The GCC accounts for just 2 percent of the global plastics conversion market, but annual growth is expected to reach 9 percent-11 percent, making it one of the fastest growing regions over the medium-term. In 2009, the GCC consumed about 2.5 million tpa of polymers, mainly in the packaging (45 percent) and construction (27 percent) markets, according to the plastics industry consultants Hipro Consultancy. With its broad plastics portfolio in the region, which will be expanded further when new projects come online, Saudi Arabia represents the most promising base for downstream conversion industries. With diversification in mind, in July 2010, the Saudi Industrial Investment Group (SIIG) and CP Chem subsidiary Arabian Chevron Phillips (ACP) announced plans to diversify into downstream products, with investments of about SAR1.8bn (US$480mn) from each partner. One of the projects will produce nylon-6,6, including adipic acid feedstock. At the same time, Petro Rabigh a JV between Saudi Aramco and Sumitomo Chemical is planning 17 new manufacturing units at Petro Rabigh II, which is scheduled for completion by the end of 2014. In July, Petro Rabigh signed an agreement with the National Industries Company (Tasnee) and Saudi Advanced Industries Company (SAIC) under which they will build a JV 120,000tpa polyether polyols plant using 100,000tpa propylene oxide feedstock from Petro Rabigh. In the Middle Eastern Petrochemicals Business Environment Rankings matrix, Saudi Arabia is rated as the most attractive country out of the 11 surveyed by some margin, with a score of 74.4 points. Increasing capacity is helping to push up Saudi Arabias score, although this is slightly offset by deteriorating external and financial risk scores. The country is placed ahead of Qatar, which is in second place with 63.4 points, and a cluster of other Gulf countries that cannot compete with Saudi Arabias feedstock or economies of scale. It is also ahead of Iran, which suffers from poor risk levels. Of the total, 41 percent was PE, 21 percent PP and 19 percent PVC. The plastic conversion market was estimated at around $10 billion for 2010. According to an official from Saudi Arabia's SABIC, GCC consumption of plastics has grown from 19 kg per capita in 2000 to 39 kg per capita in 2010 and should reach the kind of levels seen in a developed market like Japan by 2020. Packaging is the fastest growing segment, followed by construction and wire and cable. With domestic demand likely to continue to outstrip supply, China will remain a net polymers importer over the medium term and the largest importer in the world and Kuwait's petrochemicals expansion will be geared towards servicing China's needs. By 2014, China could represent 35 percent of the global PP market and 20 percent of global PE demand. However, China will become increasingly self-sufficient, a situation that PIC is contributing to through its Chinese investments. In terms of polymer capacities, we forecast a 1.65 million tpa increase in Chinese PE capacity and a 1.49 million tpa increase in PP in 2010, ensuring polymer market self-sufficiency should approach 75 percent PE and exceed 100 percent PP. Consequently, the Kuwaiti industry will require an expansion of the domestic and regional plastics conversion industry. However, BMI believes that Kuwait will struggle to compete with the UAE and Saudi Arabia in developing this potential due to the petrochemical sector's dependence on naphtha feedstock - which has tended to cost more than ethane used elsewhere in the Gulf, thereby undermining competitiveness - and the comparative lack of downstream diversification, notably in the PTA-PET chain. The Kuwaiti investment climate is also comparatively poor, despite the potential for a larger cluster of petrochemicals industries around Equate and the low financial barrier to entry for many converters, and Kuwait has failed to keep up with the pace of manufacturing growth seen in the UAE and Saudi Arabia. As such, over the medium-term, the focus will be on exporting PE and EG, since Equate possesses a very slim portfolio. In the past quarter, BMI has revised down Kuwait's petrochemicals rating by a modest 0.3 points to 58.2 points due to a change in its overall country risk rating. At the same time, the UAE's score has improved, pushing Kuwait into fourth place from third. Kuwait's score has been eroded by uncertainty over the future of the Al-Zour refinery, which has attracted considerable controversy over its tendering process. Kuwait's score has also come under pressure in recent months due to deterioration in country risk caused by the economic downturn coupled with the declining investment environment following the cancellation of KPC's planned JV with Dow, although overall its country risk ratings are still better than mid-2009 due to an improvement in the country's outlook.
