Historically dominated by the state-owned giant Sabic, Saudi Arabia is now actively encouraging private investment in the petrochemicals sector, with contribution set to quadruple over the next decade
Saudi Arabia will open its $570 billion stock market to foreign investors on June 15 in what the Wall Street Journal qualifies as a “keenly awaited move” that will give the international investment community direct access to the Middle East’s biggest economy and the fastest-growing bourse in the region.
Among the stocks that will undoubtedly interest investors is Sabic (Saudi Basic Industries Corporation), one of the world’s largest petrochemical companies. But investors will be well advised to look at other petrochemical stocks because there are several interesting opportunities whilst the timing is right.
The Saudi Arabia General Investment Authority (SAGIA) stresses that even though the petrochemical sector has been historically dominated by the 70 per cent state-owned giant Sabic, it is gaining momentum from private sector participation.
According to SAGIA: “In a paradigm shift, [Saudi Arabia] is now actively encouraging private investment in the sector in order to bolster its status as a global petrochemical leader and to diversify towards value-added specialty chemicals, formulated products, and performance polymers. As a result, private-sector contribution to the sector is expected to quadruple in the next 10 years.”
The kingdom’s petrochemicals sector is responsible for about 7-8 per cent of total world supply and is the 11th largest in the world. While Saudi’s current strengths lie in the production of basic petrochemical building blocks such as ethylene and methanol, there are plans to diversify its petrochemical portfolio into more complex, distinctive products such as specialty chemicals and engineering thermoplastics.
“The petrochemicals market enjoys very encouraging regional and global demand trends. With global growth driven by industrial activity in emerging markets, the petrochemicals sector has enjoyed strong utilisation rates and firm pricing trends. Local end markets such as automobile, construction, plastics and appliances are showing strong growth,” states SAGIA.
Asked about his views on the opening of Tadawul to foreign investors, Abdulrahman Al Ismail, General Manager of one of the country’s leading petrochemical companies, the National Petrochemical Company (Petrochem), says that, “It is going to be a positive step, but it’s going to take time.
A lot of things in this country do take time and people have to get confident, especially foreigners considering investing in it.
“Investing in the Saudi Arabian stock exchange could seem intriguing to a foreigner; it is a very safe place for investment. There is a lot of stability. The country is sitting on a huge amount of natural resources and will remain a major economic and political player both regionally and globally.”
Mr Al Ismail adds that apart from the strength of Saudi petrochemical companies and their leading position worldwide, “one of the major incentives for investors is the availability of funding for huge projects. There is massive funding by the Saudi Industrial Development Fund, the Public Investment Fund and other government agencies that encourage foreign companies to come and invest in the country. So the government has had, and still has, a key role in the success of the Saudi petrochemical sector.”
Another leading petrochemical executive, Abdullah Al-Suwailem, CEO of Petro Rabigh, a joint venture between Saudi Aramco and Sumimoto Chemical that built and operates a $10.1 billion petrochemical complex producing refined petroleum and petrochemical products, explains that his company is looking for long-term partners in order to double the size of the business to a $20 billion operation.
“We are expanding and will become the largest refining and petrochemical complex in Saudi Arabia – larger even, from a facility point of view, than Sadara.” (Sadara is a joint-venture between Saudi Arabia’s Aramco and American giant Dow Chemical to build in Jubail a complex of 26 integrated manufacturing plants producing more than three million tonnes of products each year.)
“We are looking for private investors, including foreign ones, to facilitate our operations and take part in providing a long chain of petrochemical products that are currently not available in the kingdom or in the Middle East,” explains Mr Al Suwailem.
Petrochemical companies’ profits dropped in the first quarter of 2015 mainly due the fall in oil prices. But with oil prices rising again, Riyad Capital, the investment arm of Saudi Arabia’s Riyad Bank, advises investors to “look beyond 2015” towards the interesting opportunities that will arise from stronger worldwide demand for petrochemicals and plastics.