Saudi Basic Industries Corporation (Sabic) on Sunday posted a 4.5 per cent fall in second-quarter earnings, better than expected, as it cut costs amid lower sales prices.
The Arabian Gulf’s biggest petrochemicals producer said net profit dropped to 6.17 billion Saudi riyals (Dh6.04bn) from 6.46bn riyals in the year-earlier period.
Second-quarter sales totalled 42.1bn riyals, down from 48.1bn riyals a year earlier but up from 35.5bn riyals in the first quarter.
Acting chief executive Yousef Abdullah Al Benyan told Reuters that “We were able to take advantage of dynamics of market changes in Europe and China” to improve the performance of SABIC’s global assets, he added without elaborating.
The result outpaced analyst forecasts because the price of naphtha, an oil derivative used as a petrochemicals feedstock, declined, according to Iyad Ghulam, an analyst at NCB Capital.
“Sabic’s profits were excellent. The company benefited from the improvement in the price of feedstock and they capitalised on it and improved their margins,” he said.
The price of the benchmark Brent crude has plummeted to about US$55 per barrel from last year’s peak of $115 per barrel because of weaker demand in Asia and Europe, a global oil supply glut and the strong US dollar.
The profit margins of petrochemical producers are narrowing because prices of petrochemicals are linked to crude prices. Besides naphtha, Sabic can also use cheap gas as a feedstock, giving it a competitive edge against European and Asian petrochemical rivals that rely mostly on naphtha.
NCB Capital, which forecasts an average Brent crude price of $62 per barrel this year and $65 per barrel next year, expects Sabic to deliver a full-year net profit of 19.7bn riyals this year and 21.7bn riyals next year. It has a neutral rating on the company.
“We remain cautious on the [petrochemical] sector because of the volatility in the oil price and unpredictable outlook of the oil market,” said Mr Ghulam.
Mr Al Benyan said Sabic was looking at major overseas investments and indicated a decision on them might be made in the next few months.
“We are looking for business opportunities in North America related to shale gas, and also some options in China related to coal-to-chemicals.” He added, “hopefully by the end of the year we will have an announcement.”
Saudi Kayan Petrochemical, a unit of Sabic, this month reported a second-quarter loss of 13.4 million riyals, down from a loss of 133m riyals in the same period last year, because of declining feedstock prices.
The collapse of oil prices has affected petrochemicals projects in the region. “We expect Sabic and the petrochemicals sector in general to revisit any expansion plans due to the drop in oil prices,” said Mr Ghulam.
Last October, Royal Dutch Shell and Sabic cancelled the expansion of Saudi Arabia Petrochemical Co, their joint venture, saying that the feasibility studies were “not encouraging”.
The oil price slump has also been felt in Qatar, where it led to the scrapping of the $6.4bn Al Karaana petrochemicals project, a joint venture between Qatar Petroleum and Shell.
Arabian Gulf countries have invested billions of dollars in petrochemical projects to create downstream industries that will diversify their energy earnings.
Sabic shares closed up 0.7 per cent to 99 riyals on Sunday.
dalsaadi@thenational.ae
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