GCC petrochemicals profits up from second quarter

28 November 2012

But producers feel pressure from lower prices in first nine months of 2012

The GCC petrochemicals sector reported a combined increase in profits in the third quarter of 2012 against the previous quarter, but prices remain weak against last year.

Income increased by an overall 22.7 per cent as the region’s largest listed producers – Saudi Basic Industries Corporation (Sabic), Industries Qatar (IQ) and Saudi Arabia Fertilizer Company (SAFCO) – reported an uptick in profits, according to Kuwait-based Global Investment House’s GCC petrochemicals index.

“Third quarter performances of various petrochemical companies fared better than previous quarter as prices of various petrochemical products recovered in the range of 5-10 per cent,” says Global’s head of research Faisal Hasan in a new report. “The major reason for better performance on a quarter-on-quarter basis was better demand scenario on petrochemical front and increased off-take of fertiliser products because of sowing season.”

Riyadh-based Sabic, by far the region’s largest chemicals company in terms of turnover and production, reported a 19 per cent increase in net profit. Earnings rose to $1.68bn compared with the second quarter, but were down 23 per cent against the third quarter of 2011.   

The company’s chief executive officer (CEO), Mohamed Al-Mady, attributed the year-on-year decline to a drop in product prices, despite Sabic reporting an overall increase in production and sales. Operating profit in the first nine months of 2012 was down 22 per cent compared with the same period of 2011.

The high margins of many Saudi petrochemicals groups hang in the balance as the domestic gas feedstock price set by national oil company Saudi Aramco expires next year after being rolled over at the end of 2011. An increase in feedstock costs would affect some companies more than others, with the effect on diversified producers with international assets such as Sabic only likely to feel a moderate impact.

However, according to Hasan, the “margins of Saudi International Petrochemical Company (Sipchem) and Yanbu National Petrochemical Company (Yanbu) are expected to be significantly impact as they are pure-play petrochemical companies and most of their facilities are present locally”.

Elsewhere in the GCC, the third quarter net income of IQ rose 23 per cent against the second quarter and 26 per cent year-on-year, reaching $719.9m. The Qatar-based group was also impacted by weaker year-on-year prices in the first nine months of the year, with its petrochemicals business reporting a 1.7 per cent drop in sales over the period.

“Year-to-date weighted average realised low density polyethylene (LDPE) prices were almost 18 per cent down on the same period of 2011 following historically weak oil prices, the protracted economic downturn in Europe and reduced demand from the Far East,” the company said in its third quarter trading statement.

Of the 10 other GCC petrochemicals producers assessed by Global Investment House, only Shell Oman report a year-on-year an increase in profits.

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