Non-payments and business failures have increased, and are expected to rise further in the coming months. Many businesses suffer from decreasing margins.
- The Saudi Arabian chemicals industry relies on the tremendous amounts of hydrocarbons in the country, including gases and liquids associated with crude oil and methane production. In addition to the substantial reserves of cheaply extractable feedstock, the sector also benefits from a supportive government economic policy. Saudi Arabia could become the second largest ethylene producer in the world (after the US) by 2020.
- The long-term outlook for the chemicals sector is benign, as the industry is confident of growing exports, despite the increasing use of shale gas as a feedstock for US petrochemicals production.
- However, the industry is currently affected by a slowdown in the country´s economic performance due to low oil prices, which has led to lower investments and decreased public spending. This will lead to a slow chemicals growth rate in 2016, together with squeezed cash flow in the market and increased global competition. Increased self-sufficiency in China and India at a time of slower global consumption growth will put downward pressure on prices in 2016.
- Until last year the payment experience in the chemicals sector has been good. However, given the current economic difficulties in Saudi Arabia, non-payments and business failures have increased, and are expected to rise further in the coming months. Many businesses suffer from tight liquidity and decreasing margins. Therefore, we maintain a cautious and prudent underwriting approach to the chemicals sector for the time being.
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Market Monitor July 2016
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