Mideast chemicals sector 'faces new challenges'
Manama, September 20, 2010
Building on their cost-advantaged feedstock position, Middle East-based chemical companies have built a formidable competitive position in basic petrochemicals.
In response to a lack of gas-based feedstock and government policies to create jobs, companies are seeking to diversify into new chemicals where their cost advantage diminishes, presenting themselves with new challenges, according to a survey by management consultancy Booz & Company.
Middle East chemical companies will now have to adapt to a different competitive landscape and develop capabilities to manage a more complex product slate to continue to grow and shape the chemical industry.
"To date, companies in the region have focused on the basic commodity chemicals that are based on natural gas feedstocks, such as fertilisers and plastics which are relatively straightforward to manage and highly profitable," said Booz & Company Middle East and North Africa head of chemicals practice Andrew Horncastle.
"Indeed, Middle East companies have such a strong cost advantage in manufacturing such products that Western giants including Borealis, ExxonMobil Chemicals and Dow have partnered with regional companies in order to benefit from these advantages.
"Today, Middle East chemical companies continue to build on their cost advantage in basic petrochemicals, which has made them formidable challengers in the global industry.
"However, they are now also beginning to invest in more specialised chemicals to further strengthen their overall position as well as create more industrialised, diversified economies in their countries."
"Diversification brings numerous challenges for Middle East companies," said Booz & Company partner Ibrahim El Husseini.
"As they move away from gas-based feedstock, the cost advantage that Middle East companies enjoyed with natural gas will significantly reduce.
"In addition, complexity increases rapidly as these chemicals are more difficult to manufacture and require more customer intimacy and applications support as well as stronger capabilities in portfolio management and supply chain.
"To overcome these challenges, Middle East firms should focus first on just a few new products to allow for a learning curve and build a sustainable, competitive position. They should continue to use acquisitions and joint ventures with Western and Asian companies to make use of existing technology, market access and management experience, as well as other capabilities, in order to be competitive," he said. - TradeArabia News Service