NATIONAL INDUSTRIAL CLUSTERS

DEVELOPMENT PROGRAM

[Rubber Conversion Downstream] Investment Opportunities

Saudi Arabia

C O N F I D E N T I A L I T Y N O T E: T h i s d o c u m e n t c o n t a i n s c o n f i d e n t i a l a n d p r i v i l e g e d m a t e r i a l f o r t h e s o l e u s e o f t h e i n t e n d e d r e c i p i e n t. A n y r e v i e w, u s e, d i s t r i b u t i o n o r d i s c l o s u r e b y o t h e r s is strict l y prohibited.

RUBBER DOWNSTREAM INVESTMENT

N A T I O N A L I N D U S T R I A L C L U S T E R S D E V E L O P M E N T P R O G R A M O B J E C T I V E: The National Industrial Clusters Development Program (NICDP) is a government agency specialized in developing new manufacturing industries in the Kingdome of Saudi Arabia(KSA). NICDP is focusing on the development of five industrial clusters that leverage Saudi Arabia’s natural resources and its easy access to regional consumer markets. These clusters are Automotive, Minerals & Metals, Plastics and Packaging, Solar Energy, and Pharmaceuticals Industries.

KSA NON TIRE RUBBER OPPORTUNITIES

A variety of synthetic rubber raw material is produced by (SABIC& Exxon Mobil Chemical JV). The cost of the local raw materials will be at a globally competitive level.

KSA offers highly competitive incentives and other benefits as listed below: 50% of total investment cost as low interest loans through Saudi Industrial Development Fund (SIDF) Training, Development & Salary support for local labor limited to certain caps through Human

Resources Development Fund (HRDF). Up to 75% of the trainee salary & 50% of the employee salary. Higher Institute of Elastomer Industries (HIEI) in conjunction with University of Akron (Ohio)

graduating highly qualified rubber/tires technicians. Yanbu Industrial College (YIC) accredited by ABET (USA) graduating maintenance technicians. No land purchase cost; Low cost lease and no project cost for the site preparation. Highly competitive utilities in terms of cost and reliability of supply. State of the art logistics infrastructure including railways, ports, highways and international

airports linking local and international destinations. KSA strategically located between Europe, Africa and Asia giving access to global market routes. Flexibility in business ownership structure. Free Trading with all GCC countries and other Arab MENA members in Great Arab Free Trade Agreement

(GAFTA) zone. World Class highly developed industrial and economic cities.

C O N F I D E N T I A L I T Y N O T E: T h i s d o c u m e n t c o n t a i n s c o n f i d e n t i a l a n d p r i v i l e g e d m a t e r i a l f o r t h e s o l e u s e o f t h e i n t e n d e d r e c i p i e n t. A n y r e v i e w, u s e, d i s t r i b u t i o n o r d i s c l o s u r e b y o t h e r s is strict l y prohibited.

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0

10

20

30

40

50

60

70

Import Local made

Vo

lum

e (

kTA

)

KSA Market - Rubber Parts

(excluding tire)

80% imported

1 billion SR (value)

Attract global converters with volume parts.

Grow rubber infrastructure to facilitate smaller volume and specialty parts.

About 50 kTA of industrial rubber goods (excluding tires) are imported into KSA.

Localizing 20% would create demand for 10 kTA for local rubber producers.

OPPORTUNITIES FOR HOSES

RUBBER DOWNSTREAM INVESTMENT

OPPORTUNITIES FOR COMPOUNDING

C O N F I D E N T I A L I T Y N O T E: T h i s d o c u m e n t c o n t a i n s c o n f i d e n t i a l a n d p r i v i l e g e d m a t e r i a l f o r t h e s o l e u s e o f t h e i n t e n d e d r e c i p i e n t. A n y r e v i e w, u s e, d i s t r i b u t i o n o r d i s c l o s u r e b y o t h e r s i s s t r i c t l y p r o h i b i t e d 3

The current GCC rubber hose market size is approximately $95M in annual sales.

Currently none of the major international rubber hose suppliers have manufacturing fasciitis in the region.

Parker, Eaton and Gates are the 3 biggest industry players in GCC Markets.

China is strong in commodity R1/R2 segment and has 30 % of GCC market.

According to NICDP’s preliminary analysis, demand for hydraulic hoses is the leader of the KSA market.

