Strategy Note /
Saudi Arabia

Saudi Petrochemicals Market – June 2022

  • PP prices declined 5.8% mom to reach US$1,126 in June 22

  • June 22, MEG prices further declined1.7% mom to reach US$624

  • In Q2 22, average HDPE prices were up 10.1% yoy (- 0.5%qoq) while PP declined -1.2% yoy

Iyad Khalid Ghulam
Iyad Khalid Ghulam

Head of Equity Research

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SNB Capital
5 July 2022
Published bySNB Capital

In June 2022, the prices of most petrochemical products declined for the second consecutive month due to a slowdown in demand. Average HDPE and PP prices declined 4.6 %mom and 5.8% mom respectively. Urea prices were down 3.0% mom to reach US$690. PP- Propane spread increased 8.9% mom to US$376.

  • PP prices declined 5.8% mom to reach US$1,126 in June 22 (lowest levels since Jun 21). In Asia, the weak prices were due to high cost and lockdowns in China. The high crude and propane prices exerted pressure on spreads and margins leading to production cuts and shutdowns. As per ICIS, additional PP capacity of 4.75mn MT per year is scheduled to come on stream in H2 22 in line with China’s PP self-sufficiency plans. We believe this additional PP capacity will significantly increase supply, exerting a downward pressure on prices in the absence of a demand recovery.

  • In June 22, MEG prices further declined1.7% mom to reach US$624 (3rd consecutive monthly decline and lowest levels since Jan 21).  Asia witnessed a slower than expected recovery in demand even after the lockdowns in China were eased from end of May 22 onwards. As per ICIS, MEG inventories at Chinese ports stood at high levels of1.2mn tonnes, despite low operating rates of plants due to lack of textile demand and are expected to stay elevated in the near term until supply cuts balances stocks. Additionally, we believe the global inflation has led to a decline in buying activity negatively affecting the MEG prices

  • In Q2 22, average HDPE prices were up 10.1% yoy (- 0.5%qoq) while PP declined -1.2%yoy (+0.6% qoq). Benzene, methanol, and urea prices were up 29.3% yoy(+14.9%qoq), 18.2% yoy ( -3.1%qoq) and 107% yoy (-5.5% qoq) respectively. Spreads contracted notably in Q2 22 with PP-propane and HDPE-propane down 54.1%yoy (-28.5% qoq) and 41.7%yoy (-29.5%qoq) respectively. We believe the lower spreads will contract Q2 22 gross margins.