In its ‘Saudi Petrochemical Sector’ report issued Thursday, Al Rajhi Capital said that the global economy is recuperating, although growth remains uneven across developed and emerging countries.
While China is facing overcapacity and weak domestic consumption issues, Europe - a key consumer market - is confronting a low inflation scenario. These factors coupled with a supply glut have significantly affected crude oil prices, Al Rajhi added.
“Lower crude prices have, in turn, negatively impacted the petrochemical prices in the last few months. With the impending crude glut and a volatile economic scenario in the key markets, we expect Saudi producers to face earnings and margin squeeze over the near-term,” said the report issuer.
Al Rajhi said that, despite the near-term headwinds, it expects crude prices to witness an uptick once economic revival gains momentum over the medium-term.
“Consequently, we believe that the Saudi petrochemical sector is a long-term value play, especially at current valuations. We remain Overweight on the Saudi petrochemical sector. SABIC, SAFCO, Sipchem and APC remain our top picks among the stocks under coverage,” said Al Rajhi.

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