GCC petchem industry set to see ‘limited profit growth’

By Santhosh V PerumalBusiness Reporter

During the first half of this year, the regional petrochemical sector’s sales and net profitability registered year-on-year growth of 31.8% and 52.1%

The GCC (Gulf Cooperation Council) petrochemical industry is expected to witness “limited” growth in profitability and revenue in the third quarter (Q3) of this year with oil prices expected to remain in the range of $98-$102 per barrel, according to Global Investment House.“We expect the (petrochemical) sector’s sales and net profitability to show limited quarter-on-quarter (Q-o-Q) growth of 0.2% and 1.1% in Q3 respectively,” Global said in a report.The limited Q-o-Q growth in the sector, despite of the expected decline in the prices of crude, is also associated with the expected commencement of Qafco-5 plant of Qatar Fertiliser Company, a subsidiary of Industries Qatar (IQ).“Furthermore, we are expecting the sector will be able to show gross, operating and net profitability margins at 37.9%, 30.8% and 22.2%, respectively, in Q3,” the report said.About IQ, the report said the production capacity is expected to increase at a compounded annual growth rate of 11.1% during 2010-14, which is mainly based on the timely completion of Qafco-5 in Q3, 2011; Qafco-6 in Q1, 2013 and Qatar Petrochemical-LDPE III by Q3, 2012.In the second quarter of this year, the regional sales revenue (based on the GCC petrochemical coverage) registered a Q-o-Q growth of 9.8%, whereas the bottom line witnessed a Q-o-Q gain of 6.4% and recorded at $3.3bn.“We believe that the growth in the regional sector in Q2 was mainly associated with the Q-o-Q increase in the average prices of related products (as per our estimations for Q2),” it said.However, during the first half of this year, the regional petrochemical sector’s sales and net profitability registered year-on-year growth of 31.8% and 52.1%, respectively, mainly associated with notable increase in the average prices of related products and production growth. The growth in production was mainly based on the improvement in capacity utilisation and start of production from new expansions, according to Global.During the second quarter (Q2), international oil market and regional petrochemical sector mainly remained under the influence of ongoing turbulence in Libya, Yemen and Syria, which raised the average prices of benchmark oil to higher levels as well as economic growth fears in the European economies, which led minimal a Q-o-Q volumetric growth in regional petrochemical production.The average prices of Opec, WTI and UK Brent indicated Q-o-Q growth of 6.5%, 9.1% and 13.5% respectively in Q2, 2011. On the other hand, the average prices of ethylene, propylene, ammonia, urea and DAP registered Q-o-Q increase of 3.5%, 6.8%, 11%, 8.3% and 6.8% respectively in Q2, according to the report.However, Global believes the signing of the US debt-ceiling negotiation to avert Washington from default is posing additional challenges - which include the potential cut in government spending and the US rating cut to ‘AA+’ from ‘AAA’ by Standard & Poor’s - for the oil market in Q3, 2011.Expecting that the ongoing European crisis will further weaken the euro from the current levels in Q3, the report said “hence, we believe the combined impact of these expected events will lead the prices of benchmark oil to retreat from current levels; where the average prices of Opec crude oil is expected to remain in a range of $98-$102 a barrel in Q3.”In addition, Global said it was not expecting any “significant” impact of ongoing regional political unrest on crude oil prices in international market in Q3.Saudi Kayan signs $130mn deal with SinopecSaudi Kayan Petrochemical Co has said it has signed a 488mn Saudi riyal ($130.1mn) contract with China’s Sinopec Engineering to build a natural alcohol detergent plant. Sinopec will supply detailed engineering, equipment and carry out the construction work for the plant which is expected to start operations in the second half of 2013, Kayan said in a statement posted on the Saudi bourse website. Saudi Kayan, an affiliate of Saudi Basic Industries Co, better known as Sabic, is expected to start commercial operations of most of its plants on October 1.