In some good news for petrochemical producers, such as the Sidi Kerir Petrochemicals Company (Sidpec), polyethylene prices continued to surge in August, pushed by a recovery in demand.
The increase in prices covered all densities of polyethylene, with low-density polyethylene (LDPE), for instance, jumping to $965/tonne in the latest trading, up 30% since the decade-low levels that were seen in May.
On a quarter-to-date (QTD) basis, prices in the third quarter (Q3) of 2020 rose by 16% quarter-on-quarter (q-o-q), taking into consideration the latest prices.
Naeem Research noted that Sidpec’s margins are expected to recover by over $100/tonne in terms of high-density polyethylene (HDPE) sold, translating to a q-o-q margin increase of 6% in Q3 of 2020.
At the same time, the company is expected to post higher losses in Q2 of 2020, impacted by weak prices. Assuming the current price trend is sustained for the coming months, Sidpec is likely to revert back to profits in Q3 of 2020.
Naeem Research continues to recommend Sidpec as a BUY, albeit high risk, with a TP of EGP 8.65/share.
Bakr Emam, Head of Research at Sigma Securities Brokerage, said that petrochemical companies, especially those producing polyethylene, will see profit margin improvements during Q3 of 2020. This is particularly given that companies are likely to see selling prices increase with the rise in international oil prices.
On the back of Emam’s projections, Sidpec is likely to see an improvement in its profit margins, given that the company’s main products include ethylene and polyethylene.
Emam added that the Alexandria Mineral Oils Company (AMOC) is also another beneficiary of the project increase in polyethylene prices. This comes off the back of the positive relation the company’s products have with international oil prices. Therefore, any increase in the oil prices will lead to a commensurate increase in the selling prices of AMOC products.
Emam added that the nature of the work produced by the Egyptian Refining Company (ERC) is similar to that of AMOC, albeit with a different quality of product.