Chem & See

NATPET began as a distinguished producer with some key advantages in the sector. What is the background to your growth and diversification?

We specialize in the production of polypropylene. We chose this particular polymer product because there is high demand for it around the world—close to 62 million tons per year. Additionally, annual growth in demand is around 4%, or an additional 2.5 million tons per annum. This product goes into industries like car manufacturing, construction, packaging, food packaging, health and home appliances, and so on. It is a versatile product that is in high demand. Although NATPET was only commercially operational toward mid of 2010, we decided to go further downstream almost immediately—a sound strategy for a number of reasons. We no longer depend solely on a commodity product that would leave us open to price fluctuations caused by macroeconomic shifts. For instance, our first joint venture is with a British listed company, Low and Bonar. Our product is geotextiles that primarily go into infrastructure projects like roads, rail, buildings, airports and seaports, etc. We also went into partnership with an American company A. Schulman, a significant player in the field of polypropylene compounding. The process makes our product useable in many different applications such as cars, home appliances, and more. This project is underway and will be operational by 3Q2017. The other reason we went to downstream is also to meet the government’s objective of diversification of income, add value and have more employment opportunities for Saudi nationals. Additionally, we recently invested USD15 million in an American company, Siluria Technologies, which is working on new technologies to produce petrochemicals. For a company of our size and a limited history of seven years, this is a major step forward. It shows that we are thinking of the future and taking early steps to benefit from the technological developments happening in our field.

Chinese consumption has slowed in recently months. Has that trend or other macroeconomic changes affected your business?

We sell on average in 70 countries per year. That protects us from any economic issues with one specific country, like China, or region, like Europe. However, we are not fully protected; when China sneezes everybody gets a cold, and when it started to have problems last year with a lower GDP growth, the effect on us and everybody else was clear. Less demand in the Chinese market means products will be diverted into other market, reducing everybody’s margins. We have all seen that the world is not only volatile in geopolitics, but also in economics. Europe has very low GDP growth, China’s growth is lower than earlier years, and lots of emerging markets are facing problems as well.

As a company, you have succeeded in diversifying your products, as have other petrochemical firms. Is there significant momentum for investment downstream?

The government’s objectives to significantly increase the industrial sector contribution of GDP, more employment in the industry, and increase volume of exports from Saudi Arabia are all going to be extremely difficult. The petrochemicals contribution to the industrial GDP in Saudi Arabia is about 33%. Add to that the many downstream convertors that take the material from the petrochemical plants in Saudi Arabia and convert it to downstream products. So this makes the petrochemical industry a significant contributor to the industrial GDP, also the petrochemical sector constitute the majority of Saudi non-oil exports. We employ around 35,000 employees, 70% of them are Saudis with another 110,000 indirect jobs and these jobs are highly paid with managers, engineers, skilled workers, and more. And their income is way above the average pay in all other sectors. The world is changing and fast, and today Saudi petrochemicals face serious threats and challenges, among them: potential production of shale gas in the US with very competitive feedstock costs; high logistics cost to transport our products world-wide; increasing protectionist measures by most countries/regions, with Saudi products facing very high customs duties; he petrochemical industry facing an increase in feedstock prices in 2016 and this coupled with the above challenges and many more, will lead to lower or no investment in this industry in the country. This will negatively and greatly affect the country’s efforts to employ more skilled and educated Saudis and will not help in increasing Saudi non-oil exports as the government is planning.

What is your outlook for next year, and what are your plans?

We have invested in two downstream ventures; we have invested in an American company for new technologies and are looking for other ideas. We are finding it difficult to invest in local expansion or new petrochemical projects due to the above reasons. Our Saudization rate is 60%, which is excellent for a company like ours. We are also engaged in social programs, and have won the King Khalid Foundation award four times. We are proud of what we do for society.