Despite adverse market conditions, Saudi petrochemical sector is expected to grow this year backed by new production plants and feedstock advantage, a report said. NCB Capital forecast that in spite of the lower prices YoY expected in 2012, the net income for stocks under its coverage will increase 9.1 per cent YoY to SR43.4 billion in 2012. This is mainly due to an expansion in the production base with the commencement of Saudi Kayan in October 2011 and Sahara’s Al Waha plant in April 2011. Though lower prices are likely to limit earnings growth, low production cost and proximity to Asian markets will also support earnings in 2012, it said. The sector is expected to be supported by the full year contribution from Saudi Kayan and Sahara’s Al Waha plants, said the NCB report. “In our opinion, a strong rebound in demand in the near term is unlikely given the ongoing debt concerns in Europe and the slowdown in China’s GDP growth,” said Tariq Al-Alaiwat, equity research analyst at NCB Capital commenting on the report. “As a result, we believe the pricing of petrochemical products may come under pressure in the short run. Nevertheless, we believe petrochemical producers in KSA remain relatively well placed to overcome these challenges by capitalizing on their low cost of production and their exposure to the Asian markets where growth in demand remains stronger than in the western world.” NCB Capital reiterates its overweight ratings on Sabic, Sipchem and Safco. However, the report downgraded Saudi Kayan to neutral from overweight off the back a downward revision in operating rate assumptions. NCB Capital downgraded Petrochem to underweight from neutral given the recent 17 per cent rally over the last three weeks (compared to the 8 per cent gain in the TASI) which we find to be unwarranted. NCB Capital reiterates its neutral ratings on Yansab, Sahara and Tasnee. The Saudi petrochemical sector’s net income increased 38.5 per cent YoY to SR40.9 billion in 2011, driven by higher prices of petrochemicals and fertilizers along with increased production volumes. Sabic, which recorded a 35.8 per cent YoY net income growth, accounted for 71.4 per cent of the sector’s net income during the year. The start-up of Sahara’s Al Waha facility and the full year contribution from Yansab and Sipchem’s Phase II helped volume growth in 2011 when compared to the previous year. However, reduced earnings from PetroRabigh along with a loss reported by Saudi Kayan, Petrochem, Alujain and Nama Chemicals held back growth in 2011.