Chemical producers in Saudi Arabia should be able to withstand higher feedstock prices if a hike materializes in the fourth quarter of 2023, according to S&P Global Ratings.

 

The S&P statement comes following media reports suggesting that the Saudi Ministry of Industry and Mineral Resources could raise feedstock pricescountry could raise feedstock prices for the industrial sector by year end.

 

Feedstocks such as ethane and propane form the bulk of Saudi chemical producers' operating expenses, making them sensitive to price hikes despite their advantageous position over global peers. 

 

"After measuring the impact of a hypothetical deterioration in ebitda, we believe that publicly listed chemical companies in Saudi Arabia could absorb higher feedstock prices," remarked S&P Global Ratings credit analyst Rawan Oueidat. 

 

"We would expect their ebitda margins to remain above 17% and adjusted debt to ebitda below 1.5x on average, albeit with a greater effect for those with more exposure to fertilizers," she stated.

 

"All else being equal, we estimate that these companies, including Saudi Basic Industries Corp. (A/Stable/A-1), could withstand up to a 25% decrease in ebitda due to higher feedstock costs, among other causes, in 2024," remarked Oueidat.

 

According to S&P, the Saudi chemical producers are in a more favorable position than their global peers because domestic feedstock prices are significantly lower than global benchmarks, and will likely remain so, even in the event of a price hike in the next few months. 

 

Saudi ethane and methane cost less than $2 per metric million British thermal unit (/mmbtu), compared with average Title Transfer Facility prices of $42/mmbtu in 2022 and $7.8/mmbtu in late May 2023, stated the ratings agency.

 

"Historically, these competitive prices have helped listed Saudi chemical producers' ebitda margins remain above 17%, our threshold for above-average profitability, even in periods of volatile prices and macroeconomic uncertainty," remarked Oueidat. 

 

"The gap between feedstock prices for Saudi and global players widened following the Russia/Ukraine conflict because of the uncertainty over gas supply to Europe and the volatility in commodity prices, but we expect it to narrow over the next few years," she added.-TradeArabia News Service