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Second-half slide expected for Saudi petrochemical industry

By Eva Levesque
Saudi petrochemical Reuters/Bill Lyon
Challenges in the pipeline: the Saudi petrochemical industry looks likely to have a difficult second quarter
  • Higher shipping and logistics costs
  • Supply glut caused by China
  • Pressure to grow after margins peak

With higher shipping and logistic rates and stable prices of raw materials, Saudi petrochemical producers are likely to report lower earnings in the second half of the year, an expert has said.

The companies reported margin peaks in the second quarter of the year, but they are likely to face pressures on profit margins in the coming periods, according to EFG Hermes.

The industry faces challenges in 2024 at the national, regional and global level, Yousef Husseini, head of the petrochemicals department at EFG Hermes, told the Argaam news website.

Despite a global slump in the sector, GCC countries remained “relatively resilient in 2023,” the Gulf Petrochemicals & Chemicals Association said in a report earlier this year. 

Regional chemical production recorded a 2 percent increase year on year, but Saudi Arabia’s petrochemical producers made a combined profit of only $242 million in the second quarter of 2023, hit by weak demand, oversupply and high costs.

Saudi Arabia has pushed large-scale projects to raise its petrochemicals capacity to maximise the value of its crude resources.

Investments in Saudi Arabia’s petrochemicals sector are expected to reach $600 billion by 2030, the country’s investment minister, Khalid Al Falih said in January. 

Compared to the rest of the world, the kingdom and its neighbours traditionally have a competitive advantage, as they benefit from lower extraction costs per barrel of crude.

Sharp rise

However, in January Saudi Arabia sharply raised feedstock and fuel prices for domestic producers, which hit industry earnings. 

In May Saudi Basic Industries Corporation reported a 62 percent drop in net profit at SAR250 million ($66.65 million), from SAR660 million a year earlier.

Tepid global economic growth, especially in China, led to a lower demand for refined products this year, already hurt by inflation and rising energy prices.

China accounted for 40 to 50 percent of petrochemical growth in the past decade. The country completed more than 20 petrochemical projects last year, raising its global share in the industry to 25 percent.

Its increased production capacity has led to a supply glut, which has lowered both prices and demand for Saudi exports.

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