Petrochemical, feedstock prices continue uptrend: Al Rajhi Capital

Prices of Saudi petrochemicals continued to rise in August, backed by tight supply, improved downstream demand, and higher feedstock costs, Al Rajhi Capital said in a recent sector note.

Polymers maintained their uptrend, with high-density polyethylene (HDPE), low-density polyethylene (LDPE), polypropylene and polystyrene, recording a monthly gain between 3 percent and 4 percent.

“Given the likely delay in shipments of key basic petchem products from the US and healthy product demand in Asia, we expect Polymer prices to remain firm in September, largely tracking its feedstock costs,” Al Rajhi added.

Methanol prices gained 12.4 percent in August, when compared to the previous month following an unexpected methanol plant stoppage of Malaysia-based Petronas Chemicals due to a technical glitch.

MEG prices rose for the third consecutive month, adding 3 percent m-o-m in August. Prices of urea jumped by 16 percent m-o-m in the same period, marking its first monthly gain since January 2017, providing much needed support to earnings of Tadawul-listed SAFCO.

Prices of Titanium dioxide (TiO2) and its feedstock Rutile, however, stabilized in August but of late have been improving.

Product spreads remained mixed in August with Naphtha-based crackers witnessing higher product spreads on improved prices.

State-run Saudi Aramco raised September propane price by 14 percent month-on-month to a five-month high at $480 per ton, (~8% rise in US propane price), taking Q3 gain to ~25 percent, when compared to the previous quarter

“We believe that the increase in NGL prices for September could be attributed to strong buying sentiment in the Asian markets, which witnessed supply disruptions on account of the powerful tropical Storm Harvey in Texas, halting many LPG shipments from the US to Asia,” Al Rajhi Capital said.

Butane price also increased by 9 percent m-o-m to $500 per ton for September, reflecting a 28 percent q-o-q rise in Q3.

“Our tracker model shows the stock price movements and relevant weighted price spread are highly correlated and we expect the trend to continue going forward. Based on our tracker model, we expect Sipchem and Tasnee to trade higher in the near-term, driven by improved product spread, while SAFCO could move lower on lower product spread,” Al Rajhi added.