YANSAB: Industry

COMPANY: The Yanbu National Petrochemical Company (YANSAB) was established in 2005 by royal decree. The company’s stated purpose was to create a petrochemical complex in the Yanbu industrial city on Saudi Arabia’s Red Sea coast. YANSAB is a subsidiary of Saudi Basic Industries Corporation, better known as SABIC, which owns 51% of the company. The remaining 49% is owned by a mix of other shareholders and publicly traded. YANSAB was listed on the Saudi Stock Exchange in 2006 with an offering of 35% of its equity capital.

YANSAB is a pure play commodity chemicals producer that leverages Saudi Arabia’s cheap feedstock availability (ethane and butane). YANSAB’s petrochemical plant began full commercial production in the first quarter of 2010 and has an annual production capacity of 4m tonnes.

The YANSAB plant produces a range of petrochemicals, including ethylene, at 1.3m tonnes per annum, as well as low linear density polyethylene, high-density polyethylene, propylene and polypropylene, each at 400,000 tonnes per annum. The plant also produces benzene, at 170,000 tonnes per year; butene 1, at 65,000 tonnes; butene 2, at 50,000 tonnes; and methyl tertiary-butyl ether, at 20,000 tonnes.

PRODUCTION FLOW: The production process of YANSAB is mainly focused on the olefin chains of ethylene and propylene. The production of ethylene and propylene is completely consumed internally in order to produce finished polymers and other derivatives such as ethylene glycol, low linear density polyethylene, high-density polyethylene, polypropylene, etc. The complex also includes butene separation units and benzene extraction units, which together result in the production of butene 1, butene 2, methyl tertiary-butyl ether, benzene, etc.

FEEDSTOCK: The feedstock composition of YANSAB’s production is a combination of ethane (30%) and propane (70%). We estimate the cost of ethane at $0.75 per million British thermal units, which is sourced from Saudi Aramco. Meanwhile, the cost of propane will come at a significant reduction. The company’s ethylene production capacity is the second highest in the GCC region after Jubail United Petrochemical Company (JUPC).

Unlike some of the other Saudi bases where new petrochemical capacity has recently been introduced, YANSAB has not experienced any operational issues so far and it now appears that the company is operating at full capacity.

Propane in Saudi Arabia is priced at a 30% discount to Japanese naphtha and ethane at $0.75 per mmbtu, as per the World Trade Organisation agreement. Although the ethylene cost advantage with this blend of feedstock is not as material as in the case of 100% ethane crackers in Saudi Arabia, it is still very attractive relative to the marginal producer.

However, with such a feedstock structure, YANSAB will be less impacted by any changes in gas (ethane) prices compared with other regional producers such as YANPET Saudi-Yanbu Petrochemical Company, Petrokemya Arabian Petrochemical Company, SADAF Saudi Arabia Petrochemical Company and JUPC, all of which are based on 100% crackers.

DEVELOPMENT STRATEGY: Since its establishment, YANSAB has reported strong financials, mainly on the back of high utilisation rates further supported by improved pricing on sequential bases. The company’s 2013 net profit of SR2.7m ($719,000) was 8% higher year-on-year. The company’s operating profit was SR3m ($800,000), 4% higher year-on-year.

On June 25, 2014, YANSAB proposed a cash dividend of SR1.5 ($0.4) per share for the first half of 2014, an increase on the SR1 ($0.2) per share, which the company paid out for the corresponding period in 2013. We expect YANSAB to have a limited number of maintenance shutdowns in 2014. As a result, the company should show significant improvement in its annual revenue and earnings in the coming years, as utilisation rates continue to expand.

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