LONDON: Middle East and North African (MENA) petrochemical companies will see better margins within the next two quarters and operating rates are likely to inch higher even as a severe demand slowdown could test the exporting ability of the region, Credit Suisse said.
Credit Suisse upgraded Yansab (Yanbu National Petrochemical Co), Sahara Petrochemical Co and Advanced Petrochemical Co to "outperform" from "neutral," but downgraded Industries Qatar to "neutral" from "outperform."
"We believe the worst is over for margins of primary derivatives of ethylene and propylene," the brokerage said and raised its price forecasts on ethylene products and polpropylene.
Margins of key primary derivatives of ethylene and propylene underwent heavy decline following the second quarter of 2011 — a trend that continued well into the fourth, in some cases to decade lows, noted Credit Suisse.
A Chinese slowdown would impact world demand and operating rates significantly for MENA manufacturers. While stagnation in Europe could affect MENA companies, it will not hit them as badly as it hits their European counterparts, the brokerage said.
"Petrochemical plants with a strong operating track record can offer access to attractive cash flows," said Credit Suisse and listed Yansab and Advanced Petrochemical as "attractive" stocks.
This week, petrochemical stocks have been on the rise over rising fuel costs. The petrochemical index up 0.4 percent on Feb 8.