Saudi companies to increase Japan exports

Reconstruction of Japan will require help from two Saudi petrochemical producers, analysts said. Petrochemicals such as plastics, are used in all sorts of materials for the construction of houses and buildings.

Japanese demand for petrochemicals should increase as the country embarks on a huge reconstruction effort - and two Saudi companies are among those expected to be top suppliers.

Saudi Basic Industries Corporation (Sabic) and Petro Rabigh each have a Japanese strategic partner and are therefore likely to increase exports into Japan in the coming year, said Scott Darling, an analyst in Dubai with the Japanese investment bank Nomura.

Petro Rabigh, which has Sumitomo as a strategic partner, has the largest exposure to Japan's chemicals market, with 85 per cent of its products marketed to Asia. Sabic is in a joint venture with a consortium of Japanese companies led by Mitsubishi Corporation.

Altogether, the Middle East exports up to 15 per cent of its petrochemical products to Japan, mainly ethylene derivatives. Petrochemicals such as plastics are a necessary component in many materials used in construction.

Both companies are listed on the Saudi Tadawul exchange. Shares of Sabic moved 1.4 per cent lower to 100 riyals yesterday, while Petro Rabigh moved 0.6 per cent lower to 22.60 riyals.

Middle East liquefied natural gas (LNG) companies are also expected to have a surge in demand throughout this year and into next year, with Japan's nuclear capacity disrupted after Friday's earthquake and tsunami. The country has shut down 15 of its nuclear units so far.

Qatar exports between 8 million and 9 million tonnes of LNG a year to Japan, accounting for about 20 per cent of its total LNG exports. Overall LNG volumes represent about 60 per cent of Qatar's GDP.

"While a short-term uptick in LNG volumes and prices to Japan is likely, the disruption to nuclear plants may also prompt the government to look at increasing its dependence on natural gas for power generation in the long term, a clear benefit to major LNG exporters such as Qatar," Mr Darling said.

But he does not expect to see a strong impact on profitability for Nakilat, Qatar's publicly listed LNG shipper, as shipping contracts are generally fixed at long-term rates, rather than spot rates.