Saudi SABIC Q1 net profit fall 1.8 % on lower product prices

20 April 2014 11:04  [Source: ICIS news]

KARACHI (ICIS)--Petrochemical giant Saudi Basic Industries Corporation (SABIC) posted a 1.8% decline in first-quarter net profit on Sunday as lower product prices offset rise in production and sales volumes.

SABIC made a net profit of Saudi riyal (SR) 6.44bn ($1.72 billion) between January and March compared to SR6.56bn a year earlier, the world’s biggest petrochemicals maker said in a brief statement to Saudi Tadawul stock exchange.

“The decrease in net income is attributable to lower sales prices for certain products and higher selling and administrative expenses, noting higher production and sales volumes,” SABIC said.

The firm’s first-quarter gross profit rose by 0.78% year on year to SR14.13bn while operating profit fell 1.63% year on year to SR10.87bn.

Most of SABIC associates also struggled during the quarter to grow their earnings.

SABIC affiliates Yanbu National Petrochemical Company reported 16.7% decline in the first quarter net profit; Saudi Kayan swung from a SR154.87m net loss in the first-quarter of last year to a net profit of SR 9.94m in the same period this year; Saudi Arabia Fertilizers Co first-quarter net profit fell 9.55% to SR843m, while Saudi Ma’aden net profits plunged 47.66% on weak prices of its products.

In post-result comments, SABIC’s CEO Mohamed al-Mady said the company is finding it difficult to grow within Saudi Arabia because of a shortage of natural gas.

"The shortage of gas and many sectors competing for it have made internal expansion very hard," al-Mady said.

SABIC, which makes petrochemicals, metals and fertilizers, relies heavily on natural gas as a raw material for its chemical business, and is facing increased competition from the United States where a shale gas boom has made new and cheap supplies available.

In February SABIC announced that it has approached several US firms to invest in the US shale gas industry, and expects to enter that market in 2014. The company is considering to build single-phase oil-to-chemicals complex in Yanbu at an estimated cost of $30 billion.

Al-Mady said SABIC had studies underway on possible mega-projects in Saudi Arabia, North America and China, including potential projects involving shale gas in North America.

"We are talking with a number of potential partners in the US for investment in shale gas as the cost of shale gas is reasonable compared to oil or alternative materials like coal or solar power," he added.

SABIC also had several domestic projects under construction, including a synthetic rubber plant at its KEMYA joint venture that would come on line in two to three years.

The company's results are closely tied to global economic growth because its products - plastics, fertilizers and metals - are used extensively in construction, agriculture, industry and the manufacture of consumer goods.

A Dubai-based banker said the global economy’s volatility during 1Q14 due mainly to weak US data and the tensions in Ukraine could also have had adverse effect on SABIC’s earnings.

"Subsequently, the data-points have indicated a pick-up in activity supporting recovery in the global economy, but continuing tensions in Ukraine pose another threat to the petrochemical sector specifically and could negatively impact the global economy if the situation escalates," he added.

By: Aamir Ashraf

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