$35M in annual sale of around 2.9 M meters.

Forecast GCC market to be 7 million meters braided hoses in 2017.

Hoses are imported on 50m reels and local companies assemble hoses (cut to length and crimps the connector).

The raw material for making rubber parts is a complex mix of materials – “rubber compound”.

A compounding facility is an essential first step in developing a rubber conversion industry.

The Rubber compounds, once mixed, must be kept at controlled temperature (~25 ̊C)

Rubber industries tend to be clustered with the rubber compounder being located close to the users.

The compounder ensures the competitiveness of the downstream clients by bringing economy of scale plus the expertise to make hundreds of tailored recipes.

An initial investment of $13M with an initial capacity of 8kTA of compound rubber is needed for a plant to be viable.

Supports both international investments and also local SMEs.

•Earnings breakeven at 4-5 kTA throughput •2-3 lines (15kTA->25kTA) desired end point.

RUBBER DOWNSTREAM INVESTMENT

OPPORTUNITIES FOR CONVEYOR BELTS

OPPORTUNITIES FOR MOLDED PARTS

C O N F I D E N T I A L I T Y N O T E: T h i s d o c u m e n t c o n t a i n s c o n f i d e n t i a l a n d p r i v i l e g e d m a t e r i a l f o r t h e s o l e u s e o f t h e i n t e n d e d r e c i p i e n t. A n y r e v i e w, u s e, d i s t r i b u t i o n o r d i s c l o s u r e b y o t h e r s i s s t r i c t l y p r o h i b i t e d. 4

Fabric belt88%

Steel belt 12%

860 Km import to KSA

Industrial conveyor belts are usually > 1cm thick and range in length from tens of meters to several kilometers.

Steel wire reinforced belts are required for the longer and higher output conveyors.

Belts are usually replaced within 1 to 10 years depending upon their quality and end-use conditions.

Approximately 70% of the fabric belts are imported to KSA from China.

The 4 global major conveyor belts manufactures have ~20% market position in the fabric belts segment.

The more demanding steel belts see the 4 global majors take a ~70% market position ContiTech, Fenner-Dunlop, Veyance-Goodyear, Semperit.

Steel belt wholesales ($/sqm) at a price 4 times that of fabric belt, and being the value-added segment, is of most interest to the global manufacturers.

The 100km steel belt imports of 2013 was positively impacted by some new conveyor projects. Several other large installations are planned by Aramco and Ma’aden in 2014-2017.

O&G and Petrochemicals

30%

Water Industry20%

Automotive25%

Other Manufacturing &

Mining

10%

Rest15%

Mostly pure rubber which can be rubberized fabric or metal.

Mostly small weighing few grams which can be up warded to kilograms.

There is sufficient demand to have 2-3 quality molders for the molded parts to locally manufacture Gaskets, Seals, and O-Rings (SGOs).

An initial investment of US$9M with 5-10 machines for S/G, 2 for OR, 3000 sqm and 30 people plus outsourced mold making the plant will be viable.

RUBBER DOWNSTREAM INVESTMENT SAUDI ARABIA LANDSCAPE

KEY DEMOGRAPHICS & GLOBAL RANKINGS

Population: 30 million (www.cdsi.gov.sa) with 67% under the age of 30.

Nominal GDP $653 Billion in 2015

GDP per capita $20,800 in 2015

The largest economy in the Middle East region (IMF, 2015)

20th largest economy in the world (World Bank, 2015)

3rd globally in paying taxes (www.doingbusiness.org)

Stable currency (forex peg against USD)

100% foreign investment permitted

6 Major Industrial Hubs

32 Industrial Cities

More than 500 Million sq.m. of developed industrial lands

Highly developed and reliable Infrastructure

Additional $100 Billion being invested on Infrastructure

MODERN & EQUIPPED TRAINING CENTERS

The High Institute of Elastomer Industries (HIEI), in Yanbu operated by University of Akron Ohio in operation since September 2012. 70 Technicians graduate in 2015 with expertise in Rubber and Tires manufacturing.

Yanbu Industrial College(YIC), accredited by ABET, is also graduating highly qualified maintenance technicians trained in the field of Electrical, Electronic and Mechanical Industrial Management Technology. HIEI & YIC have English curriculum.

