The plastic conversion industry in the Arabian Gulf is gaining momentum as the region strives to diversify downstream in the hydrocarbon value chain. However, adoption of the circular economy concept in the plastics industry is easier said than done as more work lies ahead, says the Gulf Petroleum and Chemicals Association (GPCA), which represents the downstream hydrocarbon industry in the Arabian Gulf.

The association in its latest report titled ‘The Plastic Conversion Opportunity in the GCC: Moulding a Sustainable Future Towards a Plastics Circular Economy’ has identified challenges such as an uncompetitive recycled plastics market, inadequate knowledge about the circular economy, high investment requirements and the high cost of products made in a circular economy model as barriers to further progress. The report has also highlighted the opportunities to develop the plastic conversion industry in the GCC region, and the possibilities it opens up for a plastics circular economy.

INDUSTRY LANDSCAPE

Over the last few decades, the polymer industry in the GCC has grown at a healthy rate as the region benefited tremendously from growing demand in overseas markets. GCC producers primarily export their polymers to Asia, followed by Western Europe and Africa. Since 2010, regional production capacity has risen at a 3.6 per cent CAGR to 28.2 million tonnes in 2020. Polymers represent 18 per cent of total chemical capacity in the region, and as a result have a significant impact on the growth of the entire chemical industry in the GCC.

Figure 1: GCC polymer supply to local plastic conversion industry by polymer type and end-user sector, 2019 (metric tonnes)

The years of 2019 and 2020 were challenging for the global polymer industry as a result of uncertainties in the trade war between China and the US and the rise of a global pandemic. Despite all the concerns, the GCC polymer industry still had its eyes firmly fixed on growth. In 2020, polymer capacity in the region grew by 3.6 per cent, higher than the global growth rate of 2.1 per cent in the same period, the report states.

Polymer supply from the GCC is driven by increasing demand in various markets and end-user applications, such as packaging, construction, consumer goods and automotive. Also, Saudi Arabia is the largest polymer producer in the region, accounting for 68 per cent of the region’s total output. While Saudi market share in the region was declining over the past decade, its product portfolio is the most diversified, compared with other GCC countries. In 2019 it was producing about 30 products, which is the highest in the region. The UAE is the second largest polymer producer and the second largest local polymer supplier.

Export of polymers is the fastest growing segment of the GCC chemical industry, in line with production growth. It grew by 8.3 per cent CAGR between 2009 and 2019 reaching 24.4 million tonnes. Polymers represented one third (32 per cent) of the total chemical export, up from 20 per cent in 2008. Recognising its strategic geographical location on key global trade routes, the region has invested heavily in transport infrastructure and is striving hard to improve the ease of cross-border trade.

GAINING MOMENTUM

The GCC plastic conversion industry is gaining momentum as the region is looking to further diversify downstream in the hydrocarbon value chain. With most plastic converters being small to medium-sized businesses, the regional market for plastic conversion is fragmented. There are an estimated 1,800 plastic converters, but only a handful can be considered large-scale businesses. Majority of the polymer product supply is being exported out of the region.

The GCC local supply and consumption of polymer products to the conversion industry in 2019 stood at 4.4 million tonnes, representing only 15 per cent of total GCC polymer production in 2019. Saudi Arabia is leading local consumption representing the majority of total polymer products consumed locally at 53.4 per cent, followed by the UAE at 45 per cent per cent and Oman and Kuwait at only 1.7 per cent.

Figure 2: Enablers of the GCC polymer conversion industry development

Polymer supply in the GCC is driven by growing demand in end user market segments and applications and the industry is looking to further diversify downstream to meet its growth targets. Local polymer consumption of polyethylene (largely HDPE, LDPE, LLDPE and other grades in smaller quantities) comprises the largest consumption block, representing about 50 per cent of total polymer output supplied locally. Specifically, HDPE is the most widely consumed locally of the three major PE polymer types accounting for 34.3 per cent of the regional supply of polymers as seen in Figure 1.

Saudi Arabia is the largest local polymer supplier to converters in the region. Local polymer supply to converters in Saudi Arabia, like the UAE, is driven by polyethylene (PE) and polypropylene (PP). Total supply to local conversion industry in 2019 amounts to 2.4 million tons and representing 53 per cent of total supply to converters in the region.

