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Mon 8 Oct 2007 12:10 PM

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Sabic to post record profit

World's largest chemical company likely to see Q3 income surge as demand from China and India spurs prices.

Saudi Basic Industries (Sabic) probably posted its fifth consecutive record profit in the third quarter as surging demand for chemicals in China and India spurred prices, a Reuters survey of analysts shows.

State-controlled Sabic, the world's largest chemical company by market value, probably posted at near 30% increase in net income in the three months to September 30 to 7.03 billion riyals ($1.88 billion), according to the survey of three analysts.

The forecasts ranged from 6.75 billion riyals to 7.23 billion riyals.

"They're doing pretty well," said Patrick Rooney, managing director of Houston-based Chemical Market Associates (CMAI). "They should be reasonably pleased."

Shares of Sabic, of which the government owns 70%, have risen almost 20% this year, compared with a decline in the main Saudi index of more than 2%.

Asian prices for ethylene, which costs Sabic less than $300 to produce per tonne, ranged from $1,250 per tonne to $1,300 per tonne in the third quarter, compared with $1,100 per tonne to $1,200 per tonne in the year-earlier period, said Rooney, whose CMAI has been consulting to the chemical industry since 1979.

Sabic, which the Saudi government set up in 1976 to reduce the country's reliance on crude oil sales, made 7.15 million tonnes of ethylene in 2005, its main product by volume.

Ethylene is a base chemical used to make plastics such as polyethylene for textiles or computer covers. It is linked to a oil prices which soared to a record $83.90 per barrel in New York last month.

Hot market

China import prices for methanol, of which Sabic produced 4.09 million tonnes in 2005, ranged between $330 per tonne and $350 per tonne in the third quarter, compared with $260 per tonne in the year-earlier period, according to CMAI data.

"Demand is hot," said Rooney. "Developing countries like India and China are driving it while there is a lack of new capacity."

Global chemicals demand is growing at between 7% and 25% per year, depending on the type, Rooney said.

Iran had been expected to bring on extra production of ethylene and methanol this year and last, but that has been delayed, Rooney said.

It costs Sabic about $100 to produce and deliver a tonne of methanol, Rooney said.

Sabic buys ethane gas from state-owned Saudi Aramco at a fixed price, while many other chemical producers, such as Japan's Mitsubishi Chemical Holdings, rely for feedstock on naphtha is linked to oil prices.

Base chemicals account for about 40% of Sabic's output, according to its website.

In 2005, the company made 49.1 million tonnes of products, including plastics, fertiliser and steel. It plans to increase capacity to 60 million tonnes by the end of this year.

Sabic is also the Gulf's largest steel producer. In 2005, it made 3.77 million tonnes.

Only Gulf Arab nationals and foreign residents in Saudi Arabia can buy Sabic shares. Other foreigners are limited to buying through funds. - Reuters

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