Sabic Third-Quarter Profit Drops on Lower Sales Prices, Volumes

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By Sam Wilkin @MrSamWilkin

October 19, 2016 — 9:00 AM EEST

Saudi Basic Industries Corp., the Middle East’s biggest petrochemicals company, reported a 6.8 percent drop in third-quarter profit as sales volumes and prices for its products both fell.

Net income dropped to 5.22 billion riyals ($1.39 billion) from 5.6 billion riyals a year earlier, the Riyadh-based company said in a statement to the Saudi stock market, beating the average estimate of 5.15 billion riyals forecast by nine analysts surveyed by Bloomberg. Sabic’s profit has declined for nine consecutive quarters. Sales slid 11 percent to 33.31 billion riyals.

“Pricing is much lower if you look at all their products,” Yousef Husseini, an analyst at EFG-Hermes, said by phone from Cairo. “Polymers, which are a big part of their product basket, are down 5 to 10 percent year on year, and other products are down even more than that.”

Petrochemical prices are linked partly to the oil and natural gas that producers such as Sabic use as feedstock. Benchmark Brent crude is trading near $52 a barrel, compared with a 2015 high of about $70. While petrochemical companies are often insulated from falling product prices by a parallel drop in feedstock costs, Saudi Arabian companies “could be a bit more vulnerable” because they typically buy raw materials at fixed prices from local producers, Husseini said.

Budget Deficit

“If prices drop, their feedstock costs don’t necessarily move down at the same rate,” he said.

Saudi Arabia, the world’s biggest oil exporter, has introduced austerity measures and launched its first-ever international bond sale to offset the widest budget deficit in more than two decades. The kingdom has also hiked utility prices, increasing the costs faced by energy-intensive industries including petrochemicals. Saudi Arabian Fertilizer Co., a Sabic affiliate, posted a 68 percent drop in third-quarter profit on Monday, citing lower sales prices and higher costs for feedstock and electricity.

“The problem with petrochemicals has been about average selling prices, and they’re not recovering,” said Sanyalak Manibhandu, an Abu Dhabi-based analyst at NBAD Securities LLC.

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