That level of activity suggests buoyancy and optimism. But while “plastics” might have been great advice in the late 1960s, the industry is now in crisis. The woes of Michigan-based Dow Chemical have been causing heartburn both at the Middle American diner and the Saudi majlis. The company recently cut a dividend payment long considered sacred by America’s investor class – the first time it had done so since 1912 – and its troubles have cast doubt on a Saudi venture at the kingdom’s Ras Tanura port complex.

Global demand for petrochemical products has dropped 15 percent from its mid-2008 peak, led by sharp falls in take-up for durable fittings for products such as cars, furniture, and electronics, according to Pat Rooney, managing director for the Middle East at Chemical Market Associates, a consultancy. Prices also fell sharply in the fourth quarter in line with plunging oil prices. “We think the markets will seek their lows in June or July of this year and gradually re-cover,” says Rooney. “That’s in terms of demand. In terms of margins, we don’t see things coming back for another couple of years. There’s an awful lot of supply coming into the market.”

Yet Rooney tempers panicky depictions of a freefall in global demand. People are still buying the same amount of non-durables such as sandwich bags, soda bottles, and the sundry other plastic items that clutter our world. “Believe it or not, that kind of stuff is about 70 percent of the petrochemicals business, and after the big inventory correction in the fourth quarter, we’re seeing the demand for that is pretty flat,” he says.

Moreover, the cost advantage in the Gulf remains significant despite the sharp drop in oil prices. For local producers, hydrocarbon inputs (mainly natural gas, a by-product of oil production) cost 60 to 70 percent less than in Asia, where such feedstock eats up 50 to 80 percent of total cost, Rooney says. It would take $25 to $30 dollars per barrel to erode the Gulf’s cost advantage. Factories in the region also tend to enjoy higher economies of scale, he adds.

“This advantage is here to stay,” says Eckart Woertz, program manager for economics at the Gulf Research Center in Dubai. “The only issue is the availability of natural gas, as supply shortages are emerging. Subsidized prices are not covering the costs of some new gas projects, and now with cuts in oil production you will produce less associated gas.” Other industrial ventures that depend on gas inputs have already fallen prey to the gas shortage, including ADBIC’s plans to build a $5 billion aluminum smelter in Ruwais with British-Australian mining giant Rio Tinto. Human resources are also an issue: Abu Dhabi’s Borouge has reportedly put on hold one planned mela-mine project, also in Ruwais because of difficulties in finding qualified staff.

Buying spree? Cash is king today in petrochemicals as much as anywhere. And for now, Gulf chemical firms and the sovereign entities that back them seem to be the only ones that have it. SABIC has made a number of purchases in recent years, including GE’s plastics unit for $11.6 billion in 2007. Abu Dhabi’s more recent acquisition of Canada’s Nova suggests the industry might be on the cusp of a wave of consolidation, with Gulf buyers snapping up cheap global assets.

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