Equity Analysis /
Saudi Arabia

Petrochemical tracker Jan 2020: Better prices but weak spreads

    Iyad Khalid Ghulam
    Iyad Khalid Ghulam

    Head of Equity Research

    SNB Capital
    10 February 2020
    Published bySNB Capital

    In January 2020, the TASI Materials Index declined -2.3% mom, underperforming the TASI by 0.6% mom. We believe this is due to the outbreak of coronavirus which impacted global markets. The price trend turned positive in January, supported by the trade agreement between China and the US. However, the PP-propane spread declined -23.3% mom to US$374, the lowest level since 2012.

    • In January 2020, the US and China signed the first phase of their trade deal. As a result, China will reduce tariffs on US$75bn of US goods from 14 February while the US is expected to roll back some tariffs on USD120bn of Chinese goods. The deal sends a positive signal to petrochemical producers, although none of the petrochemical products were exempted. Unfortunately, the positive momentum stopped with the outbreak of coronavirus in China. The ability to control the outbreak is crucial for the global GDP and petrochemical prices, in our view. 
    • SABIC reported its weakest results in more than 10 years with a net loss of SAR720mn.This is due to 1) weak prices and margins and 2) a one-off charge of SAR1.3bn related to Ibn Rushd facility. 
    • In January 2020, the PP-propane spread declined -23.3% mom to US$374, reaching its lowest level since 2012. PP-naphtha spread increased +6.7% mom to US$379 but remains close to its lowest levels since 2012.