Even as speakers at the sixth annual Gulf Petrochemicals and Chemicals Association forum in Dubai continued Thursday to take an optimistic view of 2012 for the petrochemical sector, some of them threw out new ideas that could be explored to build value and sustain growth.
GPCA Secretary General Abdulwahab Al-Sadoun spoke about demographic pressures on the industry with a substantial population in the Middle East being under 25, according to International Monetary Fund and UN data.
As this section of the population seeks employment, he suggested that the petrochemical sector might need to look at more labor-intensive industries even if at the expense of some economic loss.
"It is imperative that we create the building blocks for major downstream conversion industries that offer rewarding and sustainable employment opportunities for the local youth," he said. "This, in turn, would lead to more sustainable growth through the multiplier effect of economic growth."
But Hassan Ahmed, head of research and partner at Alembic Global Advisors, suggested that the industry look at new solutions to deal with the challenges it faces. His multi-pronged strategy was to consolidate, innovate, integrate, relocate and restructure.
Consolidation would help to "avoid the squeeze" and innovation through research and development would help build more value rather than moving downstream, he said, adding: "R&D translates to multiple premium."
If it was not possible to invest as much in R&D, it is good to buy it, he said. And finance is not an issue for the sector, which as Jadwa Investment's Chief Economist and Managing Director for proprietary investments Brad Bourland said, is a "darling of the banks, they love lending to petrochemical companies."
He added: "Simply moving downstream is not the solution. Corporate strategy should be cognizant of feedstock position, geographic location, portfolio positioning, cutting edge innovation and most importantly returns on capital."
Integration would also save costs and build value, he said, pointing to ExxonMobil as an example where the petrochemical arm of the company has made huge gains because of the integrated model. In pursuing demand and feedstocks, the industry might need to look at relocation, he added.
