GLOBAL PLASTIC MARKETS AND THEIR IMPACT ON THE CONVERSION INDUSTRY IN THE GCC

GLOBAL PLASTIC MARKETS AND THEIR IMPACT ON THE CONVERSION INDUSTRY IN THE GCC ANDREW REYNOLDS, RESEARCH DIRECTOR AMI CONSULTING

Contents • • • • • • •

Introduction How the world plastics industry has developed Where the GCC fits in the world Characteristics of the GCC Global Market trends GCC Market trends Conclusions

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Introduction: about AMI • Market Analysis: in-depth multiclient reports  Plastics Processing in the GCC (2012)  Global BOPP markets (2012)  Global Stretch Film Markets (2011)

• Single client services    

Feasibility studies Technical and commercial due diligence Strategic analysis/business development Customised market research

• Digital magazines  Sector oriented (e.g. BOPP)  Free-to-reader (at www.amiplastics.com): – Compounding World – Injection World – Film & Sheet Extrusion – Pipe & Profile Extrusion

• Conferences and Seminars  Middle East Plastic Pipes, May 15-16, 2012, Dubai  Flexible Packaging Middle East, November 1314 2012, Dubai  The Plastics Industry Strategy Seminar, 12 November, Dubai 2012  Middle East Plastic Processing Seminars (see website for dates and venues)

• Database products  Top 50 plastics processors in the GCC (2012)  Directory of plastic convertors in the GCC (2012)  Directory of plastic convertors in Turkey (2010)  Databases of Europe, Asia and USA

IR194 – GPCA Conference 2

The plastics industry in 2011 • Plastics processing is successfully established in every region and country of the world • The impact of plastics products and goods is felt in every economy and society on the planet • The average consumer relies on and uses numerous distinct plastics products every day • Plastics drive the global economy – – – – –

Building and infrastructure Communications Transport Packaging of all consumer goods (rigid and flexible) Leisure and social activities

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Development of the processing industry Pre 1970’s

1970’s-1980’s

1980’s- 1990’s

2000’s-2010

Local production

National and regional processors

Interregional processors

In same time resin producers exit processing and financial groups take larger holdings

Global dimension

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Factors affecting evolution

Technology

Economy

Business

Initially driven by West Development of Japanese Flow to developing world Development of global base

Post war reconstruction Oil shock Changing ownership JIT/Lean production Global brands

Family owned Private groups Quoted companies Private equity Global financial market

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Position of the GCC in the world GCC 2%

Rest of World 98%

The world market is 214 million tonnes 6

Position of the GCC in Middle East Africa GCC 21%

Rest of MEA 79%

The Middle East/Africa is 18 million tonnes 7

Per Capita vs. Population 180.0 160.0 Qatar

140.0

U.A.E.

Per capita demand (kg)

120.0

Germany

Oman

100.0 Saudi Arabia 80.0 60.0

Kuwait

Bahrain

40.0 20.0 0.0

-20.0

0.0

20.0

40.0 Population (millions)

60.0

80.0

100.0

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Per Capita & Growth 9.0% Saudi Arabia

Oman

8.0%

CAGR 2011-2016

7.0%

Bahrain

6.0%

Qatar U.A.E.

5.0% Kuwait

4.0%

Germany 3.0% 2.0% 1.0% 0.0% 0.0

20.0

40.0

60.0

80.0 100.0 120.0 Per capita demand (kg)

140.0

160.0

180.0

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A favorable economic environment • IMF forecasts GDP in the GCC in 2011 will be over 9% higher than 2009 • Improving growth prospects in each of the GCC countries 2010

2011

2012

Bahrain

4.0%

1.5%

3.6%

Kuwait

2.3%

5.7%

4.5%

Oman

4.1%

4.4%

3.6%

Qatar

16.0%

18.7%

6.0%

Saudi Arabia

3.4%

6.5%

3.6%

UAE

2.4%

3.3%

3.8%

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Global polymer growth by region % p.a.

Europe

2.9%

NAFTA

2.7%

Latin America

5.3%

Greater China

7.8%

Asia

4.5%

Indian Sub Continent

10.2%

GCC 0.0%

7.9% 2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

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Dynamics of the GCC Market • GCC has become the leading global trading source of polyolefin resins • The GCC can increasingly offer a full range of all the major thermoplastics • The producers in the region have an advantaged feedstock position ensuring competitivity • Energy costs for plastics processing are highly competitive • High net reserves and earnings mean capital for downstream processing is readily available • Governments have the determination to ensure maximum value is added to raw materials • A strong group of local entrepreneurs are driving the next stage of industrial development • Investments increasingly have a global dimension

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Distribution of polymer demand in the GCC Bahrain 3%

