Saudi Kayan to be profitable despite industry trough - HSBC

13 March 2009 19:06  [Source: ICIS news]

TORONTO (ICIS news)--Sabic affiliate Saudi Kayan Petrochemical will be profitable once its capacities are up and running in late 2010, despite an expected industry trough for key petrochemical products, HSBC said on Friday.

"We are forecasting a near to medium term trough in each of the main products that Kayan produces but expect the company to generate healthy profits stemming from its cost advantage once its facilities are up and running in the 2010 fourth quarter, in our view,” the London-based international bank said.

HSBC has started covering Kayan’s shares with a “neutral” rating and a 12-month target price of Saudi riyals (SR) 10 ($2.67), it said.

The stock's latest closing price was SR9.40 on Wednesday on Saudi Arabia's Tadawul stock exchange, down from a 52-week high of SR27.75 in April 2008.

Like other Middle Eastern petrochemical producers, Kayan would have a huge feedstock advantage over its international competitors, the bank said.

As long as Saudi Arabia's raw material pricing regime remained unchanged and global energy prices remained at or above current levels, the bank did not expect to see this advantage eroding, "regardless of the phase of the cycle”, it said.

Kayan’s product range was diversified, resulting in “muted cyclical exposure” to any one product, the analysts said.

The company's petrochemical capacities of about 5m tonnes/year(5.5m tons/year) included ethylene, propylene, benzene, ethylene glycol (EG), high density polyethylene (HDPE), low density polyethylene (LDPE), polypropylene (PP), ethanolamine, ethoxylates, choline chloride, dimethyl formamide, cumene, phenol, acetone, bisphenol A (BPA) and polycarbonate (PC).

Some of the products would be produced for the first time in Saudi Arabia, the analysts added.

($1 = SR3.75)

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By: Stefan Baumgarten
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