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Saudi Arabia’s benchmark index made its largest one-day decline in four weeks yesterday as falling natural gas prices weighed on petrochemical stocks, while most other regional markets also ended lower.
The kingdom’s index fell 1.1% in its biggest drop since December 13.
The US benchmark gas price fell to $2.60, its lowest level since September 2009, with a US shale gas boom and the prospect of similar developments in China helping to bring it down sharply.
Saudi petrochemical producers are supplied with subsidised gas at fixed prices, whereas rival producers in other regions typically pay the market rate, so a fall in global gas prices reduces Saudi producers’ competitive advantage.
“Earnings are below expectations so far in banks and petrochemical companies and there are concerns about the future,” said Mohamed Omran, a Saudi-based independent financial analyst. “The drop in the gas price is continuing mainly because of shale gas. Major (international) producers will have a big advantage and they will reduce gaps with the petrochemical producers in the region - this is negative for the industry.”
Saudi Basic Industries Corp (Sabic) dipped 0.5%.
Yanbu National Petrochemical Company (Yansab) slipped 0.7% to 42.7 riyals after reporting a fourth-quarter net profit of 664.8mn riyals ($177.3mn), at an increase of 20% from the year earlier period.
Analysts polled by Reuters expected an average net profit of 751mn riyals.
“Lower petrochemical prices in the fourth quarter of 2011 impacted top to bottom profitability... we are encouraged by expected quarter-on-quarter margin improvement given pricing pressure,” Riyad Capital said in a research note, recommending a ‘buy’ rating with a target price of 52.50 riyals.
In the UAE, Dubai Financial Market, the only listed Gulf Arab bourse, plunged to an all-time low, falling 10%.
It dragged down the index, which closed 1% lower at a new seven-and-a-half year low.
“Volumes in Dubai are not going to pick up for the next 12 to 24 months and anything that has fundamental weakness could get pummeled,” said Amer Khan, fund manager at Shuaa Asset Management.
“Once Abu Dhabi starts falling and people punish companies that have fundamental weakness, it causes a spillover in Dubai.”
Abu Dhabi-listed Dana Gas dropped to an all-time low as investors cut positions on worries the energy firm will face problems repaying an upcoming bond.
Dana fell 8.1%, down for a fourth straight session.
It has fallen 39% in the past two months.
London-based investment firm Exotix has issued a sell recommendation on Dana Gas saying it had “little confidence” in the firm’s ability to repay a $920mn debt that matures in October. It has been facing payment delays from its operations in Kurdistan and Egypt.
“They don’t have enough cash or make enough money to pay the bond - most of it is being held back as cash receivables,” says Haissam Arabi, chief executive and fund manager at Gulfmena Investments. “They still have the ability to borrow new debt against the old debt. There’s just uncertainty on the funding gap and investors don’t like it.”
Abu Dhabi’s benchmark dropped 0.8% to its lowest close since March 2009.
Aldar Properties and Sorouh Real Estate fell 2.6 and 2.9% respectively.
Elsewhere, Oman’s benchmark slipped 0.2%; Egypt’s measure slipped 0.2% to 3,832 points; Kuwait’s measure eased 0.05% to 5,763 points and Bahrain’s measure climbed 0.7% to 1,142 points.