With 10% global capacity by 2014, Saudi Arabia's petrochemical industry to outperform global rivals

24-Aug-10

The world's lowest input costs have placed Saudi petrochemicals suppliers in an enviable position and are helping them capture global market share. The shift currently taking place to heavier and more expensive feedstocks will result in slightly higher input costs but this should not greatly harm the competitiveness of the sector. These were the findings of a report by Al-Rajhi Capital in a comprehensive report on the Saudi Arabian petrochemicals sector. The report initiates coverage of the Saudi Arabian petrochemicals sector and includes five companies SABIC, Sipchem, Saudi Kayan, Yansab and Petro Rabigh. The report further notes that China is the primary force driving global petrochemicals demand, and that Asia including China is already the key market for the Saudi petrochemicals industry. The Middle East is investing heavily in new petrochemicals capacity, and Saudi Arabia alone should account for over 10% of global capacity by 2014. This wave of new investment should help the Saudi petrochemicals suppliers to strengthen their position in Asia further. The report also highlights the importance of the petrochemicals sector in the Saudi stock market. The sector accounts for five percent of Saudi GDP but for 34% of the value of the stock market, while SABIC alone represents 22% of the TASI. From a portfolio management perspective, this makes it hard to bet against the sector. Among the five companies analysed in detail, the report emphasises SABIC's wide business mix, its low-cost production and its strategy of high investment. It also highlights Sipchem's focus on methanol products and gearing to Asia, which in combination give it strong recovery potential. Al-Rajhi Capital rates both companies as "overweight".