The State of the Industry 2018: A year of transformation
2018 is characterized as a year of transformation for the industry. As we look back on the year in our latest article, we see the GCC petrochemical and chemical industry’s continued evolution and explore what lies ahead for the industry
As 2018 comes to an end and we close another successful edition of the Annual GPCA Forum, it is time to look back on our regional industry’s achievements, the challenges it faces today and opportunities for change that lie ahead. Not only for the chemical industry in the Arabian Gulf but also globally, 2018 was the year of transformation and pursuit of growth. This was evident in the industry’s upbeat performance on all fronts including production, revenue, export and employment.
The GCC chemical industry contributes 31% to manufacturing value added and is the second largest manufacturing segment following refining. In 2017, chemical production capacity in the Arabian Gulf region grew by 7 percent YoY, reaching 166.8 million tons, with expectations of further growth in 2018 to 170.9 million tons. At the same time, GCC overseas production capacity reached 18.6 million tons, as regional producers continued to expand their international footprint by establishing world class facilities in North America, Europe and Asia.
The regional industry continues to expand; however, capacity growth is only one aspect of development. The structure of the industry has also been evolving, with the emergence of new technologies, product slates and upgrades in capabilities. Companies today operate in an ever more competitive business landscape and can no longer depend on volume to drive growth.
Over the next decade, more than 20 new products will enter production at facilities in the Arabian Gulf, providing new solutions to customers worldwide. Half of those new product lines are performance and value-added chemicals, which have the potential to create more value and stimulate new industries in the region. In volume terms, new products will add about 16.1 million tons, representing 24% of total capacity additions.
“Over the next decade, more than 20 new products will enter production at facilities in the Arabian Gulf.”
“The chemical sector is one of the leading sources of employment in the GCC, supporting up to 880,000 direct, indirect and induced jobs, which account for 3% of total employment in the region.”
Over the last year, the industry demonstrated robust sales growth driven by improved commodity prices and stronger export markets. Supported by the upturn in global growth, GCC chemical trade rebounded in 2017, expanding at a pace of 5% during the year. In 2017, GCC chemical industry sales posted the highest YoY growth in the past five years. Sales went up 17% YoY reaching USD 84.2 billion, up from USD 72 billion in 2016.
The chemical sector is one of the leading sources of employment in the GCC, supporting up to 880,000 direct, indirect and induced jobs, which account for 3% of total employment in the region. In other words, for every job in the chemical industry, five new jobs are stimulated elsewhere in the economy. Over the years, GPCA member companies have demonstrated a high nationalization rate of 58% in total workforce.
Moving forward, GCC producers will continue to operate in an increasingly competitive environment. In order to not just retain but improve their global position, companies would need to rethink their existing business strategies. Besides portfolio diversification and cohesion, regional producers must focus on value creation that would boost their competitiveness on a regional and global scale.
Industry consolidation is another important enabler to help regional players increase their global competitiveness by building important critical mass. Consolidation can also drive scale in certain products where GCC producers lack scale and help develop a strong position in marketing. It can further help to leverage economies of scope with respect to market coverage and serve as a route to focus companies’ portfolio and achieve greater product specialization.
“Over the last year, the industry demonstrated robust sales growth driven by improved commodity prices and stronger export markets.”
Refining and petrochemical integration should remain an important industry priority, as it does not only drive greater profitability but also minimizes energy costs by creating opportunities to synergize power, steam, process water, and hydrogen transfers. Beyond integration, the next wave of game-changing production is being shaped by crude-oil-to-chemicals technology, which will significantly increase the value of crude oil reserves, and create significant competitive advantage compared to traditional petrochemical producers.
Strategically growing their international footprint and ensuring greater customer proximity will be another important driver for the GCC industry moving forward. At the same time, chemical producers must continue to adopt digital technologies across their assets in order to increase the efficiency and sustainability of their processes and operations and leveraging the potential of digitalization to add value to their business.
To be able to achieve any long-term objectives, GCC chemical producers need to continue to invest significantly in developing their capabilities through technology acquisitions, the development of in-house innovation capabilities and the establishment of research and innovation centers to foster collaboration across the region. Closer industry collaboration and strategic foreign partnership will play a key role in securing the industry’s future.
“Refining and petrochemical integration should remain an important industry priority, as it does not only drive greater profitability but also minimizes energy costs by creating opportunities to synergize power, steam, process water, and hydrogen transfers.”