With durable, relatively inexpensive synthetic fibers gaining floor space in the domestic and foreign markets, Oriental Weavers and a set of chemically inclined partners launched a venture to produce petrochemicals in Egypt to feed into its carpet-weaving operations. Fifteen months after the opening of Egypt’s first polypropylene-manufacturing plant, the Oriental Petrochemicals Company (OPC) commands 75 percent of the domestic market for the chemical—used in manufacturing carpets, packaging films, woven bags and garden furniture. The plant, set up in June 2001, is located in the northwest Gulf of Suez, with easy access to brand-new port facilities.

 

Oriental Weavers is the venture’s largest shareholder, with a 22-percent stake, and also one of the plant’s main customers, purchasing 30-percent of its polypropylene production. Oriental Weavers investor relations director Farida Khamis said that producing polypropylene in Egypt improved Oriental Group’s overall production efficiency and lowered its foreign-exchange operating costs. 

 

Before setting up OPC, the group imported all its polypropylene, mainly from Saudi Arabia.

OPC has faced stiff competition from ExxonMobil, which, in partnership with Saudi Arabia’s state-owned Saudi Basic Industries Corporation (SABIC) and India’s Reliance, used to dominate the Egyptian polypropylene market. OPC chief executive officer Hesham Raafat said the Saudi producer enjoyed an unfair advantage over OPC, because of a trade agreement signed before the opening of OPC that reduced customs duties on imported polypropylene from Saudi Arabia to 7.5 percent, while tariffs on Egyptian polypropylene exports still stand at 12 percent.

 

Saudi Arabia also subsidizes its manufacturers through tax incentives and allows them to borrow up to 50 percent of their investment costs as long-term, interest-free soft loans, Raafat said. “We’ve seen some unfair competition, and we’ve seen dumping,” he continued, adding that OPC moved quickly to file a complaint with the Ministry of Foreign Trade’s Antidumping Advisory Committee, whose investigation is ongoing.

 

Nonetheless, OPC has been able to rapidly stitch up the fledgling Egyptian polypropylene market through the advantage of dealing in local currency. According to Raafat, the arrival of a local producer on the scene created severe turbulence for the established importers. “We came, and the security and the stability they had in the market evaporated,” he said. 

 

Hamdy Abdel Aziz, information manager at Egyptian General Petroleum Corporation (EGPC), said the Egyptian government planned to invest heavily in the petrochemical industry, adding that Egypt’s 55 trillion cubic feet of natural gas reserves should be able to reel in $7 billion per year. “We have put together a master plan to develop a petrochemical industry, with investments to reach roughly $10 billion over the next 20 years. This includes 25 new manufacturing plants,” Abdel Aziz said.

 

The industry, whose growth is overseen by the state-owned Holding Company for Petrochemicals, is expected to generate 100,000 jobs over the next 20 years. Raafat referred to current domestic demand for 220,000 tons of polypropylene per year, with an annual growth rate of 8 to 10 percent. “By mid-2004,” he said, “demand should be around 320,000 or 340,000 tons.”
 

OPC now produces 160,000 tons per year, and Raafat said it would invest $75 million to double its production capacity by mid-2004.

 

Prior to opening the Gulf of Suez polypropylene plant, Oriental Group established local facilities for spinning and dyeing yarn and for the production of synthetic fabrics like nylon and polyester. Next, OPC plans to construct a $230 million propane dehydrogenation plant to produce 350,000 tons a year of propylene—the raw material for polypropylene that OPC currently imports. The propane feedstock for this plant would come from a natural-gas liquefaction facility in the Port Said area, scheduled to open in the summer of 2003.

 

While OPC focuses on the domestic market, 10 percent of its polypropylene production is exported to Middle Eastern, European and African countries. Raafat said the company hopes to increase its exports to 25 percent, with a primary focus on the European Union, where OPC enjoys an exemption from customs duties, and Turkey, where local demand for the chemical is particularly high.