Oil & Petrochemicals Monthly Report - March 23 2023

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Oil & Petrochemicals

Monthly Report - March 23

+966 11 2256248

[email protected]

Head of Sell-Side Research Jassim Al-Jubran

2023

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2 Ammonia, Urea and PVC prices declined, while EDC, MTBE gained; propane and butane prices for April decreased sharply by Aramco

• Naphtha, propane and butane prices declined: Prices of naphtha fell 9.7% M/M to 650 per ton in March. Propane and butane prices decreased 8.9% and 6.3% to USD 720 per ton and USD 740 per ton, respectively.

Aramco lowered propane and butane prices significantly for April to USD 555 per ton and USD 545 per ton, respectively.

• Product prices were largely down, except for a few: Ammonia prices declined sharply by 43.7% M/M to USD 380 per ton due to sluggish demand in the US and Europe, and lower nitrates prices. Urea prices fell 7.6%

M/M to USD 305 per ton, as sluggish demand continued the downward pressure on the prices. PVC prices fell 11.1% M/M to USD 800 per ton in March on abundant supply in Asia, despite some improvement in demand amid restocking activity. On the contrary upstream EDC prices saw an increase of 8.3% M/M to USD 325 per ton. Propylene prices decreased 6.4% M/M to USD 880 per ton due to lower downstream demand. MTBE prices gained 3.2% M/M to USD 980 per ton due to higher fuel demand amid travelling season.

• Petchem Spreads Trend: PP-propane spread widened to USD 379 per ton in March from USD 328 per ton in February. PP-butane spread increased to USD 363 per ton in March from USD 328 per ton in February.

HDPE-naphtha spread expanded to USD 341 per ton in March against USD 296 per ton in February.

China opening hopes were outweighed by the banking crisis dragging oil prices in March; some recovery in prices towards the end of the month.

• Crude prices declined in March: Oil prices showed some strength to start the month on hopes of China demand. However, the prices dropped sharply during the middle of March, as the banking crisis in the US first and then in Europe unleashed. In the second half of the month, oil pared some losses amid easing concerns related to the banking crisis. In early April, the prices jumped due to a surprise 1.2 mbpd supply cut announced by OPEC+.

Brent prices fell 4.1% M/M, while WTI decreased 0.9% M/M in March, ending at USD 79.8/bbl and USD 75.7/bbl, respectively. Natural gas prices at Henry Hub dropped 9.6% M/M to USD 2.2/mn Btu.

• Slowdown in manufacturing activity deepens further: US manufacturing PMI decreased in March to 46.3 from 47.7 in February, the lowest since May 2020, as new orders contracted further. China’s Caixin manufacturing PMI fell to 50.0 from 51.6, due to weak foreign demand.

Eurozone manufacturing PMI declined to 47.3 in March from 48.5 in February, as demand was impacted by the monetary tightening and higher cost of living.

