Petchem projects dominate Kingdom's industrialization drive

Saudi Arabia's project market is buoyant with a string of petrochemicals and minerals projects being rolled out. The authorities are keen to vertically integrate their petrochemicals industry with a view to producing materials for a nascent domestic automotive industry (among other sectors). Elsewhere, corporate output growth has cooled, though retail sales are growing at a record rate. Bank mortgage lending is also brisk, according to Samba Economic Monitor released yesterday.

The Saudi project market continues to thrive. Latest data from Meed put the value of projects "planned or underway" at $745 billion in mid-April, around 13 percent higher than a year earlier. These figures need to be treated with some caution: The topline number is some 30 percent larger than the nominal size of the entire economy ($580 billion), while the number of "planned" projects that might actually be rolled out is far from clear. Yet the trend is undeniably positive.

Aluminum production

A vertically integrated approach is also being adopted in the aluminum sector, where there are plans to harness the country's bauxite reserves by constructing what will become the world's largest aluminum complex at Ras Al-Khair. The $10.8 billion project, which is a joint venture between Maaden and Alcoa, is designed to attract a large number of conversion industries to cluster around the site.

Aluminum clearly has a host of uses, but the authorities are most keen to foster a sizable automotive industry. Fluor has been awarded a contract for the engineering, procurement and construction management (EPCM) of a 100,000-t/y automotive sheet plant at the complex, which will be aimed at producing body panels for cars and commercial vehicles. This comes on top of other initiatives, such as Petrochemical Conversions Company's plans to produce nylon 66, a product that could replace a number of metal components in automobiles, and SABIC (Saudi Basic Industries Corp.) and ExxonMobil's $2 billion elastomers jv at the Kemya complex, which will produce about 400,000 t/y of carbon black, rubber and speciality polymers. Carbon black is used by the automotive industry to add strength to plastic and rubber products used in car production.

Competing with established automotive manufacturers, such as China and India, might not be realistic, at least in the short- to medium-term. However, the Kingdom is keen to leverage its unique supply and product chain and already boasts truck assembly capability through the National Automobile Industry, which assembles Mercedes-Benz trucks. Investors are still likely to be cautious and will weigh up these advantages against the need to train up skilled production staff and develop a research and development base. The government's establishment of a higher institute for plastic fabrication in Riyadh; SABIC's 2011 investment in German automotive technology developer, Inpro; and Lotus's establishment of an automotive testing center in the Kingdom are all positive steps in this regard.