The industry remains affected by the slowdown in the country´s economic performance, which has led to lower investments and decreased public spending.
- The Saudi Arabian chemicals industry relies on the country’s tremendous amounts of hydrocarbons, including gases and liquids associated with crude oil and methane production. In addition to the substantial reserves of cheaply extractable feedstock, the sector also benefits from a supportive government economic policy. Saudi Arabia could become the second largest ethylene producer in the world (after the US) by 2020.
- However, the industry remains affected by the slowdown in the country´s economic performance due to lower oil prices, which has led to lower investments and decreased public spending. Demand and businesses’ profit margins are expected to decrease further in 2017.
- That said, the long-term outlook for the chemicals sector is still benign, as the industry is confident of growing exports, despite the increasing use of shale gas as a feedstock for US petrochemicals production.
- The common payment terms are between 60-120 days in this industry. Until 2015 the payment experience in the chemicals sector has been good. However, given the current economic difficulties in Saudi Arabia, non-payments and business failures have increased, and are expected to rise further in the coming months. Many businesses suffer from tight liquidity and decreasing margins.
- Therefore, we maintain a more cautious underwriting approach on the chemicals sector for the time being, especially on large buyers, which are primarily dependent on bank financing.