FocusStock write-downs in Asia bite petchem Q4 ‘08 results

02 February 2009 05:29  [Source: ICIS news]

By Bohan Loh

SINGAPORE (ICIS news)--Massive inventory write-downs dragged profitability down in the fourth quarter of 2008 due to the unprecedented fall in petrochemical commodity prices throughout Asia, market sources said on Monday.

The earnings reporting season for the three months to December is in full swing, with petrochemical companies’ financial statements suffering losses after petrochemical prices fell sharply from the peak in the third quarter alongside global crude futures prices.

“Company earnings have already taken a hit from the global economic slowdown. The differential in inventory valuation just exacerbated the severity of the crisis,” said Sutthichai Kumworachai, a Thailand-based analyst at brokerage firm, KGI Securities.

“I do not expect such massive write downs for the first quarter of 2009 since prices of most basic chemicals have stabilised in tandem with crude values. However, demand fundamentals will remain a very large problem for most companies,” he said.

Japanese oil and petrochemical major, Nippon Oil, reported the largest Asian net loss of yen (Y)244.7bn  ($2.72bn) for its fiscal third quarter ended 31 December 2008 on declining crude and petrochemical prices.

Nippon Oil recorded a Y425bn negative inventory valuation factor for the nine months to December 2008. Of the amount, Y222.5bn was directly due to write-downs.

The chemicals arm of Royal Dutch Shell booked a $831m (€648.2m) loss for its fourth quarter on “net realised inventory effects due to declining commodity prices”.

“These inventory write-offs are in part due to International Financial Reporting Standards (IFRS) and operation logistics,” said Kumworachai.

The third quarter failed to show the sharp deterioration given a two-month time lag in measuring the effects of the decline in crude values, he said.

From the peak of $147/bbl in July 2008, US light sweet crude futures headed steeply downward on concerns about sagging demand amid the sharp deterioration in economic fundamentals in the second half of last year.

As of 12.00pm Singapore time (4:00am GMT), light sweet crude for March delivery was quoted at $41.93/bbl.

In Thailand, Siam Cement Group reported a net loss of Baht (Bt)3.5bn ($98.6m) on a sharp decline in demand that was accompanied by a plunge in product prices which forced it to realise a net inventory writedown of Bt 5bn.

PTT, Thailand’s largest integrated oil refiner and petrochemical company, is also expected to record up to Bt12bn in inventory writedowns that will drag its earnings into a deep red in the fourth quarter. PTT will release its financial results on 27 February.

US chemical major, DuPont, booked a massive $629m loss in the fourth quarter, which included a $535m restructuring charge, and warned of an impending weak first quarter for 2009 due to marked decline in demand levels.

BASF, the world’s largest chemical company, issued a profit warning last week citing that the decline in business had been worse than previously expected.

Of the larger global firms, only Saudi Basic Industries Corp (SABIC) managed to avoid going into the red but it reported a “far worse than expected” 95% plunge in its fourth quarter net profits to Saudi Riyal (SR) 311m ($82.9m).

London-based HSBC recently said in a recent research note that it believed the results also included undisclosed “fairly large write-downs" for inventory as well as goodwill write-downs related to SABIC's acquisition of the GE Plastics business

 ($1 = €0.78/ $1 = Y89.89/ $1 = Bt35.50/ $1 = SR3.75)

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By: Bohan Loh
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