Saudi beats off competition to hold monopoly on petrochemicals
The Saudi petrochemical sector is booming.
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Saudi Arabia is the most prominent producer in the global petrochemical industry.
The Kingdom holds approximately one-fifth of the world’s proven oil reserves, which is considered to be the world’s largest reserve base.
Saudi Arabia is producing more than two-third of the total GCC petrochemical capacity, the Gulf Petrochemicals and Chemicals Association (GPCA) reported recently.
Strong infrastructure, substantial reserves of cheaply extractable feedstock and supportive government policies help domestic producers to enjoy competitive advantage globally.
Despite challenging market conditions, the Saudi petrochemicals sector is continuing to show strong growth.
At the end of 2012, the sector accounted for more than 31.4 percent of the total market capitalization on the Saudi Stock Exchange, reaching at the level of SR 440 billion roughly.
SABIC (Saudi Basic Industries Corp.) is the flagship company among 14 listed companies, representing 61.2 of the total value of petrochemical sector.
SABIC is also the biggest petrochemicals company in the GCC region, reflecting 19.2 percent of the total market capitalization on the Saudi stock exchange.
The total market capitalization of Tadawul (market) stands at SR 1.4 trillion at end of December 2012.
The Kingdom’s 14 petrochemical companies all generated around SR 310.5 billion as revenue during 2012, reflects an increase of 5.19 percent compared with revenue of FY2011. Out of which, SR189 billion was earned by SABIC, which equates nearly 61 percent of the aggregate value.
During 2012, Saudi Kayan commenced and expanded operational capacity of many commercial operations including olefins, ethylene glycol, polypropylene, high density polyethylene and Amines etc.
The company remained at top in terms of percentage growth. It’s revenue increased by 295 percent to record SR9.5 billion.
Alujain Corporation and Saudi Industrial Investment Group are other significant advancers, growing 43 percent and 27 percent respectively.
Core operating profitability of petrochemical sector declined significantly, mainly due to decrease in overall product prices.
Total operating income for FY 2012 reported SR 53 billion compared with SR 64.25 billion for FY 2011, a decrease of 17.52 percent.
Three out of 14 companies including , National Petrochemical (Petrochem), Sahara Petrochemical Company and Saudi Kayan showed operating losses during 2012.
On the positive side, Petrorabigh operating income increased exceptionally by 536 percent, it achieved SR 654 million during FY2012 compared with SR103 million of FY2011.
Alujain Corporation’s operating income also increased by 127 percent during 2012.
The petrochemical sector managed to earn an adequate margin of 10.9 percent, generating SR 33.85 billion as net Income during fiscal year 2012. SABIC dominated the profitability, contributing SR24.7 or 73 percent of the consolidated value.
Unfortunately, its bottom line decreased by 15.47 percent, which is attributed to the decrease in sales prices for certain products, despite higher sales and production volumes.
Furthermore, the heavyweight Saudi Arabian Fertilizers Co. (SAFCO) showed a maximum net profit margin of 77.6 percent.
Saudi-listed petrochemical companies’ total assets grew to SR 596 billion, recording a yearly growth of over two percent.
SABIC’s assets are amounting to SR 338 billion, a relative sector share of 57 percent.
National Industrialization Co. and Saudi Industrial Investment Group topped on percentage basis, both achieved nearly 14 percent higher value of total assets in 2012.
At Saudi Stock Market, the petrochemical sector has been showing a positive drive since the start of 2012.
The sector’s index added a healthy return nearly 16.5 percent at the end of the first quarter of 2012, crossing the 7,000 points mark.
Subsequently, it could not sustain upward momentum due to wide fluctuation in oil prices. The index finally closed lower by 6.04 percent, trimming back 6,000 points-mark to end at 5,856.41 point on December 31, 2012.
Saudi Arabia’s benchmark stock index (TASI) achieved a return of 5.98 percent during 2012, closing at 6,801.22 points.
Nama Chemicals Co. outdid the rest of the petrochemical issues, marching higher roughly 29 percent to SR 12.85 at the end of 2012.
Saudi Industrial Investment Group and heavyweight Saudi Arabian Fertilizers Co. (SAFCO) followed it, advancing 19 percent and 15 percent respectively.
— Mushtaq Ahmed is senior financial analyst at Zughaibi & Kabbani Financial Consultants.