Saudi Arabia's financial results of listed petrochemical and cement companies have experienced a decline in the first half of 2023. Economic analysts attribute this downturn to three key factors, namely the unprecedented rapid increase in interest rates and the mounting pressure on the markets.
- Profits decline
Several institutions are closely monitoring the financial results of the Saudi financial market, and they foresee a downturn for most companies operating in the petrochemical and cement sectors in the first half of this year.
Some experts predict that certain petrochemical companies may experience a substantial increase, with growth rates potentially reaching as high as 95 percent compared to the previous year (2022).
The average forecast for cement decline was in the thirties and twenties percentile.
- International prices
Economic analyst Abdullah al-Jabali has identified three primary factors responsible for the decline in the financial performance of petrochemical companies.
In statements to Asharq Al-Awsat, he said these factors include the decrease in global prices of petrochemical products, reduced quantities of products sold, and lower petrochemical sales.
Additionally, he highlighted the impact of rising debt costs due to the high-interest rate environment, with the US Federal Reserve implementing an unprecedented and accelerated series of interest rate hikes.
Al-Jabali emphasized that the combined effect of these factors had a significant impact on companies operating in the petrochemical sector. The entire economic cycle of petrochemical companies, along with their suppliers, manufacturers, and consumers, felt the repercussions, ultimately leading to the decline in these companies' financial results.
- Interest effect
Jabali pointed out that the factors affecting the financial results of the cement sector are similar to those concerning petrochemicals.
The high-interest rates and debt costs are pressuring the real estate market in Saudi Arabia, which caused a decline in the real estate movement, said the expert.
- Movement decline
Jabali believes these factors misled the real estate market and led to a drop in the movement of building materials, contracting, and cement factories, as evidenced by the decrease in the number of beneficiaries of housing support provided to individuals to about 50 percent compared to last year.
He noted that interest rates' impact on the sales volume of cement products was not limited to Saudi Arabia but included all international markets.
The economist dismissed the idea of exporting cement products to increase sales, noting that the country has a problem in the real estate market.
He believes Saudi Arabia is at the end of the crisis, and the current stock prices of petrochemical and cement companies can be considered for long-term investments.
Jabali called on the joint-stock companies to take all solutions that curb the decline in stock prices and fall in financial results, including reducing costs and settling loans.
- Economic cycle
For his part, the CEO of Villa Financial Company, Hamad al-Olayan, said that petrochemicals are going through an economic cycle linked to the movements of feedstock prices and the different prices of products operating in the sector.
He told Asharq Al-Awsat that the recent drop in freight and feedstock prices and the US Federal Reserve the rise in interest rates would increase the profit margins of many petrochemical companies.
Olayan expected that the performance of most petrochemical companies will improve in the second quarter and that the sector will be one of the most important sectors in the financial market, specifically in the fourth quarter and the beginning of 2024.
He emphasized that the petrochemical sector will attract numerous large-scale investors and investment portfolios, local or foreign, due to the current economic cycle.
Regarding the decline in the financial results of cement companies, Olayan acknowledged the sector's significance in building and construction, including its involvement in government projects.
Cement is still suitable for investors, and most of them aim for recurring revenues, given the sector's history and its role in granting recurring payments, he said, adding that it remains a profitable sector, even with declining product prices.
Farah MJ Saab
