We noticed you're blocking ads.

Keep supporting great journalism by turning off your ad blocker.

Questions about why you are seeing this? Contact us

Font Size

- Aa +

Mon 20 Jul 2009 08:32 AM

Font Size

- Aa +

SABIC to increase output by 2012

World's largest petrochemicals firm says it sees no immediate improvement in energy prices.

SABIC to increase output by 2012
OUTPUT INCREASE: SABIC said it would raise its petrochemicals output by about 12 million tonnes by the start of 2012. (Getty Images)

Saudi Basic Industries Corp (SABIC) said on Sunday it would raise its petrochemicals output by about 12 million tonnes by the start of 2012 after it posted a 76 percent drop in second-quarter profit.

But for the immediate future the world's largest petrochemicals firm by market value sees no improvement in petrochemical prices.

"Prices are expected to improve within years not within days," chairman Prince Saud bin Thenayan al-Saud told Reuters.

SABIC said late Saturday lower petrochemicals and metals prices led it to post the sharp drop in second-quarter net profit compared with the same period in 2008, although it reversed a net loss in the first-quarter of 2009.

Investors punished the stock as it closed 8.4 percent lower on Sunday after gaining more than 15 percent over the previous nine sessions.

The planned output increase will mainly come from a 3.2 million tonne joint venture with China's Sinopec and -- within Saudi Arabia -- from Yanbu National Petrochemical Co and the expanded Asharq petrochemical plant, Prince Saud said.

According to its audited report, SABIC produced 35.4 million tonnes of chemicals, 7.9 million tonnes of polymers and 1.3 million tonnes of innovative plastics last year.

The results, which were slightly above average forecasts, could indicate that SABIC may face a long road in matching record profits in 2008 when demand for petrochemicals was booming.

"SABIC's results were in line with our expectations because although prices have improved, volumes have fallen quarter-on-quarter," said Keith Edwards, head of asset management at Doha-based investment company The First Investor.

"SABIC is an international stock and so one can utilise international trends to forecast what its profits will be. General Motors and Chrysler have filed for bankruptcy and there has been negative global growth so who is SABIC selling to?"

SABIC usually does better in terms of profitability than rivals like Dow Chemical and Germany's BASF because it purchases feedstock at lower prices, analysts say.

Higher oil prices are seen as positive for petrochemical firms because they increase petrochemical product prices and make them more competitive against rival manufacturers from countries with higher tax rates for oil.

"The decline in oil prices did not help improve things for us," Prince Saud said.

"For the first time, a recession combined with the end of a growth cycle for the petrochemical industry. This had a significant impact on SABIC ," he told reporters.

The firm shocked investors when it reported a net loss of SR974m in the first quarter of 2009 after booking a SR1.18bn goodwill depreciation on its 2007 purchase of the plastic unit of General Electric for $11.6bn.

SABIC later renamed the purchased unit SABIC Innovative Plastics.

Mutlaq al-Morished, vice president for corporate finance at SABIC, said the firm did not book for goodwill depreciation in the second quarter.

"The external auditors did not include it because they deemed the situation to be stable ... Only God knows if we will need to book for goodwill (depreciation) in the third quarter," Morished said.

The company will not pay out a dividend for the first half of the year, he told Al Arabiya television earlier on Sunday.

Figures released by the firm indicated a slight decline in sales during the second quarter.

The volume of sales stood at 11.37 million tonnes, down from 11.47 million tonnes a year earlier.

Morished played down the drop, attributing it to the scheduling of ships. "The market is better than before (earlier in 2009). It is clear from prices, which are not however (as good as) the prices of 2007 or 2008," Morished said. (Reuters)

Arabian Business: why we're going behind a paywall

For all the latest energy and oil news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.