19 September 2008 18:01 [Source: ICIS news]
TORONTO (ICIS news)--Saudi Arabia’s Yanbu National Petrochemical Company (Yansab) will continue to enjoy robust margins even in a trough due to its low feedstock costs, analysts at HSBC said on Friday.
“Given that production costs for Yansab are in the range of $250-300/tonne [of ethylene], we believe that Yansab will continue to have robust petrochemical margins even in a cyclical trough,” HSBC said.
Yansab should be able to generate average net income margins of about 19% from 2009-2012, the analysts said.
Ethane-based ethylene crackers in Saudi Arabia typically have fixed, long-term feedstock supply contracts for ethane ranging between $0.75-1.25/m Btu, translating into a large feedstock advantage at a time when oil is priced at $90-100/bbl and natural gas in the $6-8/m Btu range, they said.
Risks to Yansab’s outlook included any sharp decline in global crude oil prices which would affect the feedstock cost advantage it has over its competitors.
“Though we believe that the risk to our longer-term crude-oil forecast of $70/bbl lies on the upside, we would caution that Yansab stock is not an appropriate investment for investors bearish on crude oil prices,” said HSBC.
The Middle East’s cost advantage in ethylene production would become negligible if the world were to return to $20/bbl for oil and $2.50/m Btu of natural gas, “a scenario we consider as highly unlikely, to say the least,” it added.
The London-based international bank has started covering Yansab’s shares with an “overweight” rating and a target price of Saudi riyals (SR) 51, it said, adding that the stock was undervalued.
Yansab’s main stakeholders are Saudi Basic Industries Corp (Sabic) which owns a 51%, Saudi Industrial Investment Company with 4%, 17 private companies which hold 10% while the remaining 35% interest is publicly held, HSBC said.
($1 = SR3.74)
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