RIYADH, 28 February — A new company with shareholders from plastic factories in the Kingdom is being set up to source collectively raw material from suppliers worldwide at competitive rates and terms.
"We are seriously considering becoming a shareholder along with other factories in the new entity," Fawaz Z. Al-Kaaki, president and general manager of Saudi Plastics Factory, told Arab News. He said the move is designed to ensure smooth material supplies, avoid any market stability, and lend Saudi products a competitive edge in the export market.
Al-Kaaki explained that the new company was being promoted by Ali Al-Shahri, chairman of the plastic industries committee at the Riyadh Chamber of Commerce and Industry. The proposed company will be launched with the support of other plastic manufacturing firms in the Kingdom.
He said that an association of Gulf plastic factories was also being formed in Dubai to promote research and development in the industry. The idea is to keep the plastic industry competitive at the pan-Gulf level, as Saudi Arabia and other Gulf states prepare for entry into the World Trade Organization.
Al-Kaaki said the decision to float a new company to service the needs of plastic industry had become imperative as sudden shortages of raw material and fluctuating prices began to affect the market. He blamed Saudi Basic Industries Corporation, which has virtual monopoly in the Kingdom's petrochemical industry, for creating a situation that has crippled the competitiveness Saudi plastic products in the market.
"Today, the prices of raw material are a little better than they were in 1999, when they rose by 60 percent, threatening the mere existence of smaller factories and eating up a big chunk of their profits. SABIC proposals to ease the problem do not go far enough to meet the industry's needs. If prices are not lowered, payment facilities are not provided and smooth deliveries are not ensured, we'll be swept off our feet by mass producers like Taiwan and China," Al-Kaaki said.
Asked if any representation had been made to SABIC on the problems facing the plastic industry, he said the issue had been raised through the industrial committee of the Riyadh Chamber several times. "So far, there has been no adequate response from SABIC. They are only offering a rebate on the quantities that we purchase. But that's not a solution for us. They have got to reduce the prices."
Al-Kaaki called for a meeting of SABIC and the plastic industry representatives to resolve the issues in a transparent manner.
According to Al-Shehri of RCCI's industrial committee, SABIC is offering plastic factories discounts on a sliding scale depending on their consumption. The discount is said to be so low that even large factories reaching the third or fourth discount category would qualify for only 0.05 percent which, he said, is inconsistent with the volume of purchases. Factories in the first discount category are those having an annual consumption of 300 to 3,000 tons for one particular material. They would be eligible for only 0.01 percent discount.
Al-Kaaki said they had reached a situation in which they had been obliged to buy raw material from other countries paying 20 percent customs duty. "In such a situation, how can we penetrate a market outside the Kingdom?" he asked.
"We are heading toward globalization and when the Kingdom joins the WTO, we will have no option but to be ready for competition at all levels. In the market, survival is for the fittest and SABIC will either make the Saudi plastic industry fit to face he market challenges, or see all our efforts down the drain," Al-Kaaki said.
He said in order to meet supply shortages from SABIC, the Saudi Plastic Factory evolved an innovative solution by lending raw material to other factories which were denied timely receipt of supplies. "If it weren't for SPF which set the ball rolling by cooperating with other factories five years ago, many factories would have been in serious trouble," he added.
Established by Prince Hussam ibn Saud ibn Abdul Aziz in 1962, SPF has invested SR60 million for the acquisition of three new factories -- each in Riyadh, Jeddah and Cairo. SPF, with a current production capacity of 10,000 tons annually, anticipates a 20 percent growth rate this year and the next as a result of the vertical diversification. It posted a ten percent growth rate last year.
