RIYADH, 23 August — Senior executives of the Saudi Basic Industries Corporation (SABIC) have stressed the need for cooperation among petrochemical companies in the Middle East to avoid a price war in the face of overproduction in the region and economic slowdown in the US and Japan.
“As we mark our excellent performance and financial results for 2000, I must sound a word of caution. Let us not be too enthusiastic about the market turnaround, and not be complacent. Well into the first quarter of 2001, there are ominous signs on the horizon, such as the economic slowdown in the US and Japan,” Muhammad H. Al-Mady, vice chairman and managing director of SABIC, said in SABIC’s annual report released here.
However, Al-Mady said SABIC would be able to overcome the challenge, since the global trend in the petrochemical industry was to migrate to “best cost” locations, such as the Kingdom.
“In terms of access to hydrocarbon resources, SABIC will continue to be in a strong position. Saudi Arabia’s resources remain a key foundation for our existence,” he observed.
Speaking in a similar vein, Nasser Al-Sayyari, a senior SABIC executive, said in a speech delivered in Tehran recently that the “biggest challenge of all would be to find markets for our products without creating instability in the market.”
He continued: “I am sure that all players in the field have made their plans based on estimated growth in demand. Yet, we must ensure that our resource-driven confidence does not lead us down a blind alley of overcrowded markets resulting in unhealthy competition and unfavorable prices.”
Al-Sayyari said all the major petrochemical producers in the Middle East were in the process of expanding their production capacities. He said the National Petrochemical Company of Iran had envisaged an annual production capacity of 30-38 million tons by 2005.
“Elsewhere in this region, the United Arab Emirates, Qatar, Kuwait and Oman are expanding their petrochemical industrial bases. Equally impressive is Egypt’s reported plan to invest up to $10 billion over the next 20 years to build its own petrochemical industries.”
SABIC and its affiliates believe that the only way out of a cut-throat competition is by cooperating through “careful spacing out of new projects.” He added that “it is important for all of us not to wreck the market through overproduction.”
Analysts of the petrochemical industry observe that the continued expansion of the production capacity in this sector reflects the industry’s confidence that it will climb out of its current recession.
The Kingdom and several other countries are pursuing WTO membership, while the Arab League is pushing ahead with its target of implementing a pan-Arab Free Trade Zone by 2007. These developments augur well for the future of the regional petrochemical industry, but may create problems if it embarks on the path of confrontation instead of cooperation.
