Saudi petchem sector faces challenges on margin pressures: EFG Hermes

Yousef Husseini, Director Chemicals at EFG Hermes, said Saudi Arabia's petrochemicals sector faces major challenges due to margin pressures caused by lower prices and higher feedstock costs.

In an interview with Argaam on the sidelines of EFG Hermes’ 19th Annual One-on-One Conference in Dubai, Husseini said the decline in product prices is due to an imbalance between supply and demand.

He further indicated that high oil prices contributed to increasing the cost of liquid feedstock, which led to further pressure on margins.

Local gas prices have seen increases over the past two years, with no clarity on their future direction, which further complicates the situation, Husseini said.

He pointed out that there are growth opportunities in the Saudi market that the sector has not seen in years, but the lack of clarity of outlook hinders new investment decisions.

The price difference between Saudi Arabia's propane exports and its prices in Asia has increased to about $100, due to increased demand from China for LPG imports from Saudi Arabia, after the decline in US supplies due to tariffs, which may keep prices high despite the recent decline in oil prices, Husseini added.

He pointed out that petrochemical prices are under pressure due to supply and demand imbalances, as supply witnessed significant growth from 2019 to 2024, and its pace

continues during the current year. Demand growth remained below expectations, especially in light of the economic slowdown in China.

The US tariffs have contributed to reducing demand and increasing price pressures on products, he added.

"Producers in the Kingdom face difficulty in maintaining profit margins, as they are fully dependent on market prices, whether in selling products or buying feedstock, which makes them recipients of prices without the ability to influence them," Husseini said.

He added that liquid feedstock prices are subject to the volatility of global markets, while domestic natural gas has a fixed price until 2025, which provides some clarity in the short term, with no visibility after that.

"Options available to producers are limited and are represented in boosting operational efficiency and increasing production as much as possible, but these measures are not enough to offset the pressures resulting from huge price fluctuations in the markets," he explained.

As for the impact of the tariffs, Husseini said that the direct impact on Gulf exports to the US is limited, given their low quantities, which can easily be redirected to alternative markets over the course of a few months.

The indirect impact was reflected in demand and prices, especially in the Chinese market, which imports large quantities of polyethylene from Saudi Arabia and the US, with a market share of about 15-16% each, said Husseini.

He pointed out that China's new tariffs on US polyethylene imports may lead to a decline in the US market share and open the way for GCC producers, especially from Saudi Arabia, to strengthen their presence, which may support price stability in the Chinese market compared to peers.

Husseini also expects the first quarter of 2025 to see a slight improvement compared to Q4 2024 due to a limited increase in product prices and a slight decline in liquid feedstock costs, which will support margins.

He pointed out that the fertilizer sector will likely witness a surge, especially in urea, as it was one of the key sectors during the quarter that saw price gains, while the improvement in the rest of the petrochemical products was limited amid a disparity in performance between the various commodities.

The sector results, except for fertilizers, are still weak compared to historical levels. The recent improvement does not represent an actual recovery, but rather a limited

movement in a market environment that continues to pressure performance, he concluded.