SABIC trims output

Sabic, the Middle East's largest non-oil company, will invest in developing its own power supply and trimming production levels.

Saudi businessmen at a recent shareholders' meeting of Sabic. The company has cut back on production in response to the economic crisis.

DUBAI // The global petrochemicals trade will be gripped by a wave of production slowdowns and consolidations as it rounds out its worst quarter in "a very long time", top industry executives predict. Saudi Basic Industries Corporation (Sabic), the Middle East's largest non-oil company and one of the world's largest producers, had already cut output at some chemicals plants and was prepared to trim further in response to the economic crisis, Mohammed al Mady, the firm's vice chairman and chief executive, said on Wednesday. "There must be either very deep cash pockets or consolidations in this industry," he warned. Sabic, which produces plastics, chemicals, metals and building materials, had cut chemicals production at plants in Europe by an unspecified amount and delayed construction of a fertiliser plant and steel factory, Mr al Mady said on the sidelines of a petrochemicals conference in Dubai. "You have to optimise your plants around the globe," he said. "Yes, there may be some situations where we have to shut a plant here and there, and reduce operations in some plants. We have not reduced our capacity significantly." He declined to comment on any plans to acquire other companies during the downturn. Petrochemicals producers are wrestling with falling prices for their products and a looming oversupply on the market, caused in large part by capacity expansion in the region. The GCC and Iran will more than double petrochemicals capacity by 2016 to more than 180 million tonnes per year, according to estimates by the Gulf Petrochemicals and Chemicals Association. Most of the petrochemicals plants in the region use low-cost ethane - a component of natural gas - as a feedstock, and their costs are often significantly lower than competitors who use naphtha, a product of crude oil. Regional producers would probably weather the downturn in the industry, but plant shutdowns in North America and Europe were likely, said Hassan Ahmed, a managing director at HSBC Securities who tracks the chemicals industry. "When things get rough in the chemical industry, there clearly will be shutdowns," he said, adding that current figures "seem to suggest that we are now below reinvestment economics". Jeffrey Lipton, the chief executive of Nova Chemicals, a US firm, said sales had slowed dramatically in recent weeks as customers suspended purchases, hoping to draw down inventories. "The fourth quarter will be the worst quarter we've seen in a very long time," he said. But Mr Lipton said demand for plastics and other products would be stronger next year than analysts expected, and would remain resilient for years, bucking the economic slowdown. "I suspect consultants' demand forecasts will fall short of demand by 2012." He noted that demand for polyethylene, a raw material in many plastics, continued to grow even during past downturns, and there was significant room for expansion in markets in developing countries. The industrialised world used 36kg of polyethylene a person per year, he said, while the average for the developing world was only 6kg per person. The industry had been through downturns before, and, although expansion projects might be delayed, the region would maintain its cost advantage over other producers, said Abdullah al Attiyah, the minister of energy and industry and deputy premier of Qatar. "Sometimes we can be sick, but we never die," Mr al Attiyah said. [e-mail]