Saudi petrochemicals shares tumble

24 April 2012

Tadawul petrochemicals index down more than 5 per cent as first-quarter results fall short

Petrochemicals producers based in Saudi Arabia, have faced a tough year so far, as price hikes for key products have failed to offset higher feedstock costs.

Saudi petrochemicals shares have dropped over the last month as the first-quarter results of several of the kingdom’s largest producers fell short of expectations.

The Saudi Stock Exchange (Tadawul) Petrochemicals Industries index dropped 5.8 per cent between 24 March and 22 April 2012. The index tracks the share prices of 14 Saudi companies involved in all stages of the chemicals sector including methanol and fertilisers.

Shares in Riyadh-based Saudi Basic Industries Corporation (Sabic), the region’s biggest petrochemicals group, dropped 3.5 per cent over the same period closing at SR103.25 ($27.5) a share. Sabic reported a 5.5 per cent decrease in net income for the first quarter of 2012 to SR7.27bn, mainly due to lower sales prices for chemical products. This is the group’s second consecutive year-on-year drop in profits.

However, the figure is 38.8 per cent higher than the $5.24bn profit Sabic reported in the fourth quarter of 2011. Sabic said the increase was due to higher prices for select products, as well as a reduction in operation costs.

Sabic subsidiaries Saudi Kayan Petrochemical Petrochemical Company and Saudi Arabian Fertilizer Company (Safco) both reported disappointing first-quarter results. Safco posted a 38.4 per cent drop in income compared to the previous quarter.

At the same time, Saudi Kayan widened its loss to SR71.1m. The company started commercial production at its Jubail polyolefins complexin the fourth quarter of 2011 and was widely expected to report a profit for the first three months of 2012. Analyst consensus forecasted a profit of SR212m.

“An unscheduled shutdown for three weeks and continued production problems were the primary loss causes,” says Nitin Garg, analyst at Bahrain-based Sico Research. “We believe that cost overruns, which were significantly ahead of initial estimates, will weigh on the company’s profitability for a period.”

Saudi Kayan’s share price has dropped 15 per cent over the last month to SR17.95, while Safco shares fell 4.4 per cent over the same period to SR178.50.

The first-quarter results of National Petrochemical Industrialisation Company (Tasnee) came in below market expectations, once again due to lower selling prices year-on-year. The company’s shares have fallen 9.6 per cent over the past month.

The company’s net income fell 9.6 per cent year-on-year to SR524m compared to an analyst consensus estimate of SR599m. Tasnee’s margins were squeezed by higher feedstock costs and lower selling prices for its petrochemicals segment.

“We believe that Tasnee incurred higher than expected costs of production at its key business segments – petrochemicals and titanium – which led to lower than expected gross margins,” says NCB Capital analyst Tariq al-Alaiwat.

Many Saudi Arabian producers will be looking to pass on higher feedstock costs to their customers in the second quarter of 2012 to recapture some of the margins lost over the past six months.

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