Sabic Quarterly Profit Drops 23% on Petrochemical Prices

Saudi Basic Industries Corp., the world’s biggest petrochemicals maker by market value, posted a 23 percent decline in third-quarter profit as prices for its products dropped amid slower global economic growth.

Net income fell to 6.31 billion riyals ($1.68 billion) from 8.19 billion riyals a year earlier, the Riyadh-based company known as Sabic said in a statement to the Saudi stock market today. That beat the 5.84 billion-riyal average estimate of six analysts compiled by Bloomberg.

Sabic’s profit has fallen in the past four quarters as the maker of fertilizers, plastics and steel suffers from the effects of slowing growth in developed economies. The International Monetary Fund cut its 2012 global growth forecast to 3.3 percent, the slowest since the 2009 recession, from a July forecast of 3.5 percent, as the euro area’s debt crisis intensifies. The fund, which lowered its 2013 forecast to 3.6 percent from 3.9 percent, warned of even slower expansion unless the U.S. and Europe address threats to their economies.

Economic uncertainty is “negatively impacting global basic plastics demand as producers and convertors tend to avoid building inventory,” Ahmed Shams El Din, Cairo-based director of equity research at EFG-Hermes Holding SAE, said in an e-mail. “Key petrochemicals prices have been lagging due to weak demand, particularly in China.”

Sabic’s shares rose 1.4 percent to 90 riyals at the close in Riyadh today, trimming the stock’s decline for the year to 6.5 percent. The benchmark Tadawul All Share Index has risen 6.1 percent in 2012.

Lower Prices

Quarterly profit declined “due to lower product pricing” although production and sales volumes increased, the company said in the statement.

Sabic’s units were also affected by lower prices and demand. Saudi Arabian Fertilizer Co., owned 43 percent by Sabic, and 51 percent-owned Yanbu National Petrochemicals Co. reported lower quarterly profits, while Saudi Kayan Petrochemical Co. said its loss widened.

Ethylene prices have decreased about 9 percent in the third quarter from the year earlier, said Faisal Potrik, an analyst at Riyad Capital. “Sabic stated themselves that demand had declined in second-quarter due to the global economic downturn.”

Third-quarter income from operations fell 27 percent to 9.8 billion riyals, the company said. Nine-month earnings per share were 6.3 riyals, down from 7.99 riyals for the same period last year.

Capacity Addition

The petrochemicals maker is adding output capacity through units and joint ventures. Sabic’s $3.4 billion venture with ExxonMobil Corp. plans to produce 400,000 tons of rubber products a year from al-Jubail and export them to Asia and the Middle East from the second half of 2015. The company also has an ethylene and polycarbonate venture with China Petroleum and Chemical Corp.

Sabic will continue to look for investment opportunities that might arise during “current fluctuations in the global economy,” Chief Executive Officer Mohamed Al-Mady said in an e-mailed statement today. “We are continuing to augment our operational performance at our plants, and we have adopted different strategies to introduce cost-effective measures in our manufacturing processes.”

Sabic plans to begin producing crop nutrient urea in the third quarter of 2014 at a 2 billion-riyal facility being built by its fertilizer unit. It operates nine manufacturing sites in China, Southeast Asia, South Korea and Japan, including a petrochemical complex with Sinopec in Tianjin, northern China.

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