Aramco has sent notified industrial and petrochemical companies that it is raising the price of diesel 53% to SAR 1.15 per liter this year from SAR 0.75 last year. Tadawul-listed players are reporting that they expect the price hike to hit their cost of production in 1Q 2024, with many saying they’re looking for ways to minimize the impact on their bottom line (see examples here and here and here).

Doing the math: Petrochemicals giant Sabic said it expects feedstock prices to surge by c. 1.7% of the company’s annual cost of sales on the back of Aramco’s hike in feedstock prices, with the impact materializing in the current quarter, according to a disclosure to Tadawul. Fertilizers maker Sabic Agri-Nutrients is forecasting c. 3.8% increase of the company’s annual cost of sales, while Yanbu National Petrochemical Co (Yansab) expects an increase averaging 2.8% of the company's annual cost of sales.

Investors reacted as you might expect: Shares in nearly all Tadawul-listed cement and petrochemical companies plunged at the end of trading yesterday, with Yanbu Cement down 4.1% and Sabic Agri-Nutrients falling 3.4%.

Aramco has hiked prices for domestic consumers only three times since 2016. Price increases in the last two years have only been limited to SAR 0.11-0.12 per liter, according analysts at EFG Hermes Research, making this an unprecedented price hike.

Don’t expect a big pass through to consumer inflation: “Impact on consumer names should not be that significant, in our view, as total transport costs are less than 5% of total cash costs for most names. Also, in comparison to 2016 this is not as relevant as prices of electricity, gasoline, etc. also rose significantly then and consumption trends are generally better now,” EFG Hermes Research said.

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