Petrochemicals product prices have risen in July, which will bring relief for producers across the Gulf countries, most of whom have reported losses or a drop in profitability in their second-quarter earnings reports.

Despite a fall in oil prices in the first month of the third quarter, market metrics for petrochemicals products has improved, largely thanks to a tight supply scenario in the petrochemicals market.

Prices of ethylene, polyethylene, polystyrene, propylene and polypropylene rose in the range of 1-5 per cent month-on-month, whereas feedstock prices – naphtha and propane – dropped, indicating higher spreads and margins for producers, Saudi Arabia’s Al-Rajhi Capital said in its latest research report. On the feedstock front, naphtha prices were down 17.6 per cent month-on-month, helping create improved margins for petrochemicals companies. In August, state-controlled Saudi Aramco reduced propane prices by 3.4 per cent to $385 a tonne and butane by 6.5 per cent to $290 a tonne, the report added.

However, the run of good fortune may not last very long for manufacturers as supply constraints and the tightening of the market came on the back of planned maintenance shutdowns, delayed turnarounds and unplanned shutdowns of plants. That has forced buyers to purchase from the spot market, pushing prices higher.

However, once the manufacturing units come back on stream and normal supply resumes, prices will fall and margins will be squeezed once again.

Combined net profits of Saudi Arabia’s 14 listed petrochemicals firms fell by a fifth from a year earlier, to SR6.8bn ($1.8bn) for the three-month period ending 30 June. However, some have managed to beat analysts’ expectations, according to a report from news agency Reuters.

Saudi Kayan Petrochemicals Company (Kayan) was a bright spot for the petrochemicals sector, as it swung to second-quarter profitability, helped by the lower costs of feedstock and improved quantities of sale. Improved operational performance also helped company profits in spite of lower average sales prices of most products.

Saudi Basic Industries Corporation (Sabic), the world’s biggest chemicals exporter, however, reported a 23 per cent slide in net profit as lower average sales prices of its products continued to extend the earnings slump. With market dynamics out of its control, Sabic is now looking to turn the business around by controlling costs and spinning off some of its poorly-performing foreign assets.

Sabic is not the only major refiner reporting weak profits. Rabigh Refining & Petrochemical Company (PetroRabigh) said its net income slipped 79 per cent for the three months ending 30 June.

Further hits to profits are likely to come later this year from a reduction of subsidies for chemicals manufacturers.

Saudi Arabia, which is Opec’s biggest oil producer and the largest Middle Eastern economy, has already removed some subsidies on feedstock and utilities including gas and electricity, and the kingdom plans to trim them further to compensate for falling oil revenues.

Unless something dramatic takes place on the supply side that can boost revenues and margins, petrochemicals producers are likely to continue their struggle with maintaining and growing profitability in the second half of this year, with a few exceptions such as Kayan.