Chemical makers see stock tumble on Sabic results

ECONOMIC IMPACT: Fears that the US slowdown would dampen demand for chemicals saw Gulf companies' share prices tumble.

Shares of Gulf chemical makers tumbled on Sunday after Saudi Basic Industries Corporation (Sabic) missed fourth-quarter profit forecasts as a US economic slowdown dampened demand for petrochemicals.

Sabic, the world's largest chemical maker by market value, fell almost the maximum 10% allowed in one day, its biggest loss in 19 months, as investors scaled back bets on profit growth.

The share price almost doubled last year as Sabic reported five consecutive quarters of record profit on surging demand for its chemicals, steel and fertilisers. The market had been expecting the three months to December 31 to set another record.

"Global chemical prices have been rallying so it was a real surprise," said Joe Kawkabani, head of equities and assets management at the Algebra Capital.

Sabic fell 9.11% on Sunday to 197 riyals, its biggest one-day drop since July 2006.

Last year's rally had made state-controlled Sabic, twice as expensive as its global peers. The stock was trading around 20 times forecast earnings on Saturday, compared with around 9.5 for Dow Chemical of the US and 11 times for Germany's BASF, according to data from newswire Reuters.

Sabic had been bracing for slowing growth in US, but chief executive Officer Mohamed Al-Mady said in December he expected India, China and the Middle East to offset the decline in US demand.

On Sunday Mady said the economic slowdown triggered by defaults on subprime mortgages, or home loans for people with a poor credit history, hurt demand for Sabic's chemical sales to the construction companies and automakers.

Sabic said fourth-quarter profit rose 12.3% to 6.87 billion riyals. Analysts' forecasts ranged from 8.38 billion riyals to 9.1 billion riyals.

The company increased its exposure to the US market last year by acquiring the plastics unit of General Electric for $11.6 billion. Sabic was still waiting to asses the full impact of the subprime crisis, Al-Mady said.

Those remarks spooked the market, raising concerns that a surge in chemical demand, which allowed Gulf exporters to sell more chemicals at ever higher prices was coming to an end.

The fall by Sabic shares hit other petrochemical stocks. Shares of Industries Qatar, Sabic's smaller rival in steel fertiliser and chemicals, fell 2.35%, Saudi International Petrochemicals Company slumped 9.25% and Yanbu Petrochemicals lost 9.69%.

"Petrochemicals as a sector depend on exports so you are tied up with what happens globally," said Hassam Arabi, managing director of asset management at Dubai-based Shuaa Capital. (Reuters)

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