Rabigh Refining & Petrochemical Co. (2380.SE)

New Projects and StrategiesPetro Rabigh holds the advantage of having Saudi Aramco and Sumitomo Chemical as its foundingshareholders. As a result, the company is not only guaranteed access to inexpensive anduninterrupted feedstock, but also the established marketing channels and the technical knowhow ofrunning the business. This virtually eliminates the initial hiccups typically faced by capital intensivepetroleum and petrochemical units. The company has been progressing well with its expansion plans,evident from the transfer of Rabigh refinery completed in October 2008. In addition, the petrochemicalcomplex has been commissioned as well. The company’s petrochemical plant, which is well integratedwith its refinery, is likely to benefit from economies of scale. The company had supplied 340,000 bblsof diesel and 320,000 bbls of gasoline as of August 2009. The company also commenced exports tointernational markets with the first shipment of 19,200 metric tonnes of pure mono-ethylene glycol toChina in May 2009.Rabigh II expansion to scaleup company’s operationsGoing forward, the company’s plans to expand the Rabigh complex by adding more specialisedchemical units such as paraxylene and vinyl acetate monomer, along with the increase of gasolineproduction bodes well for long-term growth sustainability. The feasibility study for the Rabigh IIexpansion is being undertaken by JGC Corporation. The second phase of expansion will includescaling up of ethane cracker capacity by 30 million scf/d along with the construction of a newaromatics complex using 3 million tonnes of naphtha. In addition, the complex will also includepetrochemical units for production of higher value and speciality products like EPR, TPO, MMA,PMMA, LDPE/EVA, caprolactam, polyols, cumene, phenol/acetone, acrylic acid, SAP and Nylon-6.The feasibility study is expected to be complete by 3Q10 following which, based on the outcome,Petro Rabigh will decide on the implementation plan.SWOT AnalysisSTRENGTHS Strong back-up from foundingshareholders - Saudi Aramco andSumitomo Chemical Secure access to feedstock at ahighly discounted rate from Aramco Access to well-established marketingchannels of its founding shareholdersWEAKNESS Huge debt on its balance sheet withdebt-equity ratio of 3.75 as of 1H09THREATS Increasing competition owing toregion-wide capacity expansions Delays in start of production facilitiescould lead to higher associated costs Overcapacity in the industry coulderode margins of petrochemicalcompaniesOPPORTUNITIES Rising demand for refined petroleumand petrochemical products fromexpanding economies to supportfuture growth Petrochemicals sector to benefit fromthe impressive domestic investmentprogram of governments across GCCto diversify from oil