from increasing competition in  the export markets.

Hamad Al Terkait, the chief executive of Equate. Pawan Singh / The National
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The GCC petrochemical industry should develop a regional downstream market to offset growing competition in the Asian export markets, says the head of one of the Gulf's largest producers.

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Petrochemical ventures have profited from close proximity to oil and gas feedstock and access to cheap electricity, a big boost to the energy intensive industry. But the growth of production in Asia is clouding the outlook for exports, prompting regional players to focus on the local markets.

Governments have been encouraging the growth of the sector to diversify their income stream from hydrocarbon production and to create jobs.

"The capacity in the markets we are exporting to, such as China and India, is growing," says Hamad Al Terkait, the president and chief executive of Equate, a petrochemical company. "Unless you develop your domestic markets, you will be at risk in the future."

Equate produces more than 5 million tonnes of petrochemicals a year, and has a product portfolio ranging from polyethylene to styrene monomer.

The company is a joint venture between Dow Chemical of the US and the Kuwaiti companies Petrochemical Industries, Boubyan Petrochemicaland Qurain Petrochemical Industries.

Currently, less than a fifth of Equate's output feeds into the domestic market. Failure to promote demand close to the factory gates will lead to a decline in prices in export markets.

Apart from falling profit margins, this could lead to further anti-dumping accusations, which have plagued regional producers in recent years. "If prices go down, more anti-dumping cases are possible," said Mr Al Terkait, who forecast prices for his products would remain steady next year.

Boosting domestic demand hinges on the growth of the plastics industry, which converts basic petrochemicals into consumer products and plastic components. Apart from stoking demand for petrochemicals, such converters are more labour intensive than upstream production and provide a boost for employment, said Mr Al Terkait.

Governments in the GCC have been keen to create jobs for nationals in the aftermath of the Arab Spring, and have identified unemployment as one of the key drivers of the discontent that sparked social unrest in North Africa and parts of the Middle East.

Markets outside the region will remain crucial for GCC petrochemical companies, as demographics prevent the Gulf from absorbing the bulk of goods produced.

"In the whole of the Gulf, we are looking at around 30 million people. In Germany alone, you have a population of 80 million," said Mr Al Terkait.