SAUDI ARABIA. Peter Huntsman, President and CEO of the Texas-based Huntsman Corporation, was in London this week to conclude the deal for SABIC (Saudi Basic Industries Corp) to Huntsman Petrochemicals (UK), a subsidiary of Huntsman Corp, in a deal valued at US$700 million

"People have underestimated the strength of SABIC n the past. They do so in the future at their own risk. SABIC is one of the finest companies in the world and [SABIC CEO] Mohammed Al-Mady has really built a fine petrochemical company," stressed Huntsman,

Huntsman was with Al-Mady to confirm the announcement that SABIC was acquiring petrochemical assets that include an 865ktpa ethylene/400ktpa propylene cracker and a complex of 1.3 million tpa aromatics facilities including logistical facilities at Wilton and North Tees in the UK, which effectively comprises the company's European base chemicals and polymers business.

Why then did Huntsman prefer to sell to SABIC? "We took the economics of the deal and we were also concerned about the disposition of our people. We would not want to sell to a company that was not committed to growth and continuing the business. We wanted to sell to a company that is very committed to utilise the assets well and that has a strong reputation in the base chemicals sector. SABIC is certainly one of the major companies in the world in this field. This is a good deal for us, a good deal for SABIC, and a good deal for our associates," he explained.

Huntsman denied that this was "a distress sale". Some of the largest base chemicals producers in North America and Europe approached the company to buy its UK assets as soon as it announced six-months ago that it intended to sell its base chemicals business in the UK and to spin it off into a new company. But Huntsman refused to reveal their names because of a confidentiality agreement.

Originally the idea was to spin off the assets into a new company, but after discussions with the company's board and shareholders, it was decided to sell the company's UK base chemical assets outright.

The base chemicals market, says Huntsman, has changed significantly over the last decade or so. "If we look at the global market some ten years ago, the US was the most competitive place in the world to produce base chemicals," contends Huntsman.

"Europe was fairly competitive and Saudi Arabia had fairly competitive raw materials but lacked the infrastructure for massive growth. However, today the tables have changed. North America is the least competitive and Europe is fairly strong. SABIC has completely changed the competitive landscape globally for base chemicals. Frankly, I don't know how European or North American producers without a Saudi connection could compete five to ten years from now."

Huntsman Petrochemicals (UK) will be concentrating on its core business of pigments and polyurethanes. "We think we can produce a very strong company where our raw materials will be SABIC's finished products. If you look at our operations today our raw materials account for a small percentage of the cost," said Huntsman.

"The main costs are in technology, transportation and customer services. SABIC has gone further than just taking advantage of raw materials. It has also the most competitive petrochemical sites in the world, together with excellent management, engineering and financial skills," he added.

Until a year ago, Huntsman Corporation was a family-run business. It went public after listing on the New York Stock Exchange. Its UK base chemicals business generates revenues of US$5 billion, a substantial operation whose core markets are North America and Europe.

Following the security concerns of the US Congress over Dubai Ports running six US ports in the P&O takeover, Hunstman was asked if there were any objections to a Saudi company buying the assets of a US company especially in such strategic commodities as base chemicals including fertilisers. Chemical weapons, of course, can be prepared at any industrial chemical factories producing pesticides, fertilisers or other chemicals. The basic chemistry involved in preparing poisonous substances, which can be used as chemical weapons, is widely known and relatively small-scale facilities can be set up for production.

"I speak with a little bit of caution, because my brother is a Governor of a state in the US and our family has been politically involved for over two generations," explained Huntsman. "I think this [US] administration has done a poor job in building relationships; maybe we have good military relationships I don't believe so. We don't have good economic relationships between the US and the Middle East. That is just a simple fact."

Huntsman stressed that the best way to promote better relations between Saudi Arabia and the US is not through military cooperation but through economic and business cooperation.

Saudi Arabia's economy needs to and is maturing, and companies such as Saudi Aramco and SABIC are playing very important roles in this respect. The Kingdom has matured from just an oil exporter to a major refiner and to a world leader in downstream products. Huntsman said that from his perspective he is keen to see more investment flows between the two countries because "the stronger the ties we have between our peoples, the better the understanding between our countries."

However he said that it would not make good business sense for SABIC to acquire base chemical assets in the US itself because of the long-term viability of such investments and because in North America they have the highest price volatility and raw material prices in the world. SABIC is a very competitive company so it makes more sense for it to export to North America and to Europe from its European operations.

"We don't price our natural gas and part commodities on supply and demand," explained Huntsman. "We let hedge funds and traders dictate that, which is completely wrong. That is why our prices are the most volatile and highest in the world. We were seeing our [petroleum raw material] prices moving 7%, 8% or 9% per day. You can't make money on that basis."

But the outlook for base chemicals, said Huntsman, is excellent because of massive demand, growth and capacity. "The winners at the end of the day are those companies who have economies of scale and those who raw material advantage and engineering and management expertise. SABIC is one of those few companies that have all three: raw materials, management and engineering. It is well positioned to dominate this market for many years to come."  

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