Even as the average monthly oil price across the globe declined in April and May, the average prices of commodities produced in bulk by petrochemicals producers in the GCC have risen by an average of one per cent in the past two months, a senior petrochemicals analyst said.

This, said Hassan I Ahmed, Head of Research at Alembic Global Advisors, a New York-based advisory firm, has led to the region's petrochemicals companies maintaining a healthy cash flow.

"Despite declines in crude oil prices, commodity prices in the region have held up quite well. Average April/May pricing for a basket of the main commodities produced by Middle Eastern chemical producers is actually up on average by two per cent relative to the first quarter of 2010 levels," Ahmed said.

These remarks come close on the heels of UAE petrochemicals firm Borouge awarding three engineering procurement and construction (EPC) contracts totalling $2.6 billion (Dh9.5bn) for its plant expansion. The new expansion – Borouge 3 – will see capacity increase to 4.5 million tonnes per year (mtpy) by 2013, making it the largest integrated polyolefins site in the world. While the price of high density polythene (HDPE) went up by one per cent over Q1 2010 prices in May to $1,360 per tonne, the price of low density polythene (LDPE) rose two per cent in the same time period to $1,555 per tonne. The price of polypropylene rose four per cent to $1,335 per tonne.

Sabic, one of the largest petrochemicals manufacturers in the world, has been performing particularly well in $70/b crude price environment. "While most would contend that declines in crude oil prices should result in valuation corrections, we would argue that even at $70/b, certain companies – Sabic in particular – show extremely healthy cash generation," Ahmed wrote in a report.

"According to our estimates at its current share price and in a $70/b crude oil price environment, Sabic's 2010-12 cumulative distributable cash flow as a percentage of its market cap is around 60 per cent [reduced to 53 per cent at $60 per bbl]," he said.

Ahmed said he expects Sabic to operate at optimum capacity as of now. "Additionally, with our expectation for a 34 per cent boost to its capacity base between 2010 and 2014, organic earnings growth should continue despite the ebbs and flows of the global economy."

Being among the lowest cost producers, regardless of the global economic picture, Middle Eastern chemical facilities tend to run at maximum utilisation rates while gaining market share, said Ahmed. One of the main sources of revenue and in turn earnings growth for Middle East chemical companies is capacity expansion, he added.

Ahmed termed companies such as Chemanol, Industries Qatar, Sabic and Sipchem as the most attractive pertrochemicals companies in the region now.

Global GDP driven fears wreaked havoc to the global equity and commodity markets over the last month. The average Middle Eastern chemical name was down by around 17 per cent and crude oil prices down by about 19 per cent in the past 30 days.