The GCC chemical industry rebounds but uncertain times await
By: Noora Mukhtar
1. Economic and socio-economic impact
Following a difficult 2020, the GCC economy is progressively emerging from the twin impact of the pandemic and its induced temporary collapse of oil prices, amid the easing of pandemic pressures, higher hydrocarbon outputs, a bolstering sustainability agenda and various government reforms. The GCC countries have had a strong performance across several fronts in 2021 and 2022. According to the International Monetary Fund (IMF), the GCC real GDP grew by 2.5% and 5.4% in 2021 and 2022 respectively as illustrated in Figure 1.
This strong recovery has largely been driven by the easing of pandemic constraints, resulting in growth in oil production across the region and positive developments in the hydrocarbon market. The higher oil prices support greater economic activity, attract additional investment, and improve business attitude due to favorable market conditions. However, the non-oil sectors have performed well too, mainly due to public expenditure, credit growth and recovery in global travel and tourism supported by some mega events hosted in the region, such as Expo 2020 in the UAE and the FIFA World Cup tournament in Qatar. Moreover, the effects of the war in Ukraine on the commodity markets and of its associated economic sanctions were in general beneficial for the GCC economy as they opened up an opportunity to capture the European market for oil and gas supplies.
Figure 1. Real GDP growth and chemical industry contribution
Source: IMF & World Bank Data
It must be noted that, the World Bank projects Gulf economies to grow at a slower rate of 3.7% and 2.4% in 2023 and 2024, respectively. While the global GDP growth is expected to slow from 6% in 2021 and 3.2% in 2022 to 2.7% in 2023, as projected by the IMF.
In terms of the chemical industry’s contribution to the manufacturing GDP, GPCA analysis finds that it behaves in a similar trend to oil prices along the years. The GCC chemical sector’s economic impact is substantial, making it a key industry in the region’s economy contributing 5.6% to total GDP and 51% to manufacturing GDP in 2021. The industry’s economic value is also demonstrated by supporting more jobs across different channels with a total employment of 210,200, and a 64% nationalization rate.
 IMF, World Economic Outlook Report, Countering the Cost-Of-Living Crisis, October 2022
2. Chemical output
The overall chemical production in the GCC grew further by 2.7% in 2021, recording a 154.1 million tons capacity, driven by the rebound in demand for goods around the world. The regional historical growth is led by inorganic chemicals, and performance polymers and rubbers with a nine-year Compound Annual Growth Rate (CAGR) of 45.1% and 17.8%, respectively. The positive overall capacity growth momentum is forecasted to moderate slightly to 2.5% in 2022.
Global chemical output is recovering unevenly across geographies with an overall percentage of 6.1% in 2021 as illustrated in Figure 3. The projected growth is headed by Asia at 7.6%, followed by Europe and South America at both 6% and 4.6%, respectively. It is estimated to grow by a lower rate of 2% and 2.9% in 2022 and 2023 respectively, taking into consideration the ongoing lockdowns in China, as well as direct and indirect supply chain disruptions caused by the Russian invasion of Ukraine.
The regional industry’s global position is large and growing steadily, more than doubling over the past two decades and accounting for a 6.7% market share of the total global petrochemical industry.
Figure 2: GCC chemical production capacity growth by product segment (2012-2021)
Source: GPCA Facts & Figures 2021 report
Figure 3: Global chemicals industry production y-o-y growth by region
Source: GPCA Facts & Figures 2021 report
3. International trade
Despite the global trade outlook uncertainty, and the aftermath of COVID-19 disruptions, international trade growth exceeded expectations and forecasts, while still bearing the scars from the previous years. The annual change of the global merchandise trade volume (imports and exports) was 9.7% in 2021, followed by a 3.5% rise in 2022. Growth is forecasted to moderate to 1% as merchandise trade approaches its pre-pandemic long-run trend. According to WTO, the highest year-on-year growth in manufactured goods trade in 2021 was realized in iron and steel, chemicals and integrated circuits at 56%, 29% and 27% respectively.
Though the GCC chemical industry is export-oriented, exporting 68.8 million tons in 2021, the region imported 20 million tons resulting in a positive trade balance of 48.6 million tons, up by 12% Y-o-Y. China and India remain the top destinations for GCC chemical exports, accounting for 26% and 14%, respectively, of total exports. Petrochemicals and polymers dominate GCC chemical exports, while value added chemicals are the top imported chemicals into the region.
