Petrochemicals deal a boost to NIC shares

National Industrialization jumped to its highest on record, after the Saudi company announced it had signed an agreement to build a plant to produce a chemical used in the manufacturing of cars, carpets and heating insulation.

Shares in National Industrialization Company rose to their highest closing since 2008 after the Saudi company completed a deal to build a petrochemical plant valued at 360 million riyals.

National Industrialization Company (NIC) closed 0.8 per cent higher at 38.5 riyals yesterday after signing an agreement with Saudi Advanced Industries to build a plant with the capacity to produce 120,000 tonnes a year of polyether polyols, used in making carpets, cars and heat insulation.

The plant, expected to start by the end of 2013, will be 70 per cent financed through bank loans and facilities, NIC said in a statement to the Saudi bourse yesterday.

"Its a development and good news for NIC," said Tariq al Alaiwat, an analyst at NCB Capital in Riyadh who has an "overweight" rating on the stock.

With oil prices staying over $100 a barrel and petrochemical prices rising on strong demand, NIC is facing a promising opportunity, Mr al Alaiwat said.

Since 2009, the company has had an attractive arrangement with Saudi Aramco to procure natural gas at 75 cents per 1 million British thermal units, but at the end of this year Aramco is expected to raise the price, NIC's guidance shows.

NIC has taken advantage of its low-cost feedstock by producing other petrochemical products such as propylene, ethylene and polypropylene.

Over the past 10 years, NIC has been getting out of its non-core businesses but still has a way to go.

"The car batteries, packaging and cardboard factory businesses should be divested," Mr al Alaiwat said.

In January, NIC reported a 73 per cent increase in profits for the fourth quarter of last year to 374m riyals, compared with the same period in 2009. NIC is yet to release its financial statements for the first quarter of this year.

Saudi Advanced Industries also gained yesterday on the news, adding 9.9 per cent to close at 16.55 riyals.