How has Gulf Petrochem grown into a global conglomerate and how has being located in Sharjah contributed to the growth of the company?
Gulf Petrochem was started in 1998 in the Hamriyah Free Zone, whereby we had a refining unit that processed waste oil into meaningful products, which we subsequently sold locally or exported to Africa. The authorities have supported Gulf Petrochem from its inception, receiving us with open arms and offering an environment that was characterized by low costs of land and the exemption of taxes. I am extremely thankful for the support that the Hamriyah Free Zone Authority and Sharjah Leadership has given us. These things have really supported the business to achieve the growth and success we enjoy to date.
How does the price of crude oil affect your operations, and how would you describe your medium-term outlook for oil prices?
History has shown us that whenever oil prices go down, the demand for oil in the retail market goes up, which benefits us in a way because it generates more trade volumes for us. The return on capital employed (ROCE) is also better on lower prices. Also, the costs of cargo financing goes down, which really helps us to increase our margins. Lastly, because of the low prices, the futures price of oil are higher than the expected spot price. This situation, which is called contango, is what we have witnessed of late, and it has driven people to store oil, which in turn helps us make money. It's difficult to talk about a long-term price, but in the mid term I see strong support and resistance operating within a trading range of $61 and $68, respectively, for the rest of the year. Producers want to produce more and there is no indication of cutting down.
Are you looking to engage in partnerships or joint ventures to strengthen these growth plans?
In East Africa, we are looking at entering into partnerships with local oil companies to see how we can fund their expansions and be party to what they are doing. It's a standard approach to enter new markets with people we can trust locally. These are not markets like the UK, EU, or the US that have processes and systems and legal frameworks in place. These are the emerging markets with some level of risk involved, but coupled with huge opportunities. The opportunity we foresee is as a result of a lot of large oil companies moving out of Africa. The conventional players like BP or Shell are exiting the market because they are finding more money to be made in the upstream sector of our industry. The local players sometimes don't have sufficient funds or the expertise to make the margins required to survive. For them, margins of 12-15% are too low, but for a company like ours, we can happily work with these sorts of numbers. We have the capital they are looking for, so that gives us the opportunity to go and explore.
What are your company's expectations for 2016?
The UAE will not be affected by oil price fluctuations that a lot of people are worried about. The UAE will remain stable both politically and economically, so we are not worried about that. Banks are flushed with liquidity, and whenever something potentially damaging occurs in the region, the UAE is flushed with funds, which is actually putting pressure on interest rates because everybody wants to lend and there are limited good borrowers. We have been fortunate to cut down on our interest rates and that's helping the business to grow. Demand is good and looks to remain that way, so the outlook for the company looks strong and healthy for the year ahead.