Aggregate earnings of Saudi Arabia’s listed petrochemicals companies are expected to “normalise” this year after a record 2021 amid changing market dynamics, a new report has found.
Cumulative net income of petrochemical sector companies climbed to more than 39.1 billion riyals ($10.4bn) last year, a surge of more than 20 times from 1.9bn riyals recorded for 2020, SNB Capital, the investment banking arm of the kingdom’s biggest lender, said in a research note on Tuesday.
Higher product prices and strong market dynamics drove the record profits, as the global economy continued to recover from the Covid-19 pandemic. However, higher feedstock prices are having a “broad-based impact on the sector" this year.
“The year 2021 was an extraordinary year for the sector,” SNB Capital said in the report. “In 2022 [financial year], we expect the sector’s earnings to remain broadly flat year-on-year.”
The overall effect of higher feedstock prices will be offset by robust earnings of companies including Saudi Basic Industries Corporation, the biggest petrochemical producer in the Middle East, and Sipchem, due to their favourable product mix.
Sabic reported a 33 per cent jump in first-quarter profit this year after revenue climbed on higher average prices and improved sale volumes.
Net profit after zakat and tax for the three months to the end of March climbed to 6.47bn riyals, Sabic said in a statement in May to the Tadawul stock exchange, where its shares are traded.
Revenue for the reporting period jumped 40 per cent to 53bn riyals.
“Sabic’s first-quarter results demonstrated strong performance, driven by continued healthy demand for our products, higher oil prices and our diverse global portfolio,” vice chairman and chief executive Yousef Al-Benyan said at the time.
SNB Capital said the Saudi Arabian petrochemical sector was going through an “interesting period, as it is simultaneously facing major headwinds and attractive opportunities”.
Slowing global economic growth, supply-chain disruption, new capacity and high feedstock prices were the main challenges faced by petrochemical producers. The easing of Covid-19 lockdowns in China, on the other hand, has improved sentiments and will support outlook.
“We prefer companies with favourable product mix, feedstock advantage, low debt levels and attractive dividend yield,” the report said.