The Covid-19 pandemic has presented unimaginable challenges to the chemical industry the world over and redefined the priorities, business strategies and metrics for success for today’s organisations.

From a strategic point of view, the Covid-19 pandemic has forced companies to be leaner and more focused on their strongest and most competitive positions, the Secretary-General of the Gulf Petrochemicals and Chemicals Association (GPCA) told Gulf Industry in an exclusive interview.

Dr Abdulwahab Al Sadoun also shared in detail how the Middle East chemical industry is reeling from the devastation of the coronavirus pandemic and how it is gearing up to face the key challenges in 2021.

Giving a peek into the forthcoming 15th Annual GPCA Forum, Dr Sadoun said that the forum will provide renewed perspectives from across the world on key issues that remain top of mind for industry leaders today.

Al Sadoun: cautiously optimistic

Excerpts:

How has the growth of the regional chemical industry been impacted by the Covid-19 pandemic?

The GCC chemical industry’s output grew by 1.5 per cent in 2020, which is lower compared to the historical average of CAGR 4.7 per cent. Regional chemical production output was stable up until May 2020 as the GCC chemical industry stepped up efforts to safeguard the supply of raw materials for the manufacture of products used to produce materials for the hygiene, testing and treatment of patients affected by the coronavirus pandemic. In the outbreak months of the pandemic, volumes of chemicals made in the GCC were shipped across the world for the production of personal protective equipment for medical staff, as well as the manufacturing of essential food packaging material. Chemical production saw a decline during the summer months and has been recovering since August 2020.

What was the total investment in the GCC chemical industry in 2020?

Based on the data provided by GPCA member companies, in 2019 alone there were projects under construction with capital investments of $6.8 billion. And as reported by APICORP, there are more than $70 billion of planned and committed chemical investments in the GCC region for 2020-2024. The collapse in oil and petrochemical prices together with dramatically changed market dynamics made it difficult for GCC chemical companies to move forward with their expansion plans. Some projects have already been announced to be delayed, while configurations are being reconsidered and even cancelled during 2020. A number of mega projects in Saudi Arabia such as Amiral and Phosphate 3 are still on track, and the Borouge 4 project in the UAE is still expected to come on stream in 2025.

GPCA: representing the chemical industry in the Gulf

How do you see the future of investment in the GCC chemical industry, especially in the post Covid-19 reality? Would you have figures on investment in chemical projects in the region?

Chemical companies in the region are likely to remain cautiously optimistic about growth and investment in the New Year due to continued uncertainty around the pandemic and recovery scenarios in 2021. Nevertheless, the roll out of a vaccine in many parts of the world is a reason for hope and reassurance that the possibility to return to normality is closer than ever. It’s important to note that projects which were commissioned prior to the pandemic will not be severely impacted, barring some delays due to Covid-related restrictions.

As reported by APICORP, despite a considerable reduction in global investments, planned projects in MENA for 2020-2024 actually increased by $4 billion to $95 billion. The coronavirus pandemic has shifted chemical companies’ focus and accelerated the sustainability agenda in the region. As far as new investments and projects are concerned, regional players are now increasing their circular economy efforts and investing in renewable technologies and projects, such as wind and solar as they look to adopt cleaner energy sources. During 2020 we also saw a rise in announcements of green hydrogen and green hydrogen-based ammonia plants signaling the adoption of new sources in the region’s energy mix.

GCC chemical exports revenue for 2020 is expected to decline by more than 20 per cent

Consolidation and M&As dominated the GCC chemical industry in 2019. What were the major highlights /trends of the year 2020?

The Arabian Gulf chemical industry continued its consolidation drive into 2020 despite the dramatically altered economic landscape. In June this year, Saudi Aramco completed its acquisition of a 70 per cent stake in Sabic in its quest to expand downstream. Sabic too continued its consolidation drive and in November it sold its agri-nutrient business to its subsidiary Safco, which was recently transformed into ‘Sabic Agri-Nutrients Company’ as a special purpose venture. The company further established a specialties business unit as a separate standalone business owned by Sabic.

The consolidation trend continued in Saudi Arabia over the last 12 months, with the commencement of discussions between Saudi Industrial Investment Group (SIIG) and National Petrochemical Co (Petrochem) about a possible merger. In Qatar, Qatar Petroleum (QP) consolidated the operations of Qafco and Muntajat during 2020 as part of its continuous efforts to strengthen QP’s global competitive position.

GPCA forum has come a long way over the last 14 years

What are the key challenges facing the Middle East chemical industry today? How do you see the market during coronavirus and how will it affect the industry?

The chemicals industry experienced a significant and abrupt impacts from the Covid-19 outbreak driven by structural demand decrease in some sectors such as engineering plastics and constraints in global supply chains due to national lockdowns and production limitations. Disruptions occurred across raw material price, supply availability, volume, product prices, workforce shortages and logistics challenges as well as costs. Changes in raw materials were affected by supply shortages and a steep decline in the crude oil price. There were significant changes in demand driven by developments in customer industries and accelerated shift in demand. Increasingly volatile prices were affected by changes in the supply and demand balance and relevance of supply chains.

