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Mon 16 Jan 2012 10:50 AM

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Petchems dip as Saudi makes biggest drop in 4-weeks

Falling gas prices take toll on petrochemical stocks amid US shale gas boom

Petchems dip as Saudi makes biggest drop in 4-weeks
UAE stock exchange, Dubai bourse

Saudi Arabia's benchmark index ended lower after a late
sell-off, making its largest one-day decline in four weeks as falling gas
prices weigh on petrochemical stocks.

The main index falls 1.1 percent to end at 6,421 points, its
biggest drop since Dec 13.

The US benchmark gas price fell to $2.60, its lowest level
since September 2009, with a US shale gas boom and the prospect of similar
developments in China helping to bring down the gas price sharply.

Saudi petrochemical producers are supplied with subsidised
gas at fixed prices, whereas rival producers in other regions typically pay the
market rate, so a fall in global gas prices reduces Saudi producers'
competitive advantage.

"Earnings are below expectations so far in banks and
petrochemical companies and there are concerns on the future," said
Mohammad Omran, a Saudi-based independent financial analyst.

"The drop in gas price is continuing mainly because of
shale gas. Major producers will have a big advantage and they will reduce gaps
with the petrochemical producers in the region - this is negative for the industry."

Saudi Basic Industries Corp (SABIC) dipped 0.5 percent.

Yanbu National Petrochemical Company (Yansab) slipped 0.7
percent to SR42.7 riyals after reporting a fourth-quarter net profit of SR664.8m
($177.26m), at an increase of 20 percent from the year earlier period.

Analysts polled by Reuters expected an average net profit of
SR751m.

"Lower petrochemical prices in 4Q2011 impacted top to
bottom profitability... we are encouraged by expected quarter-on-quarter margin
improvement given pricing pressure," Riyad Capital said in a research note,
recommending a 'buy' rating with a target price of 52.50 riyals.

Banks also fell. Samba Financial Group fell 1.5 percent and
Al Rajhi Bank shed 1.4 percent.

Shares in Dubai Financial Market, the only listed Gulf Arab
bourse, plunged to an all-time low, weighing on the emirate's benchmark, which
slumped to a new seven-and-a-half year low.

DFM fell 10 percent, accounting for a fifth of all shares
trades on the index, which ended 1 percent lower at 1,301 points.

"Volumes in Dubai are not going to pick up for the next
12 to 24 months and anything that has fundamental weakness could get
pummeled," said Amer Khan, fund manager, Shuaa Asset Management. "Once
Abu Dhabi starts falling and people punish companies that have fundamental
weakness, it causes a spillover in Dubai."

Abu Dhabi-listed Dana Gas dropped to an all-time low as
investors cut positions on worries the energy firm will face problems repaying
an upcoming bond.

Dana fell 8.1 percent, down for a fourth straight session.
It has fallen 39 percent in the past two months.

London-based investment firm Exotix has issued a sell
recommendation on Dana Gas saying it had "little confidence" in the
firm's ability to repay a $920m debt that matures in October. It has been
facing payment delays from its operations in Kurdistan and Egypt.

Abu Dhabi's benchmark drop[ed 0.8 percent to 2,325 points,
its lowest close since March 2009.

Aldar Properties and Sorouh Real Estate fell 2.6 and 2.9
percent respectively.

Elsewhere, Oman's benchmark ended 0.2 percent lower at 5,634
points, a near four-week low.

"The major players are holding tight to what they have
and there is no speculative interest because there is no story," said
Vickneswaran Gowribalan, a Muscat-based portfolio manager. "A lot of the
big funds are sitting on cash with a wait and see attitude."

Telecoms operator Nawras fell 1.6 percent, Renaissance
Services dipped 0.8 percent and Oman International Bank ended 1 percent lower.

In Kuwait, the index eased 0.05 percent to 5,763 points,
down 0.9 percent so far in January.

Qatar ended near-flat.