March 2024
Trends and Resources
Business Trends: A 2024 and beyond outlook for the GCC chemical industry
The global chemical industry faced a challenging year in 2023. Various factors contributed to sluggish demand growth for chemicals globally, including the European recession, U.S. inflation and a lower-than-expected chemical demand rebound in China. These factors resulted in global chemical market growth of < 1% in 2023, with many producers experiencing lower output.
The global chemical industry faced a challenging year in 2023. Various factors contributed to sluggish demand growth for chemicals globally, including the European recession, U.S. inflation and a lower-than-expected chemical demand rebound in China. These factors resulted in global chemical market growth of < 1% in 2023, with many producers experiencing lower output.
As a result of the slow-moving demand in 2023, on a global level, the Fitch Ratings outlook for the chemical sector this year remains relatively flat. However, for the Gulf Cooperation Council (GCC) countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates), this presents an advantage. In 2023, China completed more than 20 petrochemical projects, which pushed its global market share of petrochemical capacity up to 25%. This caused a global deflation of chemical prices and margins. For regions with heavy reliance on chemical imports, such as Europe and South America, this is disadvantageous from a cost perspective. However, the GCC region—which has lower production costs—could benefit from this dynamic due to more competitively priced feedstocks, leading to a higher chemical industry performance for the region throughout 2024.
As a result of the stagnant market growth in 2023, efficiency, resilience and sustainability are critical components that will determine the success of the industry in 2024. Economic aspects, including fluctuating oil prices, the continuous effects of inflation, regulations and changing global market dynamics will all test the chemical industry. However, despite challenging economic times, the outlook for the GCC region in 2024 looks prosperous and promising due to a variety of factors projected to make regional chemical supply chains more resilient. These include an expected increase in OPEC+ oil production, a bounce back in Asian chemicals demand, sustainability projects and a growing demand for sustainable products, the digitalization of regional chemical supply chains, and additional negotiations and trade agreements.
Oil prices and their impact on the regional industry
GCC countries remained relatively resilient in 2023 despite slow global growth rates. Regional chemical production in 2023 was approximately 159 MMtpy, representing a 2% increase in regional production capacity year-over-year. Nevertheless, the GCC witnessed a 2.8% contraction in total oil sector activities in 2023 due to oil production cuts by OPEC+. Owing to OPEC+’s significant global market share, which accounts for approximately 40% of total global crude oil production, the organization’s respective lower output resulted in higher oil prices, particularly between Q3 and Q4 of 2023 (FIG. 1).
FIG. 1 also presents a forecast for respective oil prices throughout 2024. As crude oil and its derivatives serve as feedstocks for petrochemicals, the marginal increase in prices in 2024 could impact the production, investment and financial decisions of chemical producers. However, for GCC-specific producers, a rebound in chemical demand in Asian markets (4.2% in China and 6.3% in India) and the announcement of the loosening of OPEC+ oil production quotas show promise for the growth of the regional chemical industry this year.
Economic diversification and chemical industry growth
GCC gross domestic product (GDP) growth is expected to strengthen this year: it is projected to grow by 3.7% for the whole region. As the chemical industry constitutes nearly 5% of regional GDP, it is a crucial component toward the economic strengthening of the region.
The changing regional dynamics in the olefins and polyolefins industry, particularly highlighted by China's previously mentioned expansion of petrochemical projects in 2023, are closely linked to sustainability and economic diversification projects in the GCC region. By capitalizing on the 2024 market dynamic of being more cost-competitive due to cheaper feedstock, the GCC region is diversifying its revenue streams away from traditional oil and gas exports. However, due to the volatility of oil prices, which directly impact the chemical industry, as well as a changing global tone regarding the importance of sustainability and environmental protection, GCC producers are transitioning toward diversification in the non-oil sector.
GCC growth in 2023 was largely catalyzed by expansion in the non-oil sector, which is estimated to have grown by approximately 4.3% last year. This growth was mainly anchored by government investments linked to various economic diversification agendas taking place across the GCC region, including renewable energy expansions and initiatives announced at COP28 in Dubai. For the chemical industry specifically, COP28 saw the announcements of various initiatives and projects from producers and their affiliates advocating their efforts to promote sustainable practices in the regional industry. These initiatives are presented in FIG. 2.
In addition to the advocacy for regional sustainability by COP28, an increasing market demand for sustainable products is driving the expansion of diversification practices within the chemical industry. Toward the end of 2023, an announcement was made highlighting that considering growing environmental concerns and that 60% of GCC businesses were off track toward achieving their sustainability targets, consumers in the GCC region were willing to pay premiums to prioritize sustainability. For the chemical industry, this is an opportunity for various reasons.
