The Gulf Cooperation Council (GCC) petrochemical industry, which risks losing its competitive advantage amid massive market disruptions, should fortify the operational efficiency as profitability can be enhanced by 10% to 30%, according to the Boston Consulting Group (BCG).
Moreover, the GCC petrochemicals could also save 3% to 10% of the product value if they invest in building robust marketing and supply chain capabilities, BCG said in a report.
“The fact is, today, external political and economic factors paint a less rosy picture of the future of the GCC’s petrochemical industry. And while there is still time to reverse the damage done and even turn these setbacks into moments of growth, GCC petrochemical producers must do so fast — or risk losing their long-held competitive streak,” Marcin Jedrzejewski, Principal at the Boston Consulting Group Middle East said.
Although the GCC’s ethane-based producers are still the most competitive in the world, the North American producers are, without a doubt, trailing closely behind, it said.
Finding that the US’ much-talked about shale oil renaissance has flooded the US market with abundant supplies of cheap feedstock (ethane) arming the US petrochemical producers with a hefty cost advantage over their European and Asian rivals; it said this advantage has been eroded by the current drop in the oil prices, but in the long run, the US is still positioned to strongly benefit from the abundance of low-cost ethane.
“North American petrochemical producers will therefore be increasingly better placed to go head-to-head with GCC exporters when it comes to exporting to regions such as North-Western Europe and Asia,” Jedrzejewski said.
Stressing that the oil price drop is “undeniably” a major contributor to the current weak trends in the GCC petrochemical industry, BCG said Brent oil prices have fallen from a high of more than $110 in June 2014 to below $30 early this year. Subsequently, the price of naphtha has fallen steeply and, in parallel, the price differential with gas has narrowed, it added.
“A high oil-gas spread favours ethane-based GCC crackers as the price is typically set by marginal producers in Northeast Asia and Europe who use naphtha as feedstock,” it said.
Finding that the GCC’s petrochemical sector is riddled with several challenges; BCG said the regional producers should focus on commercial excellence and operational excellence as well as product specialisation.
Highlighting that several GCC producers face low operating rates due to unplanned shutdowns or inferior feedstock conversion rates; it said “but in actuality, operational excellence activities such as energy efficiency, raw material usage efficiency, and asset maintenance management can add up to 10%-30% to the bottom line.”
In commercial excellence, historically, the GCC producers have invested very little in sales, marketing and supply chain. In lieu, they greatly rely on off-takers and traders to carry and sell their products in core markets. “This arrangement basically means that producers can lose anywhere between 3-10% of their product value to a ‘middle man’, it said.
Moving forward, the GCC producers should invest in building robust marketing and supply chain capabilities — so they can win back this ‘lost value’ from off-takers.
Stressing that product specialisation is another pivotal point to address; BCG said the GCC producers sell basic chemical products (immediate derivatives from crackers) that are commodities. However, the profits derived from these products are inherently determined by external market conditions – such as feedstock prices and the local supply-demand. 
“By going further downstream and increasing the specialisation of their products, the GCC producers can reap more stable and higher earnings,” it said.