SNB Capital sets outlook for petrochemical sector, assigns ratings to listed firms

SNB Capital forecasted the petrochemical sector to face challenges in the near term, noting that the expected global recession, higher inflation and the operation of new capacities will test the sector dynamics, which may pressure product margins.

It further indicated that the complete lifting of COVID-19 restrictions in China is a major positive factor that will likely lead to a rebound in demand in the medium term.

SNB Capital also expected prices to rebound in 2023 from their lowest levels in Q4 2022, yet still recording a year-on-year (YoY) decline.

The International Monetary Fund's (IMF) forecasts of a slowdown in global GDP growth to 2.7% in 2023, compared to 3.2% in 2022, shows a challenge to the petrochemical sector, given the significant correlation between demand for petrochemical products and GDP, according to SNB Capital.

It expected petrochemical companies to post a 45.5% YoY fall in net profit to SAR 18.4 billion in 2023, before recovering to SAR 30.4 billion in 2024.

The brokerage said it currently prefers companies that have the right product mix, raw materials advantage and solid balance sheets.

SNB Capital upgraded Saudi Basic Industries Corp.’s (SABIC) rating to “Overweight”, highlighting the company's resilience and market leadership, synergies with Saudi Aramco and a robust balance sheet as the key positive factors.

It maintained an “Overweight” rating on Saudi International Petrochemical Co. (Sipchem) and SABIC Agri-Nutrients stocks, saying that Sipchem’s product mix and the raw materials advantage are the main strengths. Meanwhile, SABIC Agri-Nutrients’ main advantages include strong urea fundamentals and favorable raw materials.

SNB Capital revised downwards Yanbu National Petrochemical Co.’s (Yansab) stock rating to “Neutral”, indicating that MEG expectations are negative in the medium term.