Future of petchem demand, prices 'foggy'; high inflation pressures prices: GPCA Official

The International Monetary Fund's (IMF) downgrade of global economic forecasts from 3.2% to 2.7% creates a blurry vision about the future of demand and petrochemical prices, Abdulwahab Al-Sadoun, Secretary General of the Gulf Petrochemicals and Chemicals Association (GPCA) told Argaam. 

On the sidelines of the Annual GPCA Forum held in Riyadh, Al-Sadoun said demand for petrochemical products was strong in the first half of 2022, while it was affected in the third quarter by geopolitical factors, in addition to the recession in Europe and signs of inflation in the US and lockdowns in China. He added that high inflation rates pressured prices.

The petrochemical sector's revenue leapt 77% to $95.6 billion compared to 2021, which witnessed factors affecting demand for products such as COVID-19 pandemic, and its repercussions on markets, as well as the suspension of some factories.

Al-Sadoun further said production reached 154 million tons in 2021, an increase of 5% from the previous years, which indicates that production continues despite the pandemic.

Despite the foggy future of the sector, there are promising markets, such as India that is expected to continue achieving growth rates and increase in demand, as well as Africa, which is a promising market for fertilizers and agricultural nutrients. The Kingdom is distinguished by its proximity to the African markets, the official said.

Higher oil prices weighed the production costs of manufacturing companies, due to their use of the globally-priced propane that impacted the companies' profit margins.

Elsewhere, Al-Sadoun gave a bullish outlook for the petrochemicals industry, in line with the reduction in production costs, deployment of advanced technologies, and maximization of supply chains, adding these factors will boost the industry performance in 2023.

He expected demand in African markets to grow positively, despite the challenges of weak infrastructure and logistics services, noting that the Kingdom is distinguished by proximity to these markets.

Saudi petrochemical exports to Europe account for nearly 11% of total exports. Europe is a major and big market for the automotive industry, which largely depends on petrochemicals and plastics.

Meanwhile, Al-Sadoun added that some challenges create opportunities. For example, a tendency in the automotive industry to reduce the vehicle weight, the deployment of electric vehicles, shifting toward sustainability and carbon neutrality all strengthen demand for plastics, batteries, and lithium, which curb carbon emissions.