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Asharq Al-Awsat
11 hours ago
- Business
- Asharq Al-Awsat
Gulf Petrochemical Sector Faces Mounting Challenges Amid Global Shifts
Over the past five years, the Gulf's petrochemical industry has found itself at a critical juncture. A mix of rapid geopolitical developments, the lingering effects of the COVID-19 pandemic, and a slowdown in global economic growth, particularly in key markets like China and other parts of Asia, has disrupted longstanding business models and cast uncertainty over the future of the sector. Industry experts and analysts, speaking to Asharq Al-Awsat, pointed to a convergence of four primary challenges facing Gulf petrochemical companies today. Among them are weak innovation strategies, limited domestic downstream capabilities, ongoing geopolitical volatility affecting supply chains, and increasingly stringent global environmental regulations on hydrocarbon-based products. Fares Al-Qadheebi, an expert in international strategic partnerships and a member of the Saudi Economic Association, stressed that Gulf petrochemical firms must undergo a strategic transformation to remain viable. He argued that the industry's traditional reliance on government-subsidized feedstock is no longer sufficient in an evolving market landscape. For decades, these subsidies provided a competitive advantage. However, with subsidies gradually being phased out or restructured, companies now face mounting pressure to pivot toward higher-value, specialized products that align with strategic industries and evolving global demand. The challenge, Al-Qadheebi said, lies in the sector's historically low investment in research and development. Financial disclosures from several companies reflect limited R&D expenditure, resulting in a lag in innovation and product diversification. This hampers the ability of Gulf producers to shift from commodity chemicals to advanced materials that could drive future profitability. At the same time, the region's domestic manufacturing sector remains underdeveloped. Despite various industrial localization initiatives, Gulf countries continue to rely heavily on export markets, primarily China and India. This overreliance has left companies vulnerable to external shocks and market shifts, making it difficult to redirect surplus production into local value-added industries. Geopolitical uncertainty is compounding the problem. Disruptions to global supply chains due to regional conflicts and shifting trade alliances have introduced logistical challenges and pricing volatility. This has forced some international buyers to seek alternative suppliers in more stable regions, undermining long-term relationships and jeopardizing the sector's global competitiveness. The rise of protectionist policies, particularly in the United States, has also led Gulf companies to reconsider their exposure to the American market and explore options such as relocating parts of their operations overseas. Adding to the pressure are global environmental policies that increasingly target carbon-intensive products. Gulf producers are being pushed to develop low-emission technologies and environmentally compliant alternatives. While necessary, such changes significantly increase development and production costs and complicate market access. Financial analyst Tareq Al-Atiq noted that these combined pressures have eroded profitability across much of the sector, with few signs of a swift recovery. He stressed the need for mergers, strategic alliances, and investments in carbon capture technologies to reduce operating costs and reposition the industry in growth markets, particularly in emerging economies with rising demand for plastics, fertilizers, and other petrochemical derivatives. Looking ahead, experts suggest that the Gulf's petrochemical giants must work more cohesively - potentially in an OPEC-style alliance - to coordinate production, innovation strategies, and market expansion efforts, or risk falling behind in an increasingly competitive global landscape.
