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Qatar Petrochemicals Report Q3 2011
Business Monitor International, May 2011, Pages: 56
Qatar’s petrochemicals margins were healthy in 2010, but are expected to be squeezed in 2011 as demand growth in its main export market, China, experiences moderation, according to BMI’s latest Qatar Petrochemicals Report.
China's annual PE demand is expected to grow by 8-9% in 2011 down from 19% in 2010, but new capacity will reduce imports by up to 14% from the 7.4mn tonnes imported in 2009. BMI believes this will be more at the expense of neighbouring Asian states while Qatari suppliers will be less affected and should benefit from low domestic ethane feedstock costs. In terms of polymer capacities, we estimate that China’s polymer market self-sufficiency should approach 75% PE and exceed 100% PP in 2011. Given that Qatari polymer production is oriented towards PE with no PP production, it is unlikely to be affected by China’s expected PP surplus. Competitive ethane-based production will lead to the shuttering of undersized petrochemical facilities in places like Japan, North America, and Western Europe with rationalization already under way and likely to accelerate in coming years. We also expect a rationalization of the Chinese petrochemicals industry, which will have to address the problems of overstocking, lower than expected demand growth and a drastic increase in volumes from Qatar. While BMI has been warning that Chinese overcapacity could become a problem in the short term amid a downturn in domestic demand growth, in the long term the country will continue to see petrochemicals demand growing faster than domestic capacity expansion, requiring continued imports. Qatar’s main weakness is its dependence on commodity petrochemicals and a lack of high performance and speciality grades, which can add value to exports and put the industry in direct competition with producers in Japan and other more mature markets.
Industries Qatar (IQ), the owner of QAPCO and QAFCO, reported a healthy 71% rise in its net profit to QAR2.09bn in the first three months (January-March) of 2011 mainly due to robust sales earnings. Revenue grew faster at 48%, to QAR4bn, while cost of sales rose slower at 27% to QAR1.79bn, thereby leading to a 70% rise in gross profit to QAR2.21bn in Q111. Growth should be sustained well into 2011 with the opening of the QAFCO-5 project, which will raise urea capacity by around a quarter at a time of strengthening urea prices. Qatar has fallen from second place to third in the ratings for Middle East and Africa with 62.0 points, down 1.1 point on the previous quarter due to a decline in its country risk rating. This puts it 1.0 point behind the UAE and 4.6 points ahead of Kuwait. Qatar’s progress in raising its petrochemical capacity could still falter due to rising construction costs and tightening lending conditions. Nevertheless, Qatar’s petrochemical-specific ratings are strong, with cracker capacity set to increase significantly over the next five years and the country hosting the second largest polyolefins production capacity in the GCC after Saudi Arabia. Underpinned by one of the highest levels of GDP per capita in the world and no history of political tension, Qatar remains a bastion of stability in a highly turbulent region. Qatar’s weakness is its relative lack of economic diversification compared with other countries in the region.
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