Table 1: Petchem Prices – March FY23

Name Price (USD

per ton) M/M % Q/Q % Y/Y % YTD %

Naphtha 650 -9.7% 1.6% -32.6% 1.6%

Saudi Propane 720 -8.9% 10.8% -19.6% 10.8%

Butane-Saudi 740 -6.3% 13.8% -19.6% 13.8%

Ethylene 920 -1.1% 9.5% -30.8% 9.5%

Propylene-Asia 880 -6.4% 1.7% -30.2% 1.7%

HDPE 1,010 1.0% 6.3% -19.2% 6.3%

LDPE 1,060 -2.8% 1.9% -32.9% 1.9%

LLDPE 990 0.0% 3.1% -21.4% 3.1%

PP-Asia 930 -2.6% 1.1% -21.5% 1.1%

Styrene-Asia 1,045 -5.4% 3.5% -25.1% 3.5%

Polystyrene-Asia 1,240 -1.6% 8.3% -17.6% 8.3%

PET - Asia 975 1.6% 7.1% -21.4% 7.1%

PVC-Asia 800 -11.1% -3.6% -42.4% -3.6%

MEG (Asia) 500 -4.8% 5.3% -25.9% 5.3%

Methanol-China 310 -4.6% 3.3% -22.5% 3.3%

DAP-Gulf 615 -4.7% -14.0% -37.2% -14.0%

Urea-Gulf 305 -7.6% -35.1% -68.1% -35.1%

Ammonia-Gulf 380 -43.7% -54.8% -61.0% -54.8%

MTBE-Asia 980 3.2% 15.3% -14.4% 15.3%

EDC 325 8.3% 32.7% -56.4% 32.7%

MEG (SABIC) 910 1.1% 9.6% -11.7% 9.6%

PC 1,890 -4.3% 5.0% -37.5% 5.0%

Acetic Acid-AA 515 0.0% 7.3% -29.0% 7.3%

EVA 1,950 -0.3% 26.6% -26.7% 26.6%

Vinyl Acetate

Monomer-VAM 1,155 -1.3% 5.5% -49.2% 5.5%

Note: Prices as of March 26, 2023

Source: Argaam, Reuters Eikon, AlJazira Capital Research

Table 2: Economic Calendar

Date Country Event

April 05,12,19,26 US Weekly Petroleum Status Report

11-Apr EIA Short-term Energy Outlook

12-Apr US Monthly Budget Statement

13-Apr US Initial Jobless Claims

13-Apr KSA CPI YoY

13-Apr OPEC Monthly Oil Market Report

14-Apr IEA Oil Market Report

27-Apr US GDP Annualized QoQ

30-Apr KSA M3 Money Supply YoY

30-Apr KSA SAMA Net Foreign Assets SAR

3-May KSA S&P Global Saudi Arabia PMI

4-May US Trade Balance

5-May US Unemployment Rate

7-May KSA GDP Constant Prices YoY

28-Jun KSA Current Account Balance

Source: Bloomberg, EIA, OPEC, IEA

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3 Key comments from international energy agencies Crude oil supply

Global supply

• Global oil supply increased 830,000 bpd in February to 101.5 mbpd, according to IEA.

• Global supplies of crude oil and liquid fuels are expected to rise by 1.6 mbpd to 101.5 mbpd in FY23 and by 1.6 mbpd to 103.0 mbpd in FY24, as per EIA. Non-OPEC supply is forecast to grow 1.7 mbpd to 67.4 mbpd in FY23 and 0.8 mbpd to 68.3 mbpd in FY24.

• Global refining throughputs reached 81.1 mbpd in February, due to a subdued recovery in the US coupled with planned maintenance elsewhere, according to IEA. The refining throughputs are expected to increase 1.8 mbpd Y/Y in FY23 to 82.1 mbpd.

OPEC Supply

• OPEC crude oil production increased 117,000 bpd M/M in February to average at 28.9 mbpd, as per OPEC’s secondary sources.

• On average, OPEC members produced 28.9 mbpd of crude oil in Q4-22 compared to 29.2 mbpd in Q3-22, as per EIA. The agency forecasts OPEC crude oil production to decrease to 28.4 mbpd in Q1-23.

• OPEC’s average crude production is estimated at 28.6 mbpd in FY23 and at 29.3 mbpd in FY24, according to EIA.

• OPEC’s unplanned oil supply disruptions averaged 1.90 mbpd in February (versus average of 2.04 for January), as per EIA.

mbpd

80 90 100 110

Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Dec-21 Dec-22 Dec-23 Dec-24

Figure 1: World Oil Production

Source: OPEC, AlJazira Capital Research

Table 3: OPEC Monthly Oil Production

Prod. (‘000 bpd) Cap. Dec 2022 Jan

2023 Feb 2023 Mar

2023 % M/M Chg.