Asharq Al-Awsat
01-04-2025
- Business
- Asharq Al-Awsat
Despite Global Challenges, Saudi Arabia Continues Economic Diversification Efforts
As global economic challenges intensify—driven by fluctuations in interest rates, trade policies, and geopolitical tensions—Saudi Arabia continues to advance steadily towards diversifying its economy through its Vision 2030. This ambitious initiative has bolstered key sectors such as tourism, industry, and technology, leading to significant progress, despite the ongoing need for further reforms and investments to ensure sustainability and competitiveness. In this context, S&P Global upgraded Saudi Arabia's long-term sovereign credit rating from 'A' to 'A+' in March 2024, citing strong growth in the non-oil sector and the development of local capital markets. Saudi Arabia's economy regained momentum in 2024, growing by 1.3%, with a notable surge of 4.4% in the fourth quarter—the highest in the past two years. This growth was primarily driven by a 4.3% increase in non-oil activities. Saudi Arabia is adopting a multi-pronged approach to achieve economic diversification, as confirmed by former International Monetary Fund official Tim Cullen during a virtual seminar hosted by the Saudi Economic Association. This strategy includes financial market reforms, the introduction of tourist visas, legal system development, the implementation of VAT, and energy price increases. Efforts are also underway to enhance infrastructure through investments in airports, ports, railways, metro systems, and digital infrastructure, alongside major government projects like Neom and Qiddiya. 'Large-scale projects play a crucial role in achieving economic diversification. They attract foreign direct investment, enhance competition, improve product quality, and increase corporate profits,' Dr. Abdullah Almeer, Assistant Professor of Economics at King Fahd University of Petroleum and Minerals, told Asharq Al-Awsat. 'These projects also accelerate economic transformation and encourage the private sector to actively participate in production,' he explained. Almeer noted that this strategy is not new to Saudi Arabia, citing significant government investments in the petrochemical sector during the 1970s and 1980s, which prompted the private sector to enter the field and drive its growth. Economic diversification involves reducing reliance on a single sector as the main source of income—an essential step for resource-dependent economies like Saudi Arabia, given the volatility of oil prices and the global shift towards alternative energy. Diversification is typically measured by the spread of exports, production, government revenues, and employment opportunities.
Asharq Al-Awsat
25-02-2025
- Business
- Asharq Al-Awsat
Saudi SABIC Expected to Achieve $1.2 Billion in Profits in 2024
Economic analysts expect Saudi Basic Industries Corporation (SABIC) to achieve a net profit of approximately $258 million in the fourth quarter of 2024, bringing its total annual earnings to around $1.2 billion. However, the petrochemical sector continues to face challenges, including declining global demand, rising operational costs, and shrinking profit margins. SABIC, one of the world's largest petrochemical companies, returned to profitability in the third quarter of 2024, reporting $266 million in profits compared to a $765 million loss in the same period of 2023. The company is set to announce its financial results for the fourth quarter and full year 2024 in a press conference on Wednesday. According to Dr. Suleiman Al-Humaid Al-Khalidi, a financial analyst and member of the Saudi Economic Association, SABIC's expected fourth-quarter profit of $258 million (SAR969 million) marks a significant recovery from its $500 million (SAR1.7 billion) loss in the same quarter of 2023. He noted that the company performed better in 2024, recording a nine-month profit of $915 million (SAR3.43 billion) compared to a $373 million (SAR1.40 billion) loss in the same period of 2023. Despite its stock price declining from a high of SAR139 in 2022 to SAR65 on Monday, SABIC has continued to distribute dividends. This resilience is attributed to increased operational income, reduced losses from discontinued operations, and lower zakat expenses. Al-Khalidi highlighted key factors influencing SABIC's financial performance, including fluctuations in petrochemical prices, global market volatility, and rising raw material and operational costs, all of which impact profit margins. He stressed the importance of expanding into emerging markets, increasing global market share, investing in green technologies, diversifying its product portfolio, and forming strategic partnerships to enhance competitiveness. Mohammed Hamdi Omar, CEO of G-World Research, emphasized that commodity price fluctuations and varying demand for petrochemical products will affect SABIC's fourth-quarter results. He noted that market conditions, particularly oil prices and supply chain dynamics, will play a crucial role in shaping the company's financial performance. Despite rising operational costs, SABIC is expected to maintain or improve profit margins, with its core business units—basic chemicals, intermediates, and polymers—playing a key role. SABIC's third-quarter 2024 profit of $267 million (SAR 1 billion) was driven by higher gross profit margins, despite increased operational costs. Gains from selling its functional forms business, foreign exchange differences, and reduced losses from discontinued operations, particularly the revaluation of Saudi Iron and Steel Company (Hadeed), also contributed. However, finance income declined due to the revaluation of equity derivatives. Despite market challenges, analysts believe SABIC's focus on efficiency, cost management, and strategic expansion will help it navigate the volatile petrochemical sector in 2024.
