Costs blow for Saudi firms after Aramco price rises

Reuters/Hamad I Mohammed

• Diesel prices up 53%
• Costs to rise over 3%
• Knock-on effect on earnings

Production costs for companies in Saudi Arabia could increase by more than 3 percent after price rises announced by Saudi Aramco.

Businesses have been given notice of the price increase for Aramco’s feedstock and fuel products, which came into effect from the start of this month.

Aramco increased retail diesel prices for 2024 by 53 percent to SAR1.15 ($0.3067) a litre, its third increase since 2016, reported Reuters.

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A raft of listed entities revealed the price rises in postings on the Saudi Stock Exchange (Tadawul).

Sahara International Petrochemical Company said the impact would result in a 3.18 percent increase in the total cost of sales, while Middle East Paper Company estimated sales costs would rise 3 percent.

Companies said the price increase will be reflected in the first quarterly results of 2024, with most intimating a subsequent knock-on effect on earnings.

A statement from Yanbu Cement Company said it would “seek during the upcoming period to find ways to reduce the financial impact of this change on the company’s profits”.

Saudi Aramco declined to comment.

"It will reduce earnings for energy-intensive businesses such as cement and mining, by a few percent I would expect. It's not surprising given general inflation, the aim to promote energy efficiency and renewables, and relatively low oil prices encouraging a move to reduce energy subsidies," said Robin Mills, CEO of the Qamar Energy consultancy.

Mills pointed out that the price levels are still only about a third of those in the US and well below those of most other countries.

"I would expect the intention is eventually for prices to reach world market levels minus a discount, perhaps about 20 percent for propane and butane," he added.

Costs rising

Aramco, the world’s largest oil exporter, said third-quarter profit dropped by 23 percent year-on-year, after falls in both prices and volumes sold. The drop in volumes reflected Opec output cuts that the kingdom has championed.

Any increase in prices passed to the consumer would come at a time when costs in the country are already rising.

A surge in demand towards the end of the year, led by the manufacturing sector, saw non-oil companies in Saudi Arabia increase prices for the second month in a row in December, the Riyad Bank Saudi Arabia Purchasing Managers’ Index (PMI) revealed.