Global competition and collaboration have made it crucial for the GCC to establish leadership and nurture its trade relationships as more and more countries compete and collaborate with each other. The existing GCC Free Trade Agreements (FTA) with Singapore, the Greater Arab Free Trade Area (GAFTA) and the European Free Trade Association (EFTA), as well as the negotiations under consideration with the UK, India, South Korea, Australia and China and other key markets play an important role to achieve this vital objective. Businesses in each country can focus on producing and selling goods that best utilize their resources, while other businesses import goods that are scarce or unavailable locally.
4. Revenue and investments
The GCC is well positioned as the world enters uncertain times. The regional chemical industry exceeded pre-pandemic sales figures and recorded the highest sales value of USD 95.9 billion since 2013, a 77.2% increase on sales in 2020. This was due to the increasing demand and prices of chemical products globally. In 2021, Saudi Arabia, with the largest volume output and chemical sales revenue, generated an estimated USD 76.5 billion in revenue, representing 79.8% of the region’s total sales. Due to its major share, the growth trends in Saudi Arabia impact the entire region. GPCA expects that strong demand for both commodity and specialty chemicals should keep prices robust throughout 2022 as well.
Similarly, the global chemical industry’s revenue increased significantly by an annual growth rate of 24% in 2021 reaching USD 4.73 trillion, the highest amount in the last 15 years. Asia has the largest share of the global chemical market, consistently accounting for more than 50% of the global chemical market since 2012. The GCC share in global chemical revenue has increased to 2.4% in 2021, almost reaching the historical average. The global industry is expected to grow by 1.8% over the period 2021 to 2024, predominantly led by the basic chemicals segment. Understanding end-user customer industries’ trends remains a critical aspect for positioning a strong rebound in key end markets amid rising costs.
The GCC chemical industry capital investments reduced by more than half to USD 4 billion in 2021 as companies are rationalizing their investments post-pandemic, putting many projects on hold, and prioritizing recovery, while others are coming close to completion. Despite the considerable reductions in global investments, there are about USD 61 billion of planned and committed investments for 2021-2025 in the Arabian Gulf region. GCC chemical producers continued to invest in environmentally responsible projects as part of their ESG agenda, mainly in energy efficiency and air pollution in 2021.
Figure 4: GCC chemical trade flow by volume and value and Y-o-Y growth rates
Source: GPCA Facts & Figures 2021
Table 1: GCC chemical projects expected to start-up in the next five years in the GCC
|Country||Project||Expected completion year||Products||Capacity|
|Saudi Arabia||Advanced Polyolefins Company – Petrochemical Plant||2024||– Propane Dehydrogenation (PDH) plant
– Polypropylene (PP) plant
– Isopropanol plant
|– 843,000 tpa
– 800,000 tpa
– 70,000 tpa
|UAE||Borouge 4 Petrochemicals Complex Project||2025||Polyethylene and polypropylene||About 1.9 mMtpa added capacity|
|Saudi Arabia||SABIC and Saudi Aramco joint venture – Crude to Chemicals (COTC) plant||2025||Chemicals and base oils||9 mMtpa|
|Saudi Arabia||Ma’aden – Phosphate 3 complex||Phase 1: 2025
Phase 2: 2027
|Phosphate fertilizers||1.5 mMtpa|
|Qatar||QAFCO – The Ammonia 7 project||2026||Blue Ammonia||1.2 mMtpa|
|Saudi Arabia||Neom hydrogen project||2026||Green Ammonia||1.2 mMtpa|
|Qatar||Qatar Energy in partnership with Chevron Phillips Chemical – Ras Laffan Petrochemicals
|Saudi Arabia||ARAMCO & Total – SATORP – Jubail Petrochemicals Plant (AMIRAL)||2027||Ethylene and related high added value chemical units||1.5 mMtpa|
Source: GPCA research
The chemical industry is making bold choices to rebound from the challenges facing the market and the economy. Over the last three years since 2020, the industry has demonstrated significant resilience and resourcefulness in the face of adversity.
As the economy heads into 2023 on a firmer footing, we see a number of GCC players utilizing disruptions as opportunities to build a resilient and future-proof their business. In the coming year, chemical companies would need to watch the trends that are shaping the end-markets landscape, focus on new growth opportunities and extract more value from their existing assets. The transition to low carbon economies and investing in green growth opportunities will enable the industry to meet growing global demand and enhance sustainability through carbon reduction projects, as well as advanced recycling and recovery, consequently, potentially increasing the GCC’s GDP to over USD 13 trillion by 2050.
The greatest risk to the global outlook is persistent inflation and continued increases in interest rates that will extend and intensify the impending downturn. Further risks include an escalation in the Russian-Ukraine conflict, the possibility for disputes to arise elsewhere in the world, and returning supply-chain disruptions.