Further downstream in KuwaitAugust 23, 2018
Abdulla Al Ajmi, chairman of Kuwait Aromatics Company (KARO), talks to TOGY about opportunities outside Kuwait and the importance of the Al Zour integration project in expanding the country’s petrochemicals sector. KARO aims to integrate the refining and petrochemicals sectors through the production of paraxylene, benzene and styrene.
• On factors affecting the aromatics market: “The commodity’s price is one of the major factors. Another is the growth rate of any given country. If economies continue to recover in certain areas in Asia, that is certainly going to encourage more consumption.”
• On global expansion: “Asia is a very good candidate for future expansion, and we have been assessing the market. We know that current expansion in China is a big challenge in terms of competitiveness. But perhaps one way of addressing this challenge is to create some investment opportunities in China itself, so that the factors that make the industry competitive there will play well for us.”
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Which global market factors are affecting the demand for aromatics?
The commodity’s price is one of the major factors. Another is the growth rate of any given country. If economies continue to recover in certain areas in Asia, that is certainly going to encourage more consumption.
To a certain extent, political stability is also a factor that affects the investor preference in places that have historically been known as high-tension areas.
Where do you see competition coming from?
The regional competition is there. We all have a very similar structure in terms of natural resources, so we obviously have similar paths to take. But we are worried more about the challenges due to the products coming from China. They are targeting the same markets that we are targeting. In essence, they are saturating the market, which brings down prices.
The possibility that their tactic is to drive down prices to drive competitors out of the market can’t be ruled out. It has been done in other markets. We haven’t seen visible indications that this is happening but, again, it can’t be ruled out.
On our side, we have to put more effort into improving product quality in order to thwart that tactic. We also have to put more effort into the reduction of production costs so that we can remain competitive.
What are the benefits of developing the petrochemicals sector to complement the oil and gas industry?
The petrochemical industry has, in recent years, become an integral component of the Kuwaiti oil and gas industry. In order to make maximum profit and hit optimum utilisation of oil and gas resources, we have to go further in the downstream.
The production of a wide range of products can also be feedstock for an even wider range of products, which can increase the value of sales. So the sales volume and value will increase. This is definitely a plus in terms of maximising our profits.
Kuwait has embraced the integrated approach, highlighted by the fact that an additional two integrated refineries will come on line before 2035. It makes for better returns on investment, and creates the capacity and flexibility to cover wider markets.
What is the domestic demand for aromatics?
Kuwait Styrene Company is a large benzene consumer, and we have indicators suggesting that we will have more benzene supplies for local needs when the KIPIC [Kuwait Integrated Petrochemical Industries Company] plant comes on line with its petrochemical components. Hence, we are comfortable and confident that the future will be better both in local and external markets. The majority of our products will be for export.
What are your expectations for KARO considering Kuwait’s plans to expand refining capacity?
KARO’s expansion is actually dependent on the KIPIC complex. We expect that by the time KIPIC achieves stable operation between 2019 and 2020, we will be in a position to expand KARO operations. We are currently integrating with KNPC, and we take feed from them. That is essential for our operations, since KARO is a holding company.
We own the Kuwait Paraxylene Production Company, and we jointly own the Kuwait Styrene Company with Dow. With that capacity, we constitute an industry icon, representing the integration between refineries and petrochemicals.
What were some of KARO’s major milestones in the last few years?
We saw good business progress in 2016 and 2017. In 2016, we made USD 187 million in profit. In 2017, considering we were pushing for turnaround – suspending operations for 40 days for maintenance, which was necessary to increase refinery efficiency and plant reliability – we were still in a position to make a USD 145-million profit.
We are making money and, at the same time, we are examining any opportunity for expansion at the least possible cost.
Are you looking for expansion opportunities outside of Kuwait?
We are examining investment opportunities outside Kuwait. However, we are being extremely careful to take into consideration all the risk factors that are associated with overseas investment.
I think Asia is a very good candidate for future expansion, and we have been assessing the market. We know that current expansion in China is a big challenge in terms of competitiveness. But perhaps one way of addressing this challenge is to create some investment opportunities in China itself, so that the factors that make the industry competitive there will play well for us.
Which markets are you looking to penetrate when it comes to exports?
India and China remain our largest export destinations. However, that will also have to be reviewed. The main reasons to review our export destinations are to see how many more destinations we can have and how much that will help us.
That entails looking into more Asian markets, but also into Europe given that we are looking at markets that have a growth factor.
What are the company’s objectives moving forward?
We have to be an environmentally conscious and responsible business that combines the needs to make profits and provide significant value to the local industry. This is what I have in mind as a global vision for KARO.
Beyond that, we are looking to expand. We think we will be in a position to achieve more: make more profit, reduce our cost of production, expand our markets, broaden our business portfolio and still maintain our current HSE record.
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