Feb. 19 (Bloomberg) -- Saudi Arabian Oil Co. and Sumitomo Chemical Co. may postpone a $6 billion plan to expand their joint-venture petrochemical plant in the Red Sea town of Rabigh, HSBC Holdings Plc said.
Sumitomo may seek to delay the expansion due to financial concerns, while Saudi Aramco, as the state oil producer is known, may be reluctant to proceed alone as it’s already investing in other refining and chemical plants, John Tottie, a Riyadh-based analyst at HSBC, said in a note to investors.
“The project may be at risk to be put on hold as we believe Sumitomo may be hard-pressed to make another heavy commitment,” Tottie wrote in the note dated Feb. 17. “Aramco is likely more keen on the project, as it is integral with broader Saudi energy-policy objectives, but is also juggling many other ambitious expansion plans.”
Saudi Arabia and other Persian Gulf oil producers are building new industries including petrochemicals to help diversify their economies and create jobs. By boosting petrochemicals output, Saudi Aramco would also be making more valuable products from the country’s crude. The planned Petro Rabigh expansion and an adjacent industrial park would add about 5,000 jobs, Tottie said.
Petro Rabigh may report net income of 1.56 billion riyals ($420 million) this year, Tottie estimated, lowering his forecast by 18 percent. Tottie cut his forecast for 2013 by 5.5 percent to 2.13 billion riyals after weaker-than-expected fourth-quarter earnings and a refining loss, he said.
Tottie, who maintains a “neutral” rating on Petro Rabigh shares, cut the target price for the stock to 25 riyals from 27 riyals. The shares are down 2.15 percent this year, closing at 22.75 riyals yesterday.
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