Equity Analysis /
Saudi Arabia

Petrochemical Tracker: Weak prices due to trade war escalation

    Iyad Khalid Ghulam
    Iyad Khalid Ghulam

    Vice President, Senior Equity Research Analyst

    SNB Capital
    16 September 2019
    Published by

    The TASI Materials Index declined -6.7% mom in August, outperforming TASI by -1.5%. Prices of petrochemical products declined 1%-9% mom due to the escalation of the US-China trade war. The PP-propane spread declined -2.1% mom, while the PP-naphtha spread increased 5.1% mom.

    In September, various Saudi Petrochemical companies have announced a curtailment of feedstock supplies, ranging between 30%-50%. Companies are currently working on evaluating the effects to determine the financial impact. SAFCO, Alujain, Chemanol, NAMA and PetroRabigh have not made any announcement yet while SIIG’ JVs feedstock have not been curtailed.

    In August, the trade war escalated again, with the US imposing 10% tariffs on the remaining Chinese exports. The US increased it further by 5%-25% after China’s retaliated by imposing 5%-10% tariffs on US goods. The US side, the response included most of the chemicals imported while China added new products and also increased tariffs on existing products. Both countries delayed the implementation of the tariff to accelerate trade talks. 

    PP and HDPE prices declined 3.8% mom and 9.4% mom, respectively. Benzene remained flat mom while Urea declined 8.6% mom. So far in Q3, the average PP-propane spread has declined 2.3% yoy (+10.8% qoq) to US$660, while PP-naphtha spread is down -2.4% yoy (flat qoq) to US$559.