Equatorial Guinea 120 60 60 60 50 -16.7%

Gabon 220 160 190 200 200 0.0%

Republic of Congo 300 260 260 280 270 -3.6%

Venezuela 710 660 670 700 720 2.9%

Algeria 1,060 1,020 1,010 1,010 1,020 1.0%

Libya 1,200 1,170 1,100 1,140 1,130 -0.9%

Angola 1,200 1,080 1,140 1,100 990 -10.0%

Nigeria 1,600 1,330 1,360 1,440 1,520 5.6%

Iran 3,830 2,640 2,600 2,560 2,580 0.8%

Kuwait 2,820 2,670 2,690 2,690 2,680 -0.4%

U.A.E. 4,200 3,170 3,190 3,230 3,250 0.6%

Iraq 4,800 4,480 4,470 4,460 4,410 -1.1%

Saudi Arabia 12,000 10,480 10,380 10,370 10,340 -0.3%

Total OPEC 34,060 29,180 29,120 29,240 29,160 -0.3%

Source: Bloomberg

Figure 2: OPEC March Oil Production

('000 bpd) Equatorial Guinea

Gabon Republic of Congo Venezuela Algeria Libya Angola Nigeria Iran Kuwait U.A.E.

Iraq Saudi Arabia

0 2,000 4,000 6,000 8,000 10,000 12,000

Source: Bloomberg

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4 Table 4: World Oil Demand and Supply

(mbpd) FY22 FY23E FY22 FY23E FY24E

World Crude Oil & Liq. Fuels Supply Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

OPEC Supp. 33.75 33.76 34.71 34.43 33.92 34.10 34.20 33.99 34.17 34.05 34.75 Non-OPEC Suppl. 65.09 64.99 66.10 66.59 66.81 67.19 67.72 67.93 65.70 67.42 68.27 Total World Supply 98.83 98.75 100.80 101.03 100.73 101.28 101.92 101.93 99.86 101.47 103.02 World Crude Oil & Liq. Fuels Cons.

OECD Cons. 45.78 45.37 46.62 45.89 45.90 45.66 46.18 46.29 45.92 46.01 46.24 Non-OECD Cons. 52.99 53.32 53.83 53.86 54.04 54.93 55.29 55.27 53.50 54.89 56.44 Total World Cons. 98.77 98.69 100.45 99.75 99.94 100.60 101.47 101.56 99.42 100.90 102.69 OECD Comm. Inventory (mn barrels) 2,604 2,656 2,735 2,774 2,819 2,884 2,904 2,893 2,774 2,893 2,930 OPEC Surplus Crude Oil Prod. Cap. 1.98 2.42 2.50 2.14 n/a n/a n/a n/a 2.26 n/a n/a

Source: EIA STEO March 2023, AlJazira Capital Research

• The gap between crude consumption and supply is estimated to decrease to 0.79 mbpd in Q1-23 (higher supply than consumption) from 1.28 mbpd in Q4-22 (higher supply than consumption).

• OECD’s crude inventories are expected to be at 2.82bn barrels in Q1-23, higher than 2.78bn in Q4-22.

Crude oil demand

Global

• OPEC estimates a 2.3 mbpd increase in global consumption in FY23, unchanged from the previous month’s estimate. IEA estimates global oil demand to grow 2.0 mbpd in FY23, due to recovery in demand from China and rising air traffic. As per EIA, global consumption of petroleum and liquid fuels is forecasted to average at 100.9 mbpd in FY23 (+1.5 mbpd Y/Y) and increase further by 1.8 mbpd Y/Y in FY24.

• Global demand for petroleum and liquid fuels stood at 100.9 mbpd in February, indicating a rise of 0.3 mbpd Y/Y, as per EIA.

OPEC

• OPEC demand for FY23 is forecasted to grow 0.8 mbpd Y/Y to 29.3 mbpd (0.2 mbpd lower than the previous estimate).

Inventory

• OECD industry oil stock rose 54.8 mb to 2,851 mb, while global observed inventories increased by 52.9 mb in January, as per IEA.

• EIA forecasts OECD inventories to stand at 2.89bn barrels by end-FY23 and at 2.93bn by end-FY24.