Kuwait 6%

Oman 6%

Qatar 5%

Saudi Arabia 55% UAE 25%

Thermoplastics resin 3.8 million tonnes 13

Investment by plastics convertors • High levels of investment suggest confidence in market growth • High levels of investment suggest capacity is not a limitation of plastics processing output • Investment is predominantly in the best equipment available • 85% of investment is in the Saudi Arabia and the UAE

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End use applications for polymers Sport and Leisure 1% Housewares 3% Furniture Medical Toys 1% Others 0% 11% 1% Electrical Appliances 1% Automotive 1% Agriculture 2%

Flexible Packaging Industrial 10%

Flexible Packaging Consumer 16% Rigid Packaging Industrial 6%

Building 23% Rigid Packaging Consumer 24%

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Market drivers • Construction  Remarkably stable environment  High fertility rates/growing populations drive demand  Strong advances observed in cables, pipes, sheet and fibres

• Packaging  Consumer and industrial segments are both growing strongly  Rigid and Flexible items both growing • Very high quality standards for local products  Export opportunities in: • BOPP • Stretch Film • Strapping

• Industrial products also seeing strong growth 16

Distribution of polymer processors Thermoplastic Compounders Other Processors 5% 3% Sheet Extruders 4% Cable Producers 2%

Profile Extrusion 7% Injection Moulding 38%

Pipe Extrusion 4%

Polyolefin Film 23% Blow Moulding 12%

GCC has 1175 significant plastic processors

Rotational Moulding 2% 17

Plastics convertors in the GCC • 1,175 significant primary convertors      

50 largest account for 50% of conversion Largest convertors operate across several sectors Film extruders: 265 Injection moulders: 450 Blow Moulders: 135 Pipe and Profile extruders: 150

• Most investments are made to very high (international) standards • Export opportunities are significant 18

Who is the weak link in the chain?

Plastics Processor

Raw Material supplier

Final customer

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Observations – Market overview • The period 2007-2011 marks a period of significant change in the world plastics industry, the leading geographical epicenters of the industry are increasingly China, India and the GCC – China is the largest market for polymers and continues to expand rapidly – India is quickly joining China as a world force – The GCC is emerging as a leading source of polymer supply

• The traditional centers of demand in Europe and NAFTA are recognizably mature in most areas although they continue to dominate technology and much processing innovation.

• Although it is questionable that a “global industry” exists the shape of the world industry is increasingly formed by global brands and their international operations • The activities of major brands and end users in a global economy are changing relations at all stages of the value chain causing a refocusing of business strategy and driving a refined corporate structure

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Concluding remarks on the world industry • While the plastics industry has come a long way and continues to grow the greatest challenges it faces are managing the complexity that derives from a global market.

• Management in the plastics industry increasingly have to deal with “uncertainty” in their markets and develop a path that ensures profitability and survival. Among these challenges are: – – – – – –

Short term demand fluctuations Raw material availability Unstable price patters A rapidly changing political landscape Evolving customer intentions An unclear trade dynamic (including logistics)

• The successful companies will be those who keep a strong focus on the long term opportunities and customer needs while managing the short term instability increasingly apparent in an interrelated world economy 21

What drives plastics innovation

What’s Needed?

Consumer Competition Stakeholders

What’s Possible?

Innovation

Technology Chemistry Materials Processes Business Model Supply Chain

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Conclusions 0 0

100

200 Kilometers 100

200 Miles

• •

•

• • •

Wide slate of available resins drives the opportunity Plastics processing is geographically concentrated. The major centres are Jeddah, Riyadh and Damman/Al Khobar in Saudi Arabia and Dubai/Sharjah in the UAE which between them account for • 60%+ of all plastics processed • 70% of the fifty largest processors Clusters of plastic processing are appearing around resin producers in other parts of the region e.g. in Oman, Qatar, and Abu Dhabi.

Oil and derivate wealth drives the local economy The population of the whole region is 40 million, of whom 28 million are resident in KSA. Wealth is highly concentrated which helps define local end use demand for plastics.

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So how do you make money?

The preconditions for success are: • Defensible business plans • Robust product propositions • Clearly defined markets, and channels to provide access to market • Good execution of the business plan  Capable management team

• Suitable resources (equipment, feedstock, money, people)  Equipment, feedstock & money are in principal all available, the availability of suitably trained people can be more difficult

• World class understanding at every level

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Thank you Andrew Reynolds, Research Director AMI Consulting Applied Market Information Ltd. 45-47 Stokes Croft Bristol, BS1 3QP, UK Tel: +44 (0)117 9249442 Fax: +44 (0)117 9892128 Email: consult@amiplastics.com

www.amiplastics.com

Applied Market Information LLC 1210 Broadcasting Road, Suite 103 Wyomissing, PA 19610, USA Tel: +1 (610) 478 0800 Fax: +1 (610) 478 0900 Email: consult@amiplastics-na.com 25