PE regional demand is mainly driven by packaging applications, which is the largest end-user segment globally, and the largest end-user segment regionally.

The textile industry is the second largest end-user industry in the region, driving demand for polyethylene terephthalate (PET), also commonly known as polyester because of its excellent tensile and impact strength, clarity, processability, chemical resistance, and thermal stability. Construction is the second largest industry globally, and the third largest regionally, in terms of polymer consumption.

One of the most important polymers for the construction industry is polyvinyl chloride (PVC), which is used for windows and door frames and underground pipes, due to its stiffness and durability. The consumer goods industry is also an emerging market for various polymer consumptions, including polyethylene. This is driven by easy access to ethylene and the regional industry’s tilt toward light weight molecular hydrocarbons.

CONVERSION CHALLENGES

Every GCC economy faces various domestic challenges, but which ones are the most troublesome for the plastic conversion industry? Some of the key challenges in developing the regional plastic conversion industry include a limited and fragmented end-user market, low manufacturing attractiveness, and a fast-changing regulatory landscape driven by environmental considerations.

However, the GCC industrial development is at a turning point as the GCC governments seek to diversify economies to meet the aspirations of future generations. Much of the efforts are focused on creating and capturing value from product exports and stimulating the development of downstream industries, including the plastic conversion industry.

The pressure to develop the plastic conversion industry is reaching a breaking point to meet the aspirations of future generations, capture value from product exports, stimulate the development of downstream industries, and eventually lead to more sustainable economic growth. Several enablers are emerging that create unique opportunities for the downstream industries as illustrated in Figure 2. There is a strong alignment between a need to act and the ability to act in the region.

These enablers include: Workforce; Technology Acquisitions; Acquisitions of Polymer Converters; Government Support/Policies; Join Ventures with Polymer Converters; Industrial Clusters Development; Investment in R&D and Innovation; and Support OEM Manufacturing.

CIRCULAR ECONOMY

The plastics industry plays a crucial role in supporting sustainability and the circular economy concept in various sectors.

Some of the most important contributions are in the transport, construction and food industries. Closing the circular economy loop in plastics can boost industry competitiveness and address climate change issues. In the context of plastics production and conversion, this means that plastics never become waste. Therefore, re-entering the system as valuable elements and feedstock for other products. With that, plastic leakage into natural ecosystem can be controlled and less fossil feedstocks will be utilised in the production process.

While the circular economy is still at a nascent stage, in many developed economies from which it originated, significant opportunities exist to adopt a more circular approach in the Arabia Gulf region, the report says. A move to a more circular approach can retain and increase value creation. It can also reduce our dependence on scarce natural resources and achieve alignment with the GCC national visions of sustainable long-term growth (economic).

This means that plastics should never become waste reducing regional dependence on scarce natural resources and achieving alignment with the GCC national visions of sustainable long-term growth.

With a focus on circular economy, up to 95 per cent of plastics material value can be saved along its lifecycle. However, the transition into circular economy will not happen overnight and requires time. This transition will require not only the design of new products that make it easier to reuse and recycle but also new business models and service offerings and strategies for adoption.

“Like any big transformation, adoption of the circular economy concept in the plastics industry is easier said than done. While we are at the beginning of the journey, we must be aware that the journey is more crucial and more difficult than we could have imagined. Business, government and people need to be actively engaged in this journey with their ideas, products, business models and investments. On this transformation journey, there are many current and future challenges as the transformation process continues to evolve,” the GPCA report highlighted.

The drive towards a circular economy accelerated rapidly in 2020, with many companies in the region already starting to adopt circular business models and innovation strategies to ensure the production of more sustainable materials and that manufacturers have access to them.

FINAL THOUGHTS

While challenges to make the circular economy a reality in the GCC region hinder its progress, opportunities to adopt it, make it even more promising. GPCA has identified three key opportunities of adopting the business model in the Arabian Gulf. As part of the shift to a more circular business model, the industry would need to enhance the sustainability of products and applications throughout their lifecycle. To make the circular economy a reality, the industry would need to establish a multi-stakeholder approach to plastic waste reduction and management through collaboration, innovation, regulations, and consumer education.

Further integrating the GCC petrochemical and chemical value chains to create and economically sustain a market for recycled materials is also a part of the vision to achieve a circular economy.