• Natural gas inventories in the US are estimated to stand at more than 1.9tn cu. ft. by end of March 2023, as per EIA.

Price outlook

• Brent spot prices are forecasted to average USD 83 per barrel in FY23 and at USD 78 per barrel in FY24, as per EIA.

• Goldman Sachs lifted its estimates for oil prices to the average of USD 95 per barrel in FY23 and USD 100 per barrel in FY24. The increase in the forecast was led by a surprise cut by OPEC+.

• EIA expects natural gas prices at Henry Hub to average at USD 3.0/mn Btu in FY23 and at USD 3.9/mn Btu in FY24

Figure 3: OECD Monthly Oil Inventories

Source: US EIA, AlJazira Capital Research 2,500

2,700 2,900 3,100 3,300

Dec-16 Oct-17 Aug-18 May-19 Mar-20 Dec-20 Oct-21 Jul-22 May-23 Mar-24 Dec-24

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• Saudi Basic Industries Corp. (SABIC) announced starting the commercial operations at its equally owned joint venture industrial complex with China Petroleum & Chemical Corporation (Sinopec) to produce polycarbonate in China. The complex has an annual production capacity of nearly 260,000 tons. The financial impact is expected to be reflected as of Q1-23. (Source: Argaam)

• SABIC’s board of directors appointed Abdulrahman Al-Fageeh as the company’s Chief Executive Officer, effective March 21, 2023.

(Source: Argaam)

• Saudi Industrial Investment Group (SIIG) signed an agreement to buy a 24.0% stake in Unibio International, a Denmark-based biotechnology company that specializes in protein-from-methane production technology. The deal is valued at about USD 70.0mn (SAR 262.5mn). (Source: Argaam)

• SIIG completed maintenance work at its subsidiary Saudi Polymers Co., restarting all project’s units. The financial impact of this unscheduled suspension is estimated at SAR 230.0mn, expected to appear in Q1-23. (Source: Tadawul)

• SABIC Agri-Nutrients Co. announced scheduled maintenance works for its plants. During H1-23, periodic maintenance will be carried out for Agri Nutrients Plant 4, including 42 and 41 days for the ammonia and urea plants, respectively. Production at Agri Nutrients Plant 3 will also be suspended for maintenance, including 41 days for the ammonia plant and 40 days for the urea plant. This is in addition to the 15-day maintenance shutdown of the ammonia plant at Ibn Al-Baytar Plant, during H1-23. (Source: Argaam)

• Rabigh Refining and Petrochemical Co. (Petro Rabigh) resumed operations at its ethane cracker unit after completing the maintenance activities. The relevant financial impact cannot be accurately estimated at present and is expected to appear in the Q1-23 results. (Source: Argaam)

• Advanced Petrochemical Co. awarded Gas Arabian Services Co. (GAS) an engineering, procurement and construction contract, at a total value of SAR 51.0mn excluding VAT. Under the contract, GAS will set up a pipeline to transfer the associated petroleum gas, containing high value chemicals, from Advanced to Jubail United Petrochemical Co.– an affiliate of SABIC. (Source: Argaam)

• Saudi Aramco signed definitive agreements to acquire a 10.0% interest in Shenzhen-listed Rongsheng Petrochemical Co. Ltd. for RMB 24.6bn (USD 3.6bn). The deal will significantly expand Aramco’s downstream presence in China. Aramco would supply 480,000 bpd of Arabian crude oil to Rongsheng affiliate Zhejiang Petroleum and Chemical Co. Ltd (ZPC), under a long-term sales agreement.

