Norconsult Telematics

Jobs, News and Information for Jobseekers in the Gulf

Upload Your CV

Go Back

Petchem Sector to Gain From ‘Improving Global Environment’

Middle East : 22 March 2013

Source: Arab News

The Saudi economy remains in fairly good shape, and some key sectors, such as petrochemicals, should benefit from an improving global environment. Yet there are headwinds, not least on the fiscal side, and these might begin to impinge on growth, Samba Financial Group says.

Oil production

The main recent development has been the reining back of oil production. The Kingdom has trimmed crude output to around 9 million barrels per day (bpd) in the past few months, from some 10 million bpd in the middle of 2012. The authorities insist that this is a response merely to seasonal domestic demand, which falls in the winter months.

The non-oil economy

The cut in oil output will make a big dent in headline GDP for 2013. According to the Samba report, real hydrocarbons GDP will decline by 3 percent this year. What is less clear is how this might affect activity in the non-oil sector. In general, projects delayed in 2012 will be released this year, and this will keep activity fairly firm. However, new fiscal realities might weigh on non-oil activity in 2014-15.

2012 turned out to be a year of delays, at least in the project sector. Personnel changes in key ministries, along with sequencing issues meant that there were few new projects in the second half of 2012. Now however, with more bureaucratic clarity, it might be that the flow of projects will restart. Certainly, there are still challenges, not least on the financing side. The withdrawal of most French banks from the regional project finance market has left a hole that has not been adequately filled. In addition, new capital rules are likely to crimp further the ability and willingness of international banks to lend, particularly long term.

While Saudi banks have adequate capital buffers, they are said to be shifting toward a more conservative stance this year, having generally booked quite large assets in 2012. Project bonds and the local sukuk market might fill some of the gap, but with demand for capital continuing to outstrip supply, it seems that only the most attractive projects will attract money.

The contracting sector has had to field other challenges as well. Contractors have been facing intense competition from Chinese firms, most of whom import all their labor and material, leaving little for Saudi subcontractors.

Saudi firms

Saudi Arabia’s corporate sector is continuing to prosper. The latest purchasing managers’ index (PMI) from Markit shows that Saudi firms are still expanding, with a headline number of 58.5 for the overall index in February, up from 58.1 in January (any number above 50 denotes expansion). Output and new order growth remained solid and employment levels continued to rise. New orders posted a further small rise in February, which Markit attributed to increased sales and marketing activity. New orders have been holding in a very healthy range of 65-70 for well over a year. New export orders (mainly petrochemicals) showed a modest pickup. This component suffered something of a soft patch in the second half of 2012 (though they continued to expand) owing mainly to a slowdown in China’s economy.

The PMI data do not give a breakdown by sector, but some sense of relative sectoral performance can be gleaned from stock market data. Admittedly, the stock market is a small universe but the profit performance of listed firms does give a sense of the general health of various sectors. The dominant sectors of the Saudi economy (aside from oil production and government services) are finance, petrochemicals, construction and trade.

Bookmark or share this page:

  • E-mail this story to a friend!
  • LinkedIn
  • StumbleUpon
  • Technorati
  • TwitThis