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EMEA chemical firms face headwind in 2012
Published in The Saudi Gazette on 17 - 12 - 2011

EMEA chemical companies, with lackluster growth and rising costs expected to negatively affect the sector in 2012, although satisfactory rating headroom exists, Fitch Ratings said believes that 2012 will remain challenging for in its report “2012 Outlook: EMEA Chemicals”.
Fitch highlighted that against a weaker demand backdrop in 2012, capacity utilization rates will fall from the high levels reached in 2011 with a resulting squeeze on sector profitability.
The sector outlook may be revised to negative should downside risks relating to a possible double-dip scenario materialize, replicating the demand and price shocks of 2009 with a protracted recovery until 2013.
Meanwhile, the chemical industry in Gulf Cooperation Council (GCC) countries could help drive job creation in the region by working closely together with its governments, Abdulwahab Al-Sadoun, general secretary of the Gulf Petrochemical and Chemical Association (GPCA) said at the recently concluded 6th GPCA forum in Dubai.
“Given the employment challenge, the need for labour-intensive industries is mounting, even if it entails a partial sacrifice of economic returns from the chemical producers,” he said.
A large part of the population in the GCC states is under the age of 25 with their percentage of total population ranging from 28 percent in Qatar to 49 percent in Saudi Arabia.
In the past ten years, the GCC as a whole created 7 million job opportunities but only 2m jobs were taken by GCC nationals, according to Al-Sadoun.
“The industry's potential for job creation could be realized when GCC governments and regional chemical producers come together to successfully navigate [job creation] challenges,” he said.
The extent to which they successfully overcome these challenges will have a direct impact on number of jobs created across the region, not just in the chemical industry but in conversion industries, which will be stimulated by production of new chemical products, Al-Sadoun said.
From the industry perspective, talent management and securing steady talent inflow to the market is key to long-term sustainable growth, he said.
Access to diverse and skilled pools of technicians, engineers, managers and support staff is vital for successful industry expansion, he added.
The downstream chemicals industry provides greater employment opportunities than commodity chemicals and oil & gas exploration, said Andrew Monro, a partner and global head for petrochemicals at KPMG at the GPCA forum.
On Nov. 30, Fitch Ratings said that pre-emptive destocking is compounding the effect of weakening demand in the chemicals sector and distorting underlying trends.
“Macro-uncertainty is translating into increasingly jittery customer behavior leading in turn to lower visibility on order books. Reports of reduced order quantities, delays, or cancellations abound,” said Myriam Affri, Director at Fitch Ratings.
“The fourth quarter of 2008 is still fresh in the mind. Chemical producers were left holding high levels of undervalued inventories and do not want to be caught on the wrong side of a collapse in prices or demand again,” she added. While this presents an immediate challenge for producers, Fitch noted that it remains well beyond the magnitude of the inventory rundowns observed in late 2008, when oil prices dropped from all-time highs of $127/barrel (bbl) to around $41/bbl. Feedstock costs, although abating, remain on the high side and raw material cost push still partially offsets the lower volumes. In addition, end-users' cautious stance on ordering started as early as Q311 in some subsectors and inventories have been run tight since. For certain chemical products, the drop in volumes appears to be out of tune with inventory levels at end-users or with near to mid


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