(Source: Argaam)

Table 5: KSA Petrochemical Companies Key Metrics

Company Net profit

(TTM; SAR mn) P/E P/B EV/ EBITDA DPS

(SAR,FY2022) Dividend Yield YTD returns

SABIC 16,529.7 17.0x 1.5x 7.9x 4.25 4.5% 4.8%

TASNEE 666.3 13.3x 0.9x 20.8x - - 6.3%

YANSAB 414.1 High 1.8x 12.4x 2.75 6.3% 5.4%

SABIC Agri-Nutrients 10,036.8 6.2x 3.1x 5.2x 12.00 9.2% -11.2%

Sipchem 3,595.3 8.1x 1.9x 5.4x 3.25 8.2% 16.5%

Advanced 294.5 42.3x 3.8x 22.6x 2.20 4.6% 12.7%

KAYAN -1,243.9 - 1.3x 19.2x - - -4.1%

SIIG 277.4 44.4x 1.8x - 1.50 5.9% 14.9%

Nama Chemical 37.0 21.9x 2.1x 11.3x - - 6.1%

Chemanol 206.4 8.2x 1.4x 5.4x - - 0.2%

ALUJAIN 119.3 15.2x 0.7x 8.6x 1.50 3.9% 2.6%

Source: Bloomberg, Argaam, Aljazira Capital Research; Data as of April 05, 2023

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Brent WTI ORB

-40 20 80 140

Jan-16 Aug-16 Apr-17 Dec-17 Aug-18 Apr-19 Dec-19 Jul-20 Mar-21 Nov-21 Jul-22 Mar-23

1.5

9.3

0.0 3.2 6.4 9.6

Feb-16 Dec-16 Nov-17 Oct-18 Aug-19 Jul-20 Jun-21 Apr-22 Mar-23

Figure 7: Oil Price Trends (USD per Barrel) Figure 8: Henry Hub Natural Gas (USD per MMBTu)

Source: OPEC, AlJazira Capital Research Source: Reuters Eikon, AlJazira Capital Research

Figure 6: US Weekly Natural Gas Storage Figure 5: US Weekly Oil Inventories

Source: US EIA, AlJazira Capital Research Source: US EIA, AlJazira Capital Research

mn bbls

541

350 400 450 500 550 600

Jan-16 Nov-16 Oct-17 Sep-18 Aug-19 Jun-20 May-21 Apr-22 Mar-23 mbpd

1,000 2,000 3,000 4,000 5,000

Jan-16 Nov-16 Oct-17 Sep-18 Aug-19 Jun-20 May-21 Apr-22 Mar-23

• US weekly oil inventories decreased 0.8% W/W to 470.0mn barrels for the week ended March 31. On a M/M basis, inventories fell 2.1%.

US oil production averaged 12.44 mbpd in March 2023.

Production was up 1.6% M/M and increased 6.3% Y/Y from 11.70 mbpd in March 2022.

In the week ended March 31, the rotary rig count in the US stood at 755 (down 3 W/W). The average number of rigs fell 0.8% M/M in March vis-à-vis a decrease of 1.8% in February.

The average rig count was up 13.7% Y/Y in March. As on March 31, of the total 755 rigs, 592 (down 1 W/W) were used to drill for oil and 160 (down 2 W/W) for natural gas. In the US, oil exploration increased 11.5% Y/Y, while gas exploration rose 16.8% Y/Y.

• US weekly natural gas storage decreased 2.5% W/W to 1,853 bcf in the week ended March 24. On a M/M basis, natural gas storage declined 15.6%.

Figure 4: US Oil Production versus Rig Count

Source: US EIA, AlJazira Capital Research

Rig count US oil production (RHS)

8 10 12 14

200 800 1,400 2,000

Jan-16 Sep-16 Jun-17 Mar-18 Nov-18 Aug-19 Apr-20 Jan-21 Sep-21 Jun-22 Mar-23

Price Trend: Oil, Natural Gas & Petrochemicals Products

US oil and gas developments

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7

150

445

100 200 300 400 500 600

VAM PC

500 1,500 2,500 3,500 4,500

Figure 15: Methanol-China (USD per Ton) Figure 16: PC-VAM

Source: Argaam, AlJazira Capital Research Source: Argaam, AlJazira Capital Research

