Saudi petrochemical plants see growth as facilities in Asia close

A capacity growth of Saudi plants in 2010 and a simultaneous closure of capacities in Asia may put the Saudi plants in a profitable position, Sriharsha Pappu an analyst with HSBC said.

"In 2010, we expect to see full impact of the start-ups of Sharq and Yansab to flow through the earnings of Sabic and Yansab. Both crackers started operations in the third quarter of 2009 and expect to start witnessing revenues in early the first quarter. Sabic owns a 51 per cent stake in Yansab and a 50 per cent stake in Sharq and is the biggest beneficiary of the capacity increase," Pappu said in his outlook for Middle East petrochemical industries in 2010.

Demand for ethylene – the most produced petrochemical product – and its derivatives should remain fairly tight through the first half of 2010, due to the shutdown of numerous Asian petrochemical plants. This, Pappu said could result in firmer petrochemical prices through the first half of the year.

"According to reports published earlier, some 22 Asian crackers, with over 13 million tonnes in capacity, are slated for routine maintenance shutdowns this year compared to 15 such turnarounds last year. Each turnarounds typically lasts for 30-45 days with the cracker then running at reduced rates for another month while it ramps up production," Pappu wrote in his report.

"We estimate lost Asian supply of as much as 2.5m tonnes in 2010 versus 1.4m tonnes lost in 2009," Pappu said. Apparently, 2.5m tonnes is the equivalent of two new world-scale plant start-ups and should support pricing, leading to a more balanced supply demand picture.

Pappu said volumes of petrochemical produce this year and not the feedstock fuels will determine the performance of the sector this year.

"Although energy prices remain an area of focus in this year given their correlation with product prices, we expect the key determinants of chemical industry performance through the year to be product volumes. If the economic recovery holds then we could see a sharp uptick in chemical offaly," said Pappu. "A rise in demand for ethylene, which is used in making plastic is, marks a healthy trend for the petrochemicals industry."

Keep up with the latest business news from the region with the Emirates Business 24|7 daily newsletter. To subscribe to the newsletter, please click here.

Follow Emirates 24|7 on Google News.