19/03/2012

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SAUDI ARABIA: Kingdom's petrochemical earnings to grow despite weakness in demand

"In our opinion, a strong rebound in demand in the near term is unlikely given the ongoing debt concerns in Europe and the slowdown in China's GDP growth," said Tariq Al-Alaiwat, equity research analyst at NCB Capital commenting on the report. "As a result, we believe the pricing of petrochemical products may come under pressure in the short run. Nevertheless, we believe petrochemical producers in the Kingdom remain relatively well placed to overcome these challenges by capitalizing on their low cost of production and their exposure to the Asian markets where growth in demand remains stronger than in the western world." Despite the lower prices YoY (year over year) expected in 2012, NCB Capital forecasts the net income for stocks under its coverage to increase 9.1 percent YoY to SR43.4 billion in 2012. This is mainly due to an expansion in the production base with the commencement of Saudi Kayan in October and Sahara's Al-Waha plant in April, both in 2011. Though lower prices are likely to limit earnings growth, low production cost and proximity to Asian markets will also support earnings in 2012. The Saudi petrochemical sector's net income increased 38.5 percent YoY to SR40.9 billion in 2011, driven by higher prices of petrochemicals and fertilizers along with increased production volumes. SABIC, which recorded a 35.8 percent YoY net income growth, accounted for 71.4 percent of the sector's net income during the year. The start up of Sahara's Al-Waha facility and the full year contribution from Yansab and Sipchem's Phase II helped volume growth in 2011 when compared to the previous year. However, reduced earnings from PetroRabigh along with a loss reported by Saudi Kayan, Petrochem, Alujain and Nama Chemicals held back growth in 2011.(Syed Rashid Ali, Karachi, Pakistan)
Source: Daily "Arab News", Riyadh; 19 Mar 2012

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