Polypropylene

PP-Asia Polystyrene-Asia 695

1,325

650 1,150 1,650 2,150

Ammonia-Gulf Urea-Gulf DAP-Gulf 150

1,100

- 300 600 900 1,200

Figure 13: Polypropylene & Polystyrene Figure 14: Ammonia, Urea & DAP

Naphtha Propane -Saudi Butane-Saudi 150

400 650 900 1,150

LDPE

HDPE LDPE LLDPE

500 900 1,300 1,700 2,100

Ethylene Propylene-Asia Styrene-Asia 300

700 1,100 1,500 1,900

MEG-Asia

MEG (Asia) VAM MTBE

0 800 1,600 2,400 3,200

Figure 9: Feedstock Price Trends (USD per Ton)

Figure 11: Polyethylene Price Trends (USD per Ton)

Figure 10: Basic Petchem Price Trends (USD per Ton)

Figure 12: Intermediates Price Trends (USD per Ton)

Source: Argaam, AlJazira Capital Research

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8

0 200 400 600 800 1,000

Jan-14 Sep-14 Jun-15 Feb-16 Oct-16 Jul-17 Mar-18 Dec-18 Aug-19 May-20 Jan-21 Oct-21 Jun-22 Mar-23

170

200 400 600 800 1,000

323 962

150 175 350 550 750 950

800

350 500 650 800 950

880

395

Figure 17: Naphtha- HDPE

Figure 19: Propane (Saudi)- PP

Figure 18: Naphtha- PP

Figure 20: EDC- PVC

Petchem Spreads Trend

• Naphtha prices averaged USD 671 per ton in March, down from USD 714 per ton in February.

• Polypropylene average prices decreased to USD 955 per ton in March from 960 per ton in February.

• The HDPE-naphtha spread expanded to USD 341 per ton in March against USD 296 per ton in February.

• The PP-naphtha spread rose to USD 284 per ton from USD 246 per ton during the previous month.

• The PP-propane spread widened to USD 379 per ton in March from USD 328 per ton in February.

• The PVC-EDC spread fell to USD 595 per ton in March from USD 615 per ton in February.

• The polystyrene-benzene spread rose to USD 324 per ton in March compared to USD 313 per ton in the previous month.

• The HDPE-ethylene spread declined to USD 88 per ton in March from USD 119 per ton in February.

• PP-butane spread increased to USD 363 per ton in March from USD 328 per ton in February.

• LDPE-naphtha spread increased 8.6% M/M to USD 411 per ton, while LDPE-ethylene spread decreased 21.7% M/M to USD 158 per ton in March.

• LLDPE-naphtha was up 10.2% to USD 324 per ton. Whereas LLDPE-ethylene spread plunged 39.8% M/M to USD 70 per ton in March.

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Table 6: Petrochemical Products by Saudi Petrochemical Companies

Company Finished Products

SABIC Polyethylene, polypropylene, poly styrene, ethylene glycol (MEG), methyl tert-butyl ether (MTBE), benzene, urea, ammonia, PVC, and PTA

SABIC Agri- Nutrients Urea, ammonia

YANSAB Polyethylene, polypropylene, MEG, MTBE, and benzene Tasnee Polyethylene, polypropylene, and propylene (TiO2)

Saudi Kayan Polyethylene, polypropylene, MEG, polycarbonate, and bisphenol A Petro Rabigh Polyethylene, polypropylene, propylene oxide, and refined petroleum products Sahara Petrochemicals (Sipchem) Polyethylene, polypropylene, Methanol, butanol, acetic acid, and vinyl acetate monomer Saudi Group Styrene, benzene, cyclohexene, propylene, polyethylene, polypropylene, and polystyrene

Advanced Polypropylene

Alujain Polypropylene

CHEMANOL Formaldehyde – improvers concrete

NAMA Epoxy resin, hydrochloric acid, liquid caustic soda, and soda granule

MAADEN Ammonia and DAP

Source: Argaam Plus

900

- 40 200 400 600 800 1,000

-200 -195 -100 0 100 200 300 400

380

Figure 21: Benzene- Polystyrene Figure 22: Ethylene- HDPE

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