Petrochemicals report: Chemanol

AO& visits the Saudi petrochemical giant's plant in Al Jubail

NEWS, Downstream
Khalid Ibrahim Al-Rabiah, chief executive officer, Chemanol.
Khalid Ibrahim Al-Rabiah, chief executive officer, Chemanol.
The company has successfully completed several expansion projects raising production capacity from an initial 420 000 tonnes per year to nearly
The company has successfully completed several expansion projects raising production capacity from an initial 420 000 tonnes per year to nearly

Methanol Chemicals Company, Chemanol, (former Saudi Formaldehyde Chemical Company Limited) is a major grass-roots second generation petrochemical complex located in Jubail Industrial City. It manufactures premium-grade methanol derivatives that have a number of diverse and useful applications.

Chemanol started up its methanol plant, which provides the main feedstock for the firm’s entire product range, in early October. “We have successfully completed several expansion projects, raising production capacity from an initial 420 000 t/y to nearly 1 million t/y, which enjoys a competitive price on a global level compared to other producers. In addition, sales turnover grew to nearly US$200 million a year in 2008 and it is expected to grow further with the commercial production launch of these projects,” Khalid Ibrahim Al- Rabiah, chief executive officer of Chemanol tells Petrochemicals Middle East.

One of the major drivers behind the building of the new complex was projected cost savings. Previously Chemanol bought its methanol feedstock from Saudi Basic Industries Corporation (SABIC) at a non-discounted market price of around $150 per tonne, but now it will save up to half that cost, thanks to production prices of around $80 per tonne. “The start-up of our methanol operations will help the company to reduce the production cost of the end products by almost 30%, and increase profitability,” explains Al-Rabiah.

In total, the cost of the expansion projects amount to $600 million, but the investment looks set to strengthen Chemanol’s position as a significant downstream player. “With the launch of our new formaldehyde expansion unit, the company suddenly became one of the largest formaldehyde production facilities situated in a single location in the world,” says the Chemanol CEO. “Not only that, but we also became the owner of one of the most integrated methanol production complexes globally,” he adds.

Under its various historic brands, Chemanol has over 20 years experience in the industry, and is now looking to shore up its position in the speciality chemicals sector by investing and producing tailor-made product formulations that meet high-end customer requirements, particularly in the field of resins.

“In-house research has facilitated the development of several speciality product grades which reside in the domain of technology,” says the CEO of the company.

Chemanol has selected the best available technology providers for its expansion plants, and has implemented methanol and formaldehyde technologies from Danish outfit Haldor Topsoe. For methyl amines/di methyl formamide, it has deployed technology from UK-based Davy Process Technology. Pentaerythritol technology from Sweden’s Perstorp AB and Acetaldehyde technology from Libra Techcon of India have also been implemented.

Even with the downturn affecting the industry, the company believes that it was well-prepared for what it views as the cyclical nature of this specific sector. “It has always been the case that the global petrochemical industry has experienced peaks and troughs and that it has been passing through the lower reaches of the current cycle since the second half of 2008. This particular trough has been caused by falling demand and global financial meltdown,” says Al-Rabiah.

To cope with this global slump in the petrochemicals cycle, Chemanol prepared itself for the demand-driven downturn by putting in place initiatives and measures that it believes are key to the smooth running of its business and operations. “We have adopted five strategies, which included improving productivity and increasing utilisation capacity; penetrating new markets; maintaining competitiveness and market share by optimising selling prices; and improving quality and customer service. In addition, we have also introduced comprehensive cost optimisation programmes,” adds the CEO.

The company says that it foresees signs of improvement towards the end of 2009 and at the beginning of 2010, in terms of price and demand, but that it remains conservative in its views. “We do not see full recovery before 2011. We will keep an eye on the market developments and concentrate on how to add value and sustain our leadership, growth and profitability, boost market competitiveness and maximise our shareholders wealth,” notes Al-Rabiah. “But in spite of the economic calamity, we remain strong and positive and we will continue to focus on achieving our vision.”

The company currently produces formaldehyde, para formaldehyde, formaldehyde resins (liquid and powder), hexamine and super plasticisers. Around 70% of its current production is exported to around 50 countries around the world.

“With current nameplate production capacity of 420 000t/y, to date, 85% of capacity utilisation has already been achieved. Certain units in plants that are operating right now are continuing to run close to 100% capacity,” says the CEO.

Though the company’s production capacity utilisation has reached 85%, Chemanol views the current situation as abnormal, in that it does not reflect the actual demand and supply situation.

“From the long-term perspective, the market demand in the developing nations, especially in Asia (specifically China) and now in Iran, is driving much of the expansion that makes the chemical industry a growing business,” says Al-Rabiah. “The closures of some businesses in North America and in other parts of Europe has added to growing demand on Middle East producers,” adds Al-Rabiah.

Chemanol says that demand for its products is growing and this reflects the continued penetration of chemical products into both existing and new usage areas around the world. “With regard to our speciality products, we anticipate the demand of major materials will continue, but prices are likely to become an issue,” Al-Rabiah explains.

Future Ambitions

Recently, SABIC and Sipchem signed a strategic partnership deal to establish a series of mega petrochemical projects, a move that has encouraged many players in the Kingdom to start looking for a partner to help them achieve their goals. Chemanol is one of those firms on the look-out for the right company. “As we drive to achieve our vision and goal, Chemanol is opening its door of opportunity to the possibility of strategic affiliations with leading partners,” says Al-Rabiah. “We endeavour to become an ally to those who would partner us in achieving our aims, those who would complement and promote our products, those who would sustain a long-term business association with us, and those who wish to grow their business along with Chemanol,” he explains.

As things stand, the issue of feedstock pricing in Saudi Arabia seems to not be a primary concern for the CEO. “We believe that the local industry has to develop inherent strengths and has to be based on a solid business model that will enable it to sustain profitability even if it has to source its feedstock at international prices,” explains Al-Rabiah.

So it seems that Chemanol is confident about its future and sees this downturn as just a bump on the road to success.

“We believe that the petrochemical industry is accustomed to ups and downs. As a result, we expect marginal recovery every quarter, to culminate in a full recovery around the end of 2011 or the beginning of 2012,” Al-Rabiah concludes.

Technology Licensors

Haldor Topsoe (Denmark): Methanol and formaldehyde technologies.
Davy Process Technology (UK): Methyl amines/di methyl formamide.
Perstorp AB (Sweden): Pentaerythritol technology
Libra Techcon (India): Acetaldehyde technology

Indian Contractors:

Toubro won a $60 million contract to set up methyl amine and dimethyl formamide plants, whilst Libra Techcon won the acetaldehyde plant.

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