Trade tensions between the US and China and tightening environmental regulations in some regions are weighing on the demand for chemical products, used in everything from cars to clothing, Saudi Basic Industries Corporation (SABIC) CEO Yousef al-Benyan said at an industry event on Wednesday.
The industry is going through “rapidly changing regulations, constant technology disruptions and increased market uncertainty,” said al-Benyan, who added that the global petrochemical industry was in a “state of transition.” Al-Benyan was speaking at the annual Gulf Petrochemicals and Chemicals Association (GPCA) forum in Dubai.
Like its peers, SABIC has been hit hard by a prolonged trade war between US and China, which has stifled demand for chemical products. The company, which is Saudi Arabia’s largest chemicals producer, posted an 86 percent drop in its third-quarter net profit.
“2019 … is becoming the most challenging year for the global economy,” he said.
Chemical and petrochemical firms make the products that are used as raw materials by other industries.
The sector supplies to many industries that have been impacted by the current economic environment, al-Benyan said.
He also urged chemicals makers to change their strategies with regards to markets in Asia, which is “witnessing structural changes.”
For instance, China has introduced a string of reforms aimed at reducing carbon emissions, which has hurt the operations of medium and small sized firms.
In the Arabian Gulf region, Al-Benyan has called for more consolidation and partnerships in the wake of lower demand and prices.
Earlier this year, Saudi Aramco took a 70 percent stake in the company for $69.1 billion. Prior to the Aramco deal, SABIC bought a 25 percent stake in Swiss specialty chemicals maker Clariant AG.
Long-term growth in chemicals
The world’s largest independent tank storage company Vopak has been steadily increasing its bets on the chemicals sector, while lowering its exposure to crude oil.
The $7 billion Dutch firm jointly owns storage facilities with SABIC in the Al Jubail terminal on Saudi Arabia’s east coast. Vopak also operates several crude oil tanks in the Gulf oil hub of Fujairah.
The company’s CEO Eelco Hoekstra sees potential for further expansion in the region.
“I do think we can expand on that … there’s a consciousness not only within the Middle East, but also globally [about] the importance of downstream capabilities,” Hoekstra told Al Arabiya English in an exclusive interview.
Hoekstra said that companies in the Middle East have the technical and financial capabilities to emerge as major petrochemicals producers over the next decade.
“If they find … the right partners and if they have a plan laid out, I am sure they can achieve substantially more,” he said.
Demand for petrochemicals is expected to rise in the coming years due to higher demand from emerging markets like China and India.