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Saudi petchem sector on steady recovery: report

RIYADH, 26 days ago

Polymer prices in Saudi Arabia have been recovering steadily after dropping significantly in the second quarter (Q2) of the year due to the pandemic, a report said, adding that when prices recover, Saudi petchems would benefit more than global petchems.

Some key polymer products such as LDPE have improved even more than the price levels seen in the second half (H2) of 2019 while a few are trading slightly lower but are on the recovery path, added the report by Al Rajhi Capital, a leading financial services provider in the kingdom.

“As for earnings in 2020, we have seen quite a few impairments in H1 and hence we expect a much-improved earnings performance year-on-year (y-o-y) in 2021 on continued recovery in prices,” the report said.

“While the supply-demand dynamics have not materially improved, we factor a gradual improvement on the assumption of Covid vaccination in the market from Q1/Q2 next year. Our 2021 forecasts for PE-naphtha spreads and PP-propane spreads remain much below long-term historical averages.

“Petchem prices generally increase at a relatively lesser pace compared to oil and feedstock prices, given the more relative defensive nature of polymer products, implying a gradual rise in prices in the coming periods.

“Also, with the petchem sector now coming under the Ministry of Industry and Energy, we believe there are lower risks for an increase in feedstock prices. When prices recover, Saudi petchems would benefit more than global petchems because of the operating leverage/ ethane fixed costs,” Al Rajhi Capital said in the report. – TradeArabia News Service




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