35 Local universities are yielding 170,000 Graduates every year. Another 150,000 Saudi Students are enrolled in top international universities abroad (US, UK, Australia, Japan, others).

ATTRACTIVE WAGE SUPPORT PROGRAM

Human Resource Development Fund (HRDF) provides financial support for Saudi employees by two mechanisms:

75% of their salaries during the training period 50% of their salaries during the first 2 years of

employment

C O N F I D E N T I A L I T Y N O T E: T h i s d o c u m e n t c o n t a i n s c o n f i d e n t i a l a n d p r i v i l e g e d m a t e r i a l f o r t h e s o l e u s e o f t h e i n t e n d e d r e c i p i e n t. A n y r e v i e w, u s e, d i s t r i b u t i o n o r d i s c l o s u r e b y o t h e r s i s s t r i c t l y p r o h i b i t e d.

5

Item Unit Rate

Electricity US$/KWh 0.048

Sales Gas (Methane)

)

US$/MBTU 1.25

Industrial Diesel

US$/barrel 14

Process water US$/m3 2.4

RUBBER DOWNSTREAM INVESTMENT SAUDI ARABIA LANDSCAPE

ATTRACTIVE LAND AND UTILITIES

Lease rates for developed industrial land @ US$ 0.26 –1.2 per square meter.

RUBBER RAW MATERIALS AVAILABILITY

Key basic commodities such as SBR, Carbon

Black, Butyl Rubber will be made available in

Saudi Arabia by the end of 2015 by SABIC and

Exxon rubber facility in Jubail

Product Technology Capacity

SBR / PBR Goodyear 100 KTA

Butyl Rubber ExxonMobil 110 KTA

EPDM/POE ExxonMobil 100 KTA

Carbon Black Continental Carbon 50 KTA

TAX & BUSINESS OWNERSHIP ADVANTAGES

The tax environment in Saudi Arabia is very favorable: according to the World Bank, Saudi Arabia was

globally ranked 3r d in view of paying tax out of 183 economies in 2015.

Based on the tax scheme, there are no personal income taxes and only 20% corporate tax with ability

to carry forward losses on balance sheets indefinitely.

Flexibility to own 100% or Joint Venture partnerships.

C O N F I D E N T I A L I T Y N O T E: T h i s d o c u m e n t c o n t a i n s c o n f i d e n t i a l a n d p r i v i l e g e d m a t e r i a l f o r t h e s o l e u s e o f t h e i n t e n d e d r e c i p i e n t. A n y r e v i e w, u s e, d i s t r i b u t i o n o r d i s c l o s u r e b y o t h e r s i s s t r i c t l y p r o h i b i t e d.

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RUBBER DOWNSTREAM INVESTMENT

Major FDI in KSA

New FDI in excess of $7.6 Billion in 2015 Several Major International Corporations are operation in KSA

Source: FDI Market.com

C O N F I D E N T I A L I T Y N O T E: T h i s d o c u m e n t c o n t a i n s c o n f i d e n t i a l a n d p r i v i l e g e d m a t e r i a l f o r t h e s o l e u s e o f t h e i n t e n d e d r e c i p i e n t. A n y r e v i e w, u s e, d i s t r i b u t i o n o r d i s c l o s u r e b y o t h e r s i s s t r i c t l y p r o h i b i t e d.

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RUBBER DOWNSTREAM INVESTMENT

To learn more about the Saudi Arabia’s advantages in Rubber manufacturing please contact us at:

NATIONAL INDUSTRIAL CLUSTERS DEVELOPMENT PRO GRAM

Mr. Tariq Bakhsh

PO BOX 65295

Riyadh, 11556

Kingdom of Saudi Arabia

Tel. +966 1 2188950

Tariq.bakhsh@ic.gov.sa

www.ic.gov.sa

C O N F I D E N T I A L I T Y N O T E:

T h i s d o c u m e n t c o n t a i n s c o n f i d e n t i a l a n d p r i v i l e g e d m a t e r i a l f o r t h e s o l e u s e o f t h e i n t e n d e d r e c i p i e n t.

A n y r e v i e w, u s e, d i s t r i b u t i o n o r d i s c l o s u r e b y o t h e r s i s s t r i c t l y p r o h i b i t e d. 8