The production of several petrochemical products in the region will exceed demand significantly over the next few years leading to low utilisation rates and poor margins for less-competitive firms, said a new study by AlixPartners.

A major driver for this threat is the huge expansion of chemical production capacity in the GCC coming on stream in the next three to five years, the business advisory firm said in the new study.

"For instance, 50 per cent of the new build global capacity for C2-based chemicals will be located in the GCC. Much of this new production is for the fast growing Asian markets, leaving the GCC chemicals sector exposed if the growth in Asia slows," it added.

According to the study, the use of polystyrene may drop to only 50 per cent of current demand and use of PVC from 80 per cent to only 60 per cent.

To address this issue, the chemical companies in the region will need to improve operational efficiency, especially in light of a potential further downturn in the global economy, said Dr Jörg Fabri, the director of AlixPartners and author of the study.

Dr Fabri pointed out that this was a highly competitive and extremely cost sensitive industry.

“A number of regional producers benefit from synergies achieved thanks to integration and scale,” he noted.

“However, many chemicals firms in the GCC region could do more to achieve ‘integration excellence’ as a result of acquisitions and organic growth. In our view it will be the management and operations that will mark the difference between winners and losers,” the expert said.

Dr Fabri said moving production further downstream could make sense for many GCC chemical companies, but only if some requirements are fulfilled.

"Key success factors for commodity and specialty chemicals are different, including availability of highly qualified production staff and sales engineers, a strong research and development and technology base and close interaction and cooperation with client industries," he noted.

AlixPartners in its study proposed an integrated value enhancement program for GCC firms that involves identification and evaluation of strategic growth options, understanding the trends of second and third markets of chemical client industries, developing best-in-class project development and management processes and improving performance through identifying improvement potential and steps to achieve operational excellence.

The study also advised GCC firms to look for significant sales, general and administration cost improvements.-TradeArabia News Service