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Jan292024
INDUSTRY INSIGHTThought Leadership


A 2024 AND BEYOND OUTLOOK FOR THE GCC CHEMICAL INDUSTRY

By Valentina Olabi, Research Specialist, GPCA



Both regionally and globally, 2023 saw the chemical industry face a challenging
year. After various factors contributing to slow-moving demand for chemicals
globally, including the European recession, US inflation and lower-than-expected
chemical demand rebound in China, the global chemical market grew by less than
1% throughout 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 in 2024 remains relatively ordinary.
However, for the GCC, this presents as an advantage. In 2023, China completed
over 20 petrochemical projects, which pushed its global share of petrochemical
capacity up to 25%.




This caused a global deflation of chemical prices and margins. For regions with
heavy reliance on chemical import, such as Europe and South America, this is
disadvantageous from a cost perspective. However, for the GCC, who have lower
production costs, the coming year could witness the region benefitting 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 determining 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
pose as a test to the chemical industry. However, for the GCC, despite
challenging economic times, the outlook for 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 in
2024, a bounce back in Asian demand for chemicals, sustainability projects and
growing demand for sustainable products, the digitalization of regional chemical
supply chains, and 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 estimated as equating to
approximately 159 million tons, demonstrating a 2% increase in regional
production capacity between 2022-2023. Nevertheless, the GCC witnessed a 2.8%
contraction in total oil sector activities in 2023 due to the sequential oil
production cuts by OPEC+. Owing to OPEC+’s significant global share, that
accounts for approximately 40% of total global crude oil production, their
respective lower output resulted in higher oil prices, particularly between Q3
and Q4 of 2023, as presented in Figure 1.

This figure 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% China and 6.3% India), and
the announcement of the loosening of OPEC+ oil production quotas show promise
for the growth of the regional chemical industry in 2024.

Figure 1: Global Brent crude oil prices – historical and forecast (USD per
barrel)





Source: IEA (2024), PwC (2024)




ECONOMIC DIVERSIFICATION AND CHEMICAL INDUSTRY GROWTH

GCC GDP growth is expected to strengthen in 2024, projected to grow by 3.7% for
the whole region. As the chemical industry constitutes almost 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. By capitalizing on the 2024 market
dynamic of being more cost-competitive due to cheaper feedstock, the 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% in 2023. This growth was
mainly anchored by government investments linked to various economic
diversification agendas taking place across the GCC, including renewable energy
expansions and initiatives announced at the recent 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 are
presented in Figure 2.

In addition to the advocacy for regional sustainability by COP28, there is an
increasing market demand for sustainable products driving the expansion of
diversification practices within the chemical industry. Toward the end of 2023,
an announcement was made highlighting that in light of growing environmental
concern, and the fact that 60% of GCC businesses were off track toward achieving
their sustainability targets, consumers in the GCC were willing to pay premiums
to prioritize sustainability. For the chemical industry, this presents itself as
an opportunity for various reasons.

Figure 2: GCC companies’ sustainability initiatives announced at COP28





Source: GPCA Research (2024)



Figure 3: Global green chemicals market demand forecast





Source: GPCA Research (2024), Precedence Research (2024)

First, responding to the demand for ‘green chemicals’- which are chemicals
produced via sustainable processes, such as green ammonia or hydrogen, can
increase regional producers’ market competitiveness in the coming year. The
forecast for projected global green chemicals demand for 2024 is presented in
Figure 3.

The Asia-Pacific region accounts for almost 40% of the demand for global green
chemicals. 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 won’t come into force until mid-2025, the
implementation of Europe’s Carbon Border Adjustment Mechanism (CBAM) may
negatively impact GCC chemical producers’ exports that aren’t sustainably
produced. GCC chemical producers and governments are embracing economic
diversification projects, particularly those involving CCUS. This is
advantageous as changing regulations under CBAM may lead to products produced
via CCUS practices being exempt from carbon tax.



As the GCC constitutes 10% of total global carbon capture, with more looming
projects and expansions on the horizon, their continuation of sustainable
innovations can not only increase their global market share, but also protect
their exported products from tax and attract consumers due to their due
diligence toward environmental protection. Upcoming GPCA members’ sustainable
chemicals projects are presented in Figure 4.


DIGITALIZATION OF CHEMICAL SUPPLY CHAINS

Aside from innovative sustainable projects, the implementation of digitalized
supply chains and artificial intelligence 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.
In 2024, 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.

Figure 4: GCC chemical industry sustainable projects





Source: GPCA Research (2024)



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, 2024 could see the streamlining of organizational processes, as
well as enhance critical business operations and deliver quicker and more
resilient chemical supply chains.


FTAS AND TRADE NEGOTIATIONS

Another notable factor to consider in 2024 is the GCC’s growing importance
toward trade negotiations and Free Trade Agreements (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 USD 50 billion in 2021 to USD
78 billion in 2022. In the chemical sector, South Korea imports over USD 3
billion annually 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, who already have
a very prominent global market for chemicals, the adoption of free trade
agreements will undoubtedly help producers acquire a greater market expansion
and a larger array of customers. Trade negotiations are currently under way with
five of the GCC’s major trading partners as presented in Figure 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 the 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 already constitutes ∼5% of the global chemical 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.

Figure 5: GCC FTA negotiations and average chemical import tariff





Source: GPCA Research (2024), World Trade Organization (2024)



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.


FINAL THOUGHTS

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, implementation of
digital practices, and the fostering of international collaboration via trade
agreements collectively position the regional chemical industry for a very
successful future.




REFERENCES:

[1] “Fertiglobe Joins TA’ZIZ as Partner in World-Scale Blue Ammonia Project in
Ruwais”, ADNOC (2021).

[2] “Saudi Aramco Signs Agreement with SLB and Linde to Establish CCS Hub”, CCUS
Expo (2022).

[3] “EU Carbon Border Adjustment Mechanism (CBAM)”, Deloitte (2023).

[4] “2024 chemical industry outlook”, Deloitte (2024).

[5] “SABIC, PepsiCo & AstroLabs launch Mega Green Accelerator at COP28”, GCC
Business News (2023).

[6] “Global Chemicals Outlook 2024”, FitchRatings (2024).

[7] “QatarEnergy and GE to Develop Carbon Capture Roadmap and Low Carbon
Solutions for Qatar’s Energy Sector”, GeneralElectric (2023).

[8] “Emissions to efficiency: Advancing sustainability through CCUS in GCC
agri-nutrient production”, GPCA Research (2023).

[9] “Navigating and accelerating the digital frontier in GCC chemical supply
chains”, GPCA Research (2023).

[10] “Carbon Dioxide Recovery”, GPIC (2024).

[11] “PIC – Ammonia Plant”, Kceec International (2019).

[12] “Clean energy takes center stage: Masdar at COP28: Pioneering renewable
energy to the world”, Masdar (2024).

[13] “GCC E-Performance Index 2023 highlights exceptional digital prowess of
Gulf countries”, Mideast Information (2024).

[14] “Green Chemicals Market”, Precedence Research (2023).

[15] “Five GCC economic themes to watch in 2024”, PwC (2024).

[16] “GCC-South Korea sign free trade deal in boost to Gulf-Asia economic ties”
Reuters (2023).

[17] “Distribution of petrochemical export value worldwide in 2022, by country”,
Statista (2022).

[18] “Welcome to TAO – Tariff Analysis Online facility provided by WTO”, World
Trade Organization (2024).

[19] “Oman’s OQ weighs blue ammonia production from Omifco plant”, Zawya (2022).


January 29, 2024
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