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Saudi Basic First-Quarter Profit Drops 5% as Prices Decline

Saudi Basic Industries Corp., the world’s biggest petrochemicals maker, said first-quarter profit dropped 5 percent on lower prices for its products and higher feedstock costs.

Net income fell to 7.27 billion riyals ($1.94 billion) from 7.69 billion riyals a year earlier, the Riyadh-based company, known as Sabic, said in a statement today. The average estimate of seven analysts was for a profit of 6.64 billion riyals, according to data compiled by Bloomberg.

Net income from the year-earlier period declined “as a result of lower prices for some products and an increase in some of our feedstock,” Chief Executive Officer Mohamed Al-Mady said during a press conference today. “It was a result of the general state of the economy worldwide. There was a deliberate slowdown in growth to quell inflation in China. The state of the European situation affected that.”

Sabic shares gained the most in more than a year after the quarterly profit beat estimates. The shares advanced 4.3 percent, the most since March 2011, to 102.25 riyals at the 3:30 p.m. close in Riyadh.

Sabic Sales

“There is a lag effect of low prices in the fourth quarter,” Faisal Potrik, an analyst at Riyad Capital, said before the results were announced. “Demand has been good but a slowdown in China is on people’s minds.” Al-Mady said earlier this month that demand growth from China, one of Sabic’s biggest markets, was moderating as the nation’s economy slows.

Sabic sales rose 11 percent in the first quarter from a year earlier, while production gained 9 percent, Al-Mady said. It seeks to triple output to 130 million tons by 2020.

“There is still some growth in the U.S. and internally here in Saudi Arabia,” Al-Mady said. “We think 2012 is going to be a good year overall.”

Sabic, the maker of fertilizers, plastics and steel, has added output capacity through units and joint ventures. The company plans to begin producing urea in the third quarter of 2014 at a 2 billion-riyal plant being built by its fertilizer unit. It forecast steel-production capacity will grow 50 percent this year to 6 million metric tons after completing work at a plant in Jubail.

Sabic Units

Sabic and China Petroleum and Chemical Corp., known as Sinopec, got approval from the government of Trinidad and Tobago to start talks on building a complex to produce methanol, the Riyadh-based company said in February. The company signed in January a memorandum of understanding with Sinopec to build a petrochemical plant in Tianjin, China. The companies will have annual polycarbonate capacity of 260 kilo metric tons from the plant when operations start in 2015.

Saudi Arabian Fertilizer posted a 5.5 percent decline in first-quarter profit to 787 million riyals, according to a company statement on the Saudi bourse. Saudi Kayan said on April 14 that its first-quarter loss widened to 71.1 million riyals from 8.33 million riyals in the year-earlier period.

“Costs increases are far outstripping product prices in the first quarter,” Hassan Ahmed, a New York-based analyst at Alembic Global Advisors, said in response to e-mailed questions. “Product prices have failed to impress since the start of the year.”

Sabic has no plans to tap the debt market, Chief Financial Officer Mutlaq al-Morished told reporters in Riyadh today. “We only go if we need something,” al-Morished said. “At the moment, we don’t see anything.”

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