Challenges on the horizon for Yansab
Saudi Arabia's Yanbu National Petrochemical, also known as Yansab, could face two challenging quarters on lower oil prices amid concerns about a slowing US economy and the worsening European debt crisis, Al Rajhi Capital said yesterday.
The unit of Saudi Basic Industries, the world's biggest petrochemicals maker, is expected to suffer declines in product prices of 7 per cent in the third quarter and 3 per cent in the fourth quarter as Brent crude for September trades at US$107.83 a barrel, down from $116.81 earlier this month.
The average prices of Yansab's two main products, ethylene and polyethylene, declined by 16 per cent and 7 per cent respectively last month, compared with the average price in the second quarter. The price of ethylene is currently at $1,284 per tonne while polyethylene is at $1,358 per tonne.
Earlier this year, analysts expected Saudi petrochemical stocks to outperform global rivals with margins driven by cheap feedstock costs and improving demand, along with supply concerns because of unplanned shutdowns in Asia.
But that outlook has drastically changed over the course of a month.
This month has sent financial markets on a roller coaster, with fears rising that world economies could return to recession, a debt deal in the US insufficient to prevent a downgrading of the American government's top-tier credit rating and an escalation of debt problems in the euro zone.
The chances of a new global recession have risen, although the more likely outcome is a period of low economic growth.
"We may revise our price estimates further in the event of major negative macroeconomic developments in the US or Europe, affecting oil prices severely," the note from Al Rajhi Capital analysts said.
Yansab is forecast to report a 10 per cent decline in revenues to 2.4 billion riyals and a 15 per cent decline in profits to 819 million riyals in the third quarter, compared with the previous quarter.
Yansab has fallen by almost 10 per cent since the start of this month. Its shares closed at 46.4 riyals on the Saudi Tadawul yesterday.
Published: August 16, 2011 04:00 AM