Petrochemical producers in the GCC region reported an overall drop in profits during the fourth quarter of 2011, as higher operational and input costs more than offset selling prices.

Based on the 16 companies covered in research by Kuwait-based Global Investment House, the petrochemicals sector posted total profits of $2.543bn during the three-month period, compared with $2.604bn in the fourth quarter of 2010. This represents a 2.4 per cent year-on-year (y/y) decline.

Many petrochemical producers in the Gulf region were hit by the rising price of naphtha feedstock, which has been boosted by a spike in crude oil. Naphtha prices rose by 4.2 per cent y/y in the fourth quarter of 2011, with the West Texas Intermediate (WTI) oil price up 10.5 per cent over the same period.

Naphtha prices are estimated to have increased a further 15 per cent from the start of the year, rising faster than the prices of most products in the olefins chain, indicating that producer’s margins have been squeezed further in early 2012.

By country, the UAE and Qatar recorded the strongest growth in the fourth quarter, with respective y/y profit increases of 149.2 per cent and 11.1 per cent, while the Saudi and Omani sectors reported profits declining by 6 per cent and 25 per cent.

Saudi Basic Industries Corporation (Sabic), the Riyadh-based chemicals giant, generated 55 per cent of the profits in the region’s petrochemicals sector, with Industries Qatar representing 18 per cent and Safco 13 per cent.

Sabic reported a net profit of $1.395bn for the fourth quarter of 2011, down 9 per cent y/y from $1.534bn. Profits also declined 36 per cent against the previous quarter. Although the company increased sales by volume over the period, there was a quarter-on-quarter drop in average selling prices that eroded Sabic’s income.

New York-based researcher Alembic Global Advisors forecast Sabic’s profit to drop a further 8 per cent quarter-on-quarter in the first quarter of 2012.

Industries Qatar, which majority-owns respective fertiliser and chemicals producers Qatar Petrochemical Company (Qapco) and Qatar Fertiliser Company (Qafco), reported an 11.1 per cent increase in profit to $463.2m. Qafco benefited from a 28 per cent increase in the average price of fertilisers.

Saudi group Yanbu National Petrochemical Company (Yansab) increased net profit by 19.8 per cent to $177.3m driven by increased production and sales volumes.

Despite lower overall fourth quarter profits, investors’ confidence in the petrochemicals market has grown.

Petrochemicals shares in the Middle East North Africa (Mena) region have gained an average of 20 per cent in the first quarter of 2012.

Alembic analyst Hassan Ahmed said this was “on the back of perceived improvements in the global economic picture coupled with a perception that the worst may be behind the petrochemicals sector after a de-stocking driven weak Q4”.

But Ahmed believes the market is getting ahead of itself, and forecast lower profits quarter-on-quarter for most companies in the first quarter of 2012.