SABIC strong despite weak economies, oil – bank

21 October 2008 18:29  [Source: ICIS news]

TORONTO (ICIS new)--Petrochemicals major Saudi Basic Industries Corp (SABIC) will retain its competitive edge even with lower oil prices and slow economic growth amid the financial crisis, analysts at HSBC said in a research note on Tuesday.

 

Even assuming a long-term crude oil price of $60/bbl – which compares with a peak of $147/bbl oil reached earlier this year – marginal ethylene producers would have a cost of $800/tonne even in a trough, the London-based international bank said in its analysis.

 

This was much higher than SABIC’s cost of  ethylene production of around $250/tonne.

  

“So even in a trough scenario we would see SABIC generate very healthy profitability within its core olefins/polyolefins product chain,” the analysts said.

 

SABIC was also well-placed to cope amid the global economic slowdown, the analysts said.

 

While a steep slowdown meant that supply/demand fundamentals would slacken quickly, SABIC’s low costs would enable it to run its facilities at well above industry operating rates and gain market share globally, as long as crude oil prices remained above $30-40/bbl, the bank said.

 

Also, SABIC's CEO Mohamed Al-Mady had stated that the company would not be negatively impacted by the credit crunch as all the loans needed to finance project expansions had been secured before the start of the crisis, the analysts added.

 

Commenting on SABIC’s 2% drop in third-quarter net income – to Saudi riyals (SR) 7.24bn ($1.93bn) from SR7.39bn in the year-earlier period - HSBC said the company’s disclosure was limited, making it hard to pin-point the cause of the decline.

 

However, SABIC had reported a healthy 20% increase in operating profit for the nine months ended 30 September, to SR35.58bn, which implied a 20% year-on-year and a 3% sequential increase in third-quarter operating profit, the analysts said.

 

($1 = SR3.76)

 

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By: Stefan Baumgarten
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