First, responding to the demand for green chemicals—chemicals produced via sustainable processes, such as green ammonia or hydrogen (H2)—can increase regional producers’ market competitiveness in the coming year. The forecast for projected global green chemicals demand for 2024 is presented in FIG. 3.
The Asia-Pacific region accounts for nearly 40% of green chemicals demand globally. If GCC countries continue their trajectory toward producing sustainable chemicals, particularly fertilizers, for which they already have an existing market stronghold, they have the potential to claim a significant portion of the global clean chemicals market in 2024 and beyond.
Furthermore, although the full effects will not come into force until mid-2025, the implementation of Europe’s Carbon Border Adjustment Mechanism (CBAM) may negatively impact GCC chemical producers’ exports that are not sustainably produced. GCC chemical producers and governments are embracing economic diversification projects, particularly those involving carbon capture, utilization and storage (CCUS). This is advantageous as changing regulations under CBAM may make products produced via CCUS practices exempt from carbon tax. As the GCC region constitutes 10% of total global carbon capture, with more looming projects and expansions on the horizon, the continuation of sustainable innovations can not only increase the region’s global market share, but also protect its exported products from tax and attract consumers due to the due diligence toward environmental protection. Upcoming GPCA members’ sustainable chemicals projects are presented in FIG. 4.
Digitalization of chemical supply chains
Aside from innovative sustainable projects, the implementation of digitalized supply chains and artificial intelligence (AI) are becoming an important element for the success of the chemical industry. In 2023, 8% of GPCA member companies reported having a fully executed strategy in place for the implementation of digital supply chains. Meanwhile, 58% of member companies reported having a fully thought-out strategy in place, with plans to implement it in coming years. This year, numerous regional producers may witness the realization of these strategies, as an increasing number are recognizing the competitive advantages associated with implementing digital supply chains in the industry. With digital integration, producers can benefit from increased productivity, accelerated innovation, improved decision-making and stronger customer relations.
Many regional producers, including SABIC, Aramco, ADNOC and OQ, have announced AI programs to accelerate research and development (R&D) for sustainable products, predict the impact of changes in the production of one product or other processes, gain insights by tracking data through the entire value chain, and recruit and harness talent in this sector to foster the future of the digitalization of the chemical industry.
With the chemical industry experiencing a rise in the adoption of AI technologies, this year could see the streamlining of organizational processes and enhanced critical business operations to deliver quicker and more resilient chemical supply chains.
Free trade agreements (FTAs) and trade negotiations
Another notable factor to consider this year is the GCC’s growing priority toward trade negotiations and FTAs. In December 2023, the GCC signed an FTA with South Korea to boost economic ties. Even prior to the signing of this FTA, when negotiations were under way, trade between the GCC and South Korea skyrocketed from $50 B in 2021 to $78 B in 2022. In the chemical sector, South Korea imports more than $3 B/yr from the GCC. This points to a likely increase in market share for GCC exporters catering to South Korea in 2024. FTAs provide numerous benefits for both parties, including increased access to higher quality goods for the importer and the elimination of tariffs. For the GCC countries that already have a very prominent global market for chemicals, the adoption of FTAs will undoubtedly help producers acquire a greater market expansion and a larger array of customers. Trade negotiations are under way with five of the GCC’s major trading partners (FIG. 5), along with the average chemical import tariff (per product) of each of the negotiating countries.
Although import tariffs affect the importing countries more than the exporter—in this case GCC producers—the removal of tariffs through the signing of FTAs will bring an array of benefits to GCC chemical producers. Without import tariffs, the cost of exported goods decreases for the importing country. This can make GCC chemical products more competitive in the international market, potentially leading to increased sales for regional producers. As the GCC countries already constitute approximately 5% of the global chemicals market, a 2024 signing of these pending FTAs will expand their global share. Another notable benefit includes supply chain efficiency: eliminated import tariffs can streamline the supply chain by reducing administrative burdens and the paperwork associated with customs procedures. Along with the imminent digitalization of regional chemical supply chains, this efficiency can lead to faster shipping times and reduced operational costs for exporters.
Lastly, with global collaborative events like COP28 positioning the GCC as a key global player, the introduction of tariff-free environments can attract foreign investors seeking to establish facilities or expand within the GCC. The absence of import tariffs could enhance cost-effectiveness for both parties, ultimately contributing to an overall boost in regional GDP.
Takeaway
In summary, 2024 is projected to be a highly promising year for the GCC chemical industry. Beyond the rebound in crude oil production, the region is committed to implementing strategies that will enable the industry to adapt to changing global climates. The persistence of sustainable projects, the implementation of digital practices and the fostering of international collaboration via trade agreements collectively position the regional chemical industry for a very successful future. HP
NOTE
This article was originally published on the GPCA website. For more information, visit www.gpca.org.ae.
