SABIC SEES BIG GROWTH FOR MTBE

Saudi Arabia's Saudi Basic Industries Corp. (Sabic) predicts strong growth in world demand for methyl tertiary butyl ether (MTBE) until the turn of the century.

Meanwhile, demand for thermoplastics will exceed manufacturing capacity again.

Figures released by Sabic from its Riyadh headquarters show world MTBE demand will reach 24 million metric tons/year by 1995 and 36 million metric tons/year in 2005, by which time production capacity is expected to exceed demand.

Sabic said demand rose from 3 million metric tons in 1985 to 6.7 million metric tons in 1990, making MTBE the world's fastest growing chemical, driven as much by government regulations as by market demand.

By 2000, lead additives are expected to be withdrawn from gasoline completely, Sabic said. By then, MTBE demand will be growing at a slower rate than in this decade.

Sabic's first MTBE plant was built at Jubail in a joint venture with Finland's Neste Oy, Ecofuel of Italy, and Arab Petroleum Investment Corp. Sabic holds a 7017, interest and the foreign partners 10% each.

The plant went on stream in 1988 with a 500,000 metric ton/year capacity. Last i,ear, capacity more than doubled when added production units boosted capacity by 700,000 tons/year.

By late next year, Sabic intends to place on stream another 700,000 metric tons/year MTBE plant. This will be in a 50-DO venture with Shell Oil Co. subsidiary Pecten Arabia.

"By 1996," Sabic said, "Sabic joint ventures will have a combined capacity of some 2.6 million metric tons/ year, making it one of the world's leaders in MTBE production and a foremost exporter.

"Additionally, domestic production of more than 2 million metric tons/ year of methanol, as well as a reliable supply of isobutylenes, will ensure a high degree of export consistency and dependability."

GASOLINE TRENDS

Sabic said growth in MTBE demand in North America, Japan, and Europe should be substantial. So will growth in developing countries, including those in the Middle East.

Saudi Arabia alone consumes 6.5 million metric tons/year of gasoline, while Iran uses 5 million metric tons/ year and Turkey about 3.4 million metric tons/year.

"Total gasoline consumption for the whole of the Middle East has been estimated at around 35 million metric tons/year," Sabic said. "This should mean that the sales potential for MTBE in the Middle East by 2000 should hit the 1.8 million metric ton/ year mark."

Asian countries are similar to Middle East countries in the amounts of lead added to their gasoline. Maximum addition is 0.8 g/l., while the world average is said to be 0.45 g/l.

"By 2000, most countries will have reached 0.15 g/l. or even lead free levels," Sabic said. "Exceptions to this trend may include China, Indonesia, Pakistan, and Bangladesh."

Predicted growth rates of more than 25%/year for MTBE in Asia hide a considerable burden of development work required by proponents of clean air, Sabic said.

PLASTICS OUTLOOK

Commodity thermoplastics margins will continue weak through 1994 despite relatively high operating rates and rising demand, said Abdullah S. Nojaidi, president of Sabic Marketing Ltd.

Nojaidi expects world demand for plastics as a whole to grow about 11/2 times faster than the world economy.

In particular, demand for linear low density polyethylene is expected to grow 10.5% this year, while polypropylene demand will grow 6%. Low density polyethylene demand growth is anticipated to be less than 1 %.

"We see a replay of the mid-1980's," Nojaidi said. "The new investment construction cycle has run out of gas.

Low margins have caused producers to delay or eliminate plans for new plants,

"When demand does finally catch up with capacity and prices start to rise, the industry will have few new plants on the drawing board. The market appears sure to tighten during the second half of this decade."

Nojaidi said thermoplastics prices remain depressed because the current recession has a different dynamic from earlier slowdowns. The center of low cost, efficient production has moved to the Middle East and Asia.

"During the early 1980s, western plastics producers restructured and modernized to streamline operations," Nojaidi said. "They pushed down their breakeven points significantly. By the mid-1980s many plastics makers profited while operating at 65% of capacity, compared with 8085% only a few years earlier."

In the late 1980s, producers struggled to meet Pacific Rim demand for plastics. At the same time, western producers underestimated the number of new Asian plastics plants coming on stream.

"We've seen far less restructuring this time," Nojaidi said. "Some marginally competitive producers, mainly in Europe, have focused only on regional market conditions.

"Since operating rates in many developed countries look pretty good, they have tried to hang on and wait for the rebound. Each marginal producer expects someone else to close a plant."

NEW TECHNOLOGIES

In the hypercompetitive market of the 1990s, producers need a competitive edge, Nojaidi pointed out. And Sabic and many North and South American producers have the paramount advantage of low cost feedstock.

"Producers who use ethane rather than naphtha start with a $160/metric ton feedstock advantage. This gives them a tremendous advantage in production of polyethylene and polyvinyl chloride."

Global competition and rivals with an edge in feedstock have forced many producers to look for new technologies. Nojaidi said this is particularly true in polyethylene, where new technologies are expected to reshape the business by the end of the decade.

Metallocene single-site catalysts promise polyethylene strong enough to compete with some engineering plastics at a significantly lower cost. A variant of the Unipol process, called Unipol 11, is said to yield Lldpe with superior strength and flow properties.

Nojaidi expects overall polyethylene demand to rise 4.4%/year between 1993 and 2003, although widening global recycling will limit building of new planes.

During the same period, Lldpe demand will grow 10.5%/year as it takes market share from LDPE. And high density polyethylene demand will rise 4.5%/Year while conventional LDPE demand grows at less than 1%/year.

New metallocene catalysts will push polypropylene growth into new applications at the expense of polystyrene and polyethylene. Polypropylene demand will rise 6%/year through 2003.

"Such high growth rates have made it difficult for producers to close even outmoded polypropylene slurry plants," Nojaidi said. "To cope with present overcapacity, some companies have pushed back new plant openings by 6 months to 2 years.

"This has merely postponed the day of reckoning for older polypropylene plants. Deferred new plants will come on stream during the middle of the decade. Companies like Himont and Shell, ICI and BASF have strengthened their operations through restructuring. Even so, new capacity will force the closure of many older, less efficient plants."

Sabic expects polystyrene demand to rise 3.8%/year through 2003 with demand reined by environmental demands for wider polystyrene recycling.

Polyvinyl chloride demand will grow 5%/year through 2003. Sabic expects Pacific Rim countries, which have generally remained PVC importers, to begin building their own PVC and base material plants toward the end of the 1990s.

Sabic produced more than 10 million metric tons of a wide variety of materials in the first half of 1994. Almost 8 million metric tons of this was exported.

First half sales amounted to 7.083 trillion Saudi rials ($1.99 billion), from which Sabic made a profit of 1.35 billion rials ($360 million).