From a strategic point of view, the Covid-19 pandemic has highlighted the importance of being agile, and increasingly we’re seeing chemical companies shift their focus towards building resilience and flexibility. The pandemic has forced companies to be leaner and more focused on their strongest and most competitive positions. We’re also seeing strategic reconsiderations of future capital spending and rationalisation of new and future capacities.

How much did the GCC chemical industry export in the year 2020? What were the reasons for the increase or decrease vis-a-vis last year?

At the moment, we can only estimate chemical export volume in 2020, as there are no official statistics available. We forecast GCC chemical export volume to decline by 15 per cent-20 per cent in 2020 and reach 66-70 million tonnes due to significant demand disruptions in chemical supply markets as a result of the pandemic. GCC chemical export revenue is declining for a second year in a row, despite a continuous increase in export volume. The reasons for the decline in export revenue is the dramatic drop in global petrochemical prices, which have been falling to their lowest level since the 2008 global financial crisis.

In 2019, GCC chemical exports grew by 6.4 per cent to 82.5 million tonnes, but the region’s export revenue declined by 10.3 per cent to $57.2 billion. In 2020 we estimated, GCC export revenue to decline by more than 20 per cent to $41-45 billion again due to lower product prices and demand disruptions caused by the pandemic.

The GCC region is a major hub for the production and export of chemicals. How can the GCC producers and marketers widen their global export reach and increase production volumes?

The question is not about volume and ramping up production – it’s about producing more specialised products with higher value and gaining access to strategic markets. Arabian Gulf producers have an opportunity to diversify into higher value-added products and reorganise and expand their product portfolio. This trend has been around at least for the last decade, as profit margins for basic petrochemicals has been on the decrease; however, it was further amplified by the coronavirus pandemic which saw basic and intermediate petrochemical prices fall down.

Chemical players in the region have already been making concerted efforts in this direction, establishing new operations in key markets abroad, including in the US, China and Europe. Embarking on new, strategic partnerships with brand owners and other value chain partners will enable regional chemical companies to reinvent and reposition their product portfolio, opening doors to new markets and applications. A focus on product innovation and sustainability will be essential in carving out a future for petrochemical products in a world made up of ever more environmentally conscious consumers.

How does GPCA aim to catalyze the growth of the GCC region’s downstream industry? Are you planning any new initiatives to deal with the issues arising in the wake of Covid-19 pandemic and other challenges like low oil prices and drop in international chemical prices, higher domestic feedstock prices and the emergence of global competition?

At GPCA, our focus remains on creating value for our members by effectively representing their interests on a regional and global level and providing a platform for knowledge sharing and collaboration. With the hopes of a relaxation of restrictions in 2021 and the roll out of the new vaccine, we are optimistic we can resume hosting our networking events and conferences in person in the New Year. We’ll be starting the year with a special edition of the Annual GPCA Forum on February 10-11 when the chemical community can come together to exchange lessons learned from the pandemic and how to lead in the new reality post-Covid-19.

We will continue to organise GPCA’s Members Dialogue and bring new, important industry topics for discussion with leading industry experts and our members from across the value chain. We plan to develop robust research and publications that add value to the regional chemical industry and help government and industry stakeholders make informed decisions in a timely manner. Our advocacy work in the area of standards and regulations will culminate in a new milestone in 2021, and I look forward to collaborating with regional governments on issuing robust and globally acclaimed EHS&S standards for the region.

GPCA Annual Forum has carved out a niche for itself as a leading platform for both global and regional producers to discuss and debate key challenges and opportunities. What according to you has led to the remarkable progress and growth of the Forum over the years? What prospects do you see for the show in the coming years?

The growth and success of the Annual GPCA Forum can be attributed to the unwavering support from the GPCA Board and our full member companies over the years. It is also due to the ongoing need for knowledge sharing, networking and collaboration among the regional chemical industry and stakeholders from the entire value chain to come together and discuss the chemical industry’s future, learn from one another and exchange best practices. I am particularly proud of how far the forum has come over the last 14 years and look forward to welcoming our members and partners to Dubai for its special edition in February.

What will be the special highlights of the GPCA Annual Forum this year? What are the most prominent topics that will be discussed? What are the key takeaways?

The forum this year will come at a critical time for the industry – as we continue to reel from the devastation of the coronavirus pandemic – but also look to the future and what’s to come with the hope of an economic recovery in 2021. In line with the forum’s theme, we believe that leadership in the new reality will become front and center to companies’ journey towards success in 2021 and beyond. With this in mind, the forum will provide renewed perspectives from across the world on key issues that remain top of mind for industry leaders today including leveraging technology post crisis, what value creation will look like in a changing landscape, the need to upskill the workforce of the future, build supply chain resilience and drive positive sustainability results.