Qatar Petrochemicals Report Q3 2009

Of all petrochemical exporting countries, Qatar is best placed to survive the global recession due to its advantage in feedstock and the highly integrated nature of the country's petrochemical industry, according to BMI's latest Qatar Petrochemicals Report.

Nevertheless, the global financial crisis has begun to impact Qatar's petrochemical industry over recent months, consistent with BMI's prediction of a downturn from H109. The Qatar Petroleum (QP) subsidiary, Industries Qatar, which is the second-largest Gulf chemical producer by market value, posted a 90% drop in profits to QAR100mn in Q408. The fall came amid weakening demand and falling prices for chemical products and a QAR330mn write-off on raw material inventories. Its fortunes did not improve in Q109 when net income fell 68% y-o-y to QAR612.3mn (US$168mn). This was below the QAR668mn forecast by Shuaa Capital, but above the QAR407mn predicted by EFG-Hermes. The result, nevertheless, represents an improvement in gross margins on Q408, largely due to a drop in the cost of sales.

Doubts are emerging over planned projects following a decision by QP and Honam Petrochemicals to delay their US$2.6bn plant by one year to 2013. Previously BMI reported that the project would be delayed until 2012, due to problems securing financing. There were concerns that it may not go ahead at all after the partners said they were putting the plans on 'indefinite hold'. The cornerstone of the complex was to be a cracker with capacity of 1mn tpa of ethylene using mixed feedstock, with other capacities including 900,000tpa of propylene, 700,000tpa of PP and 220,000tpa of PS. The partners have declared they are still planning to complete the project, but BMI is highly cautious and mindful of Honam Petrochemical's own problems with rising losses, although it has little or no debt.

Qatar remains in second place in the rankings for Middle East and Africa with 64.2 points, up 3.0 points on the previous quarter as a result of a statement by Honam Petrochemical and QP that they would go ahead with their planned petrochemical complex, having put it on indefinite hold in the previous quarter.

This puts it 4.5 points ahead of the UAE and 10.1 points behind Saudi Arabia. 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 to other countries in the region.