LITERATURE CITED
- ADNOC, “Fertiglobe joins TA’ZIZ as partner in world-scale blue ammonia project in Ruwais,” Abu Dhabi, UAE, June 22, 2021, online: https://www.adnoc.ae/news-and-media/press-releases/2021/fertiglobe-joins-taziz-as-partner-in-world-scale-blue-ammonia-project-in-ruwais
- TransGlobal Events, “Saudi Aramco signs agreement with SLB and Linde to establish CCS hub,” Carbon Capture Technology Expo North America, November 15, 2022, online: https://www.ccus-expo.com/industry-news/saudi-aramco-signs-agreement-slb-linde-establish-ccs-hub
- Deloitte, “EU Carbon Border Adjustment Mechanism (CBAM),” online: https://www2.deloitte.com/nl/nl/pages/tax/articles/eu-carbon-border-adjustment-mechanism-cbam.html
- Yankovitz, D., K. Hardin, R. Kumpf and A. Christian, “2024 chemical industry outlook,” Deloitte, online: https://www2.deloitte.com/us/en/insights/industry/oil-and-gas/chemical-industry-outlook.html?id=us:2ps:3gl:chemout24:awa:industryoutlook:011824:chemical%20industry%20outlook:b:c:kwd-298218222617&gad_source=1&gclid=CjwKCAiAibeuBhAAEiwAiXBoJIbCVxJoA3a9iOyutPlGAhKxtjFNfDHZoL9Igq3DkCYFDd9PFj0MAhoC0mIQAvD_BwE
- Gulf Business, “Mega-green MENA Accelerator unveiled by PepsiCo, SABIC, AstroLabs,” December 11, 2023, online: https://gulfbusiness.com/pepsico-sabic-unveil-mega-green-accelerator-mena/
- Fitch Ratings, “Global chemicals outlook 2024,” December 13, 2023, online: https://www.fitchratings.com/research/corporate-finance/global-chemicals-outlook-2024-13-12-2023
- GE, “QatarEnergy and GE to develop carbon capture roadmap and low-carbon solutions for Qatar’s energy sector,” September 21, 2022, online: https://www.ge.com/news/press-releases/qatarenergy-and-ge-to-develop-carbon-capture-roadmap-and-low-carbon-solutions-for
- Olabi, V., “ Emissions to efficiency: Advancing sustainability through CCUS in GCC agri-nutrient production,” GPCA, July 25, 2023, online: https://www.gpca.org.ae/2023/07/25/emissions-to-efficiency-advancing-sustainability-through-ccus-in-gcc-agri-nutrient-production/
- Mukhtar, N., “Navigating and accelerating the digital frontier in GCC chemical supply chains,” GPCA, June 24, 2023, online: https://www.gpca.org.ae/2023/06/24/navigating-and-accelerating-the-digital-frontier-in-gcc-chemical-supply-chains/
- Masdar, “Masdar takes center stage at COP28,” December 12, 2023, online: https://masdar.ae/en/masdaratcop28
- ZAWYA, “GCC E-Performance Index 2023 highlights exceptional digital prowess of Gulf countries,” 2024, online: https://www.zawya.com/en/press-release/companies-news/gcc-e-performance-index-2023-highlights-exceptional-digital-prowess-of-gulf-countries-u00jfvn8
- Precedence Research, “Green chemicals market,” 2023, online: https://www.precedenceresearch.com/green-chemicals-market
- PwC, “Five GCC economic themes to watch in 2024,” January 8, 2024, online: https://www.pwc.com/m1/en/blog/five-economic-themes-to-watch-2024-gcc.html
- Uppal, R. and A. Elimam, “GCC-South Korea sign free trade deal in boost to Gulf-Asia economic ties,” Reuters, December 28, 2023, online: https://www.reuters.com/world/middle-east/gulf-cooperation-council-signs-free-trade-agreement-with-south-korea-gcc-2023-12-28/
- Statista, “Export value of petrochemicals worldwide in 2022, by leading country,” July 2023, online: https://www.statista.com/statistics/1344861/global-petrochemical-exports-by-country/#:~:text=China%20exported%20over%2062%20billion,and%2033.6%20billion%20euros%2C%20respectively.
- Prabhu, C., “Oman’s OQ weighs blue ammonia production from Omifco plant,” ZAWYA, December 24, 2022, online: https://www.zawya.com/en/projects/industry/omans-oq-weighs-blue-ammonia-production-from-omifco-plant-d6jrc6bz
Comments