European economic crisis to affect Gulf companies

17-May-10

After a strong start to the year, Saudi petrochemicals companies led to a decline in Saudi Arabia’s Tadawul All Share Index. The heavyweight petrochemicals Tadawul All Share Petro Index has fallen 5% over the past two days as reported by Tamsin Carlisle. The sharp sell-off affecting some of the region’s biggest chemicals producers, including Sabic Basic Industries and its affiliate Saudi Kayan, reflected concerns that Europe’s debt crisis could cut global demand for oil and derivative products. Petrochemicals producers in the Gulf states could lose their competitive edge over rivals in Asia and elsewhere, because lower oil prices reduce the cost of naphtha as a feedstock on the international market. Saudi producers and others in the GCC, however, benefit when oil prices are high due to subsidised domestic naphtha supplies. The subsidies shrink as prices fall. That means the Gulf’s big chemicals producers could suffer badly from a global economic setback.