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Tue 17 Apr 2012 02:40 PM

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SABIC Q1 profit hit by higher costs, slow China demand

SABIC's net profit fell 5 percent to US$1.94bn, but this was better than analysts expected

SABIC Q1 profit hit by higher costs, slow China demand

Saudi Basic Industries Corp (SABIC) , the world's biggest petrochemicals group by market value, posted a fall in first quarter earnings, sandwiched by higher input costs and a slowdown in Chinese consumption that crimped demand.

SABIC's net profit fell 5 percent to SAR7.27bn (US$1.94bn), but this was better than analysts expected and the shares rose 3.8 percent to SAR101.75 by 0936 GMT.

Analysts surveyed by Reuters estimating the chemicals, fertilisers, metals and plastics conglomerate would post profit of SAR6.74bn.

"China was growing at a higher rate (before), then there was a slowdown in its economy, also the European slowdown... and high oil prices had an impact on raw materials cost," CEO Mohamed al-Mady told a news conference.

He said that product selling prices overall continued to be satisfactory, given the circumstances, and sounded a bullish note on coming quarters.

"Prices are still reasonable within the economic situation... we will make good results in the coming quarters if there are no jitters in Europe," he said.

SABIC's profits fell sharply in the last quarter of 2011 after two successive quarters of record profits achieved on the back of surging product prices and strong global demand.

Since SABIC products are used in a wide variety of industries, from car manufacture to house construction and cheap retail goods it is highly sensitive to movements in the global economy.

SABIC benefits from government subsidised gas feedstock prices, which are a fraction of international prices, but was hit during the quarter by higher liquid fuel costs.

Brent crude rose 14 percent during the quarter and now hovers around the US$120 per barrel mark. On average, crude prices were clearly higher year on year in the first quarter.

By the end of this year SABIC plans to launch an iron plant with the production capacity of 500,000 tonnes which would help boost the firm's products volume, Mady said.

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