GCC petrochem firms’ profits fall 10.2% in Q1

Profits of the GCC petrochemical companies declined by 10.2 percent YoY to $3.1 billion in the first quarter of 2012 compared to $3.5 billion in the same period last year, according to a report by Global Investment House (Global) on the GCC petrochemical sector quarterly (Q1, 2012).
According to the report, the first quarter performances of various petrochemical companies in the GCC countries witnessed improvement on a QoQ basis (23.9 percent) mainly due to advancement in the product prices.
Overall, the performance of regional petrochemical companies was mixed on a QoQ basis with SABIC (Saudi Basic Industries Corp.), IQ (Industries Qatar), YANSAB (Yanbu National Petrochemical Company), Sahara Petrochemical, Shell Oman, PetroRabigh and Dana Gas reporting better than expected earnings while other stocks such as Saudi Kayan Petrochemical Co., SAFCO (Saudi Arabia Fertilizers Co.), TASNEE (National Industrialization Co.), Sipchem (Saudi International Petrochemical Co.) and Nama Chemicals Co. reported drop in earnings or extended their losses, the report said.
Looking at the average price of petrochemical products, prices of Ethylene witnessed an increase of 17.8 percent QoQ during 1Q12, whereas price of LDPE and LLDPE dropped on a QoQ basis by 6.9 percent and 0.1 percent respectively, according to the report.
The sector top-line witnessed a YoY increase of 8.8 percent in Q1, 2012, which was due to the combined effect of increase in price of petrochemical products along with commencement of commercial production from the newly expanded facilities. Most top-line growth was registered by SIPCHEM at 52.7 percent followed by 17.7 percent increase in the top-line of YANSAB. Lowest growth was registered by SAFCO on the backdrop of fall in the prices of Ammonia and Urea by 32.3 percent and 11.4 percent QoQ during Q1, 2012.
Overall net income registered by the companies under our coverage was $2.96 billion in Q1 12 as compared to $3.09 billion in the comparable period last year, the report said.
SABIC continued to remain the lead contributor to the sector profitability at 65.5 percent followed by Industries Qatar and SAFCO at 17.7 percent and 7.1 percent respectively.
During Q1, 2012, the companies were able to reduce the cost of funding which dropped the interest expense by 13.5 percent YoY. Overall interest expense during Q1, 2012 dropped to 249 million as compared to $288 million in Q1, 2011. Drop in the interest expense was on the back of cheaper refinancing rates available worldwide and easier fund raising for these companies because of backing of their oil rich governments.