Saudi petchem firms' feedstock supplies curbed: Update

Adds detail and market response throughout

Saudi Arabia's state-owned Sabic said petrochemical feedstock supplies will be curtailed for its subsidiaries in the aftermath of the attacks on two key oil installations in Saudi Arabia.

The attacks at the Abqaiq plant, the world's largest crude processing facility, and the Khurais plant forced state-owned Saudi Aramco to shut in 5.7mn b/d of crude output. They also halted production of an estimated 2bn ft³/d (21bn m³/yr) of associated gas, which will cut Saudi supplies of ethane and NGLs by 50pc, the energy ministry said.

Saudi petrochemical companies such as Sipchem, Tasnee, Advanced Petrochemicals and Sadara made similar announcements. Sabic and its affiliates produce chemicals such as methanol, polymers and other downstream products.

The feedstock curbs — of between 15 and 50pc according to initial announcements from the petrochemical companies — will possibly affect petrochemical production at Jubail, where the producers are based. The exact duration of the feedstock restrictions and how much petrochemical production will be disrupted remains unclear.

Details of October term loadings for LPG have been delayed. If there is a need to reduce term loadings there may be an impact for any petrochemical producers in the Asia-Pacific region reliant on LPG feedstock. The global market is well supplied with LPG, but trade has been complicated by the US-China trade war and 25pc tariffs on Chinese imports.

The European petrochemicals sector reacted cautiously to the attacks in Saudi Arabia with participants still evaluating the potential impacts and their response. Higher feedstock prices could encourage some incremental downstream ordering in the short term if buyers believe monthly contract prices will rise. But this will be tempered by uncertainty about underlying economic demand and — as the fourth quarter approaches — a focus on inventory and working capital targets for year end. And while crude prices have seen a very large increase today, they are not outside of this year's trading range and were higher as recently as May.

A curtailment on polymer operating rates in Saudi Arabia — if sustained — could support higher operating rates for European petrochemical producers, particularly those that compete with Mideast Gulf producers in particular geographic or product markets.

Saudi Arabia is a major global exporter of polyethylene (PE) and polypropylene (PP). Its largest export partner by far is the Asia-Pacific region, which received 57pc of reported PE exports and 52pc of reported PP exports in 2018 — slightly below 3mn t and 1.5mn t, respectively. Significant quantities are also exported to Turkey, Europe and — particularly in PE — to South America. The European market depends on structural supply of certain grades from Saudi Arabia, particularly C4 grade linear-low density PE and some grades of high density PE and homopolymer PP.

Similarly, any curtailments affecting availability or cost — relative to Europe — of feedstocks in China, could give a lift to the competitiveness of European petrochemicals.