Riyadh-Mubasher: AlJazira Capital recommended ‘Overweight’ for Saudi Arabia’s Petrochem, decreasing the price target to SAR 19.20, with upside potential of 48.3% to the stock price of SAR 12.95 on the report date.
The research firm said the petrochemical players using liquid gas as feedstock witnessed a decline in their margins in the fourth quarter of 2015.
Though these companies are in a better situation to adopt with any oil price decline, naphtha prices declined by 4.1% quarter-on-quarter and averaged $447 per metric tonne in the fourth quarter, compared with $466 in Q3-15, AlJazira Capital said.
It added that due to lower demand, the polypropylene prices in Asia and Gulf region fell 14.7% and 16.2% quarter-on-quarter, respectively.
Margins for polypropylene producers shrank in Q4-15 as price fall in final product is higher than the price decline in liquid feedstock price, which led to a drop in the polypropylene-propane spread.
On a year-on-year basis, the polypropylene-naphtha spread shrank by 71.3%, driven by a decline in demand amid stability in feedstock prices.
