Cement, petchem producers brace for impact after Saudi Arabia hikes energy prices

Petrochemical and cement producers will be affected the most by the kingdom’s decision to raise fuel and electricity prices, as production costs are expected to rise in line with higher input tariffs, a new study by Argaam showed on Tuesday.

On Monday, the kingdom hiked natural gas and methane prices by 67 percent to $1.25 per million British thermal units (MMBTU). Prices of ethane were increased by 133 percent to $1.75 MMBTU.

Similarly, energy-intensive industries including cement plants, iron, cable and pipeline manufacturers, as well as construction firms will be knocked down at various levels, in light of the nature of their operations and proximity to gas networks.

In the industrial investment sector, Saudi Arabian Mining Co. (Maaden) will be also hit by the subsidy cuts, given that the company relies mainly on power and natural gas to operate its phosphate and aluminum plants.

Meanwhile, higher diesel and other fuels costs will likely hurt the transport processes of bauxite and phosphate from Maaden’s mines to the mineral industries complex at Ras Al Khair.

Petrol station operators Aldrees Petroleum and Transport Services Co. and Saudi Automotive Services Co. (SASCO) will raise oil derivative prices in line with the kingdom’s new policy.

Accordingly, both companies will likely see higher revenue, while profit outlook remains unclear as Saudi Aramco’s feedstock sale prices have not yet been announced, Argaam added.

State-owned oil producer Aramco is expected to maintain its profit margins, with no potential impact on the companies’ financial results.

Rabigh Refining and Petrochemical Co. (Petro Rabigh) is unlikely to be hurt by subsidy reforms.

New natural gas prices are not forecast to weigh on National Gas and Industrialization Co. (GASCO), as changes do not extend to households’ cylinders.  

Agricultural firms may be impacted by an 80 percent surge in diesel prices.

As for the state-owned utility Saudi Electricity Co. (SEC), revenues would be driven by higher power tariffs; however, this will be broadly offset by rising fuel costs incurred to produce electricity.

The banking sector, insurance and service companies will be the least impacted by energy prices.