Petrochemicals and oil stocks hit in Saudi

The euro zone crisis and its potential impact on the global economy is taking its toll on Saudi Arabian oil and petrochemical stocks. But the list of casualties goes beyond the energy sector, at least as it is narrowly defined. The National Shipping Company of Saudi Arabia (NSCSA) stock reached 21.35 riyals on April 24 and closed at 17.95 yesterday, down another 2.45 per cent on the previous close.

The company, which operates tankers that transport crude oil, chemicals and other cargo, could see reduced demand for its fleet if energy consumption slows around the world. "The macro picture does not look great," said Redwan Ahmed, an analyst at EFG-Hermes in Dubai. This month, the company cancelled a contract for two vessels from SLS Shipbuilding of South Korea, citing delays in delivery. The company said in a statement to the Saudi bourse that the payment of US$76 million was guaranteed by Hana Bank. Gulf Navigation Holding, a Dubai-based oil-tanker owner, previously cancelled a contract with SLS Shipbuilding citing similar reasons.

If NSCSA can get its money back, that could enable it to buy vessels at lower prices. But the company also risks being on the other side of the shifting economic landscape as its customers try to renegotiate or even renege on commitments agreed to during the height of the economic boom. A shortage of available cargo vessels globally and the resulting inflationary pressure on pricing caused many petrochemical producers to agree to expensive shipping contracts between 2004 to 2008 before the financial crisis hit.

If the global economy does weaken further, that would give NSCSA less leverage at the negotiating table. "The outlook is still very uncertain," Mr Ahmed said. business@thenational.ae