LONDON, 2 October 2006 — "People have underestimated the strength of SABIC (Saudi Basic Industries Corp.) in the past. They do so in the future at their own risk. SABIC is one of the finest companies in the world and (Chief Executive) Mohammed Al-Mady has really built a fine petrochemical company," stressed Peter R. Huntsman, president and CEO of the Texas-based Huntsman Corporation.
Huntsman was in London on Thursday with Al-Mady to hear the announcement that SABIC was acquiring Huntsman Petrochemicals (UK) Ltd., a subsidiary of Huntsman Corporation, in a deal valued at $700 million. The acquired petrochemical assets include an 865ktpa ethylene/400ktpa propylene cracker and a complex of 1.3 million tpa aromatics facilities including logistical facilities at Wilton and North Tees, which effectively comprises the company's European base chemicals and polymers business.
Why then did Huntsman prefer to sell to SABIC? "We took the economics of the deal and we were also concerned about the disposition of our people. We would not want to sell to a company that was not committed to growth and continuing the business. We wanted to sell to a company that is very committed to utilize the assets well and that has a strong reputation in the base chemicals sector. SABIC is certainly one of the major companies in the world in this field. This is a good deal for us, a good deal for SABIC, and a good deal for our associates," he explained to Arab News.
Huntsman denied that this was "a distress sale." Some the largest base chemicals producers in North America and Europe approached the company to buy its UK assets as soon as it announced six-months ago that it intended to sell its base chemicals business in the UK and to spin it off into a new company. But Huntsman refused to reveal their names because of a confidentiality agreement.
Originally the idea was to spin off the assets into a new company, but after discussions with the company's board and shareholders, it was decided to sell the company's UK base chemical assets outright.
The base chemicals market, says Huntsman, has changed significantly over the last decade or so. "If we look at the global market some 10 years ago, the US was the most competitive place in the world to produce base chemicals," contends Huntsman.
"Europe was fairly competitive and Saudi Arabia had fairly competitive raw materials but lacked the infrastructure for massive growth. However, today the tables have changed. North America is the least competitive and Europe is fairly strong. SABIC has completely changed the competitive landscape globally for base chemicals. Frankly, I don't know how European or North American producers without a Saudi connection could compete 5 to 10 years from now."
Huntsman Petrochemicals (UK) would be concentrating on its core business of pigments and polyurethanes. "We think we can produce a very strong company where our raw materials will be SABIC's finished products. If you look at our operations today our raw materials account for a small percentage of the cost. The main costs are in technology, transportation and customer services. SABIC has gone further than just taking advantage of raw materials. It has also the most competitive petrochemical sites in the world, together with excellent management, engineering and financial skills," he adds.
Until a year ago, Texas-based Huntsman Corporation was a family-run business. It went public after listing on the New York Stock Exchange. Its UK base chemicals business generates revenues of $5 billion - a substantial operation whose core markets are North America and Europe.
Following the security concerns of the US Congress over Dubai Ports running six US ports after its take-over of P&O, which it was subsequently forced to sell, has there been any objections to a Saudi company buying the assets of a US company especially in such strategic commodities as base chemicals including fertilizers?
"I speak with a littler bit of caution, because my brother is a governor of a state in the US and our family has been politically involved for over two generations," explains Peter Huntsman. "I think this (the Bush) administration has done a poor job in building relationships (maybe we have good military relationships I don't believe so). We don't have good economic relationships between the US and the Middle East. That is just a simple fact."
He is amazed at the debacle of the handling of the Dubai Ports deal. Any American or for that matter any other person, he suggests, who goes to Dubai and says "that country is a threat to the security of the US has either got to be completely ignorant or got to be an idiot. It's like saying Singapore is a backward port city."
Huntsman stresses that the best way to promote better relations between Saudi Arabia and the US is not through military cooperation but through economic and business cooperation.
Saudi Arabia's economy needs to and is maturing, and companies such as Saudi Aramco and SABIC are playing very important roles in this respect. The Kingdom has matured from just an oil exporter to a major refiner and to a world leader in downstream products. He is keen to see more investment flows between the two countries because "the stronger the ties we have between our peoples, the better the understanding between our countries."
He warns that it would not make good business sense for SABIC to acquire base chemical assets in the US itself because of the long-term viability of such investments and because in north America they have the highest price volatility and raw material prices in the world. SABIC is a very competitive company so it makes more sense for it to export to North America and to Europe from its European operations.
"We don't price our natural gas and part commodities on supply and demand," explains Huntsman. "We let hedge funds and traders dictate that, which is completely wrong. That is why our prices are the most volatile and highest in the world. We were seeing our gas prices moving 7, 8 or 9 percent per day. You can't make money on that basis."
The outlook for base chemicals, says Huntsman, is excellent because of massive demand, growth and capacity. "The winners at the end of the day are those companies who have economies of scale and those who raw material advantage and engineering and management expertise. SABIC is one of those few companies that have all three - raw materials management and engineering. It is well positioned to dominate this market for many years to come."
