Mideast petrochem revenues to rise 20% in Q1

The Middle East’s petrochemical sector, this quarter, will register 20 per cent and 23 per cent growth in revenue and net profit respectively, according to a report.

A study by Global Research shows that the expected growth in first quarter 2011 (on a quarter-on-quarter basis) is driven by favorable prices of related products and the 12 per cent quarter-on-quarter growth in production volume.

The regional petrochemical sector already saw some improvements in 4Q 2010 where revenues grew 33.4 per cent over the revenues recorded in 4Q 2009.

Sales in 4Q 2010 reached $12.7bn, thanks to higher sales volume and prices as well as incremental supply from new plants of major players such as Sabic.

It is further expected that improvement in prices of related products and additional 113 per cent production from the new capacities will push revenues this quarter by 20 per cent to reach $15.2bn.

The improvement in the average prices and production growth will nonetheless offset the increase in expansion and operating costs, Global research said.

“Consequently, this will lead the regional expected gross and net profitability margins to remain at 36.7 per cent and 19.7 per cent in 1Q11, respectively,” it added.

The increase in prices is also buoyed by the rise in the price of oil, which is slated to continue to show upward movement on the back of political unrest in North African region, where the key transportation routes are located.

However, the recent events in Yemen, Bahrain and Oman is also alarming uncertainty in oil market as this could trigger a double dip recession and take the world economy spiraling down again.

Going forward, producers can only hope that the unrest in the Mena region would not stifle this trend.

Global Research believes the average prices of all benchmark crude oil will remain above $90 per barrel in 1Q11. “We expect WTI crude oil average prices will register a gain of 14 per cent to 16 per cent, while average prices of Opec crude oil will remain in the range of $97 to $107 per barrel in 1Q 2011,” it said.

Last year, although global economy shrunk by 4.6 per cent, the Gulf’s petrochemical production increased by 3.7 per cent.

According to Sheikha Lubna Bint Khalid Al Qasimi, UAE’s Minister of Foreign Trade, production went up across the Middle East last year with Saudi Arabia posting an increase of 6.3 per cent, UAE (Abu Dhabi) 4.4 per cent, Kuwait 4.2 per cent and Qatar 7.4 per cent.

The Gulf is estimated to have produced more than four million ethylene capacity and by 2015, the region will see nine new crackers and downstream plants come on stream – five in Saudi, two in Iran and one each in UAE and Qatar.

Sheikha Lubna said the global ethylene share of the Gulf petrochemical producers is expected to reach 16 per cent by end of 2010 and reach 20 per cent by 2014. The region is also set to supply 40 per cent of incremental Asian demand for polyolefin.

But more needs to be done. Khalid Al Falih, president and CEO of Saudi Aramco said despite being home to more than one-third of the world’s oil and nearly a quarter of natural gas reserves, the Gulf has a market share of only $40 billion or one per cent of the total petrochemicals market.

Over the next ten years, Al Falih urged the industry to increase the region’s revenues by 150 per cent per cent from $80 billion to $200 billion, increase the workforce by ten-fold and raise development spend from half per cent of a company’s revenues to five per cent.

Experts say the region is set to supply 40 per cent of incremental Asian demand for polyolefin and produce a significant supply of ethylene for the emerging markets due to cost efficiency.

Industry analysts suggest that the downturn could see further migration of the industry to the Middle East and Asia making the Gulf region the future centre of gravity for the global petrochemical and chemical industry.

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