Global slump hits SABIC profit

The Saudi petrochemical sector clearly faces potentially growing challenges as the global demand outlook darkens, a Kingdom-based analyst warned yesterday as Saudi Basic Industries Corp. (SABIC) posted a 35 percent decline in second-quarter profit.
The Saudi stock market’s petrochemical industries index showed an upward trend yesterday, however, rising by 0.88 percent. The Tadawul All-Share Index also rose by 0.6 percent to 6,628.26 points.
The continuous slowdown in global economic growth was a major reason for the earnings decline, SABIC said yesterday. Its net income fell to SR 5.3 billion from SR 8.1 billion a year earlier
Jarmo T. Kotilaine, chief economist at the National Commercial Bank, said: “Particularly important in this regard is the relative loss of growth momentum in some of the leading emerging markets led by China. The effects of these trends have been amplified by the recent downward pressures on the oil price.”
In general terms, he added petrochemicals tend to be among more vulnerable key sectors to external conditions. It is still early to tell to what extent this constitutes a trend, he pointed out.
The analyst also said: “There is a chance that the current pricing now reflects excessive optimism. Provided serious disruptions can be avoided for now and especially if there is an effort to counteract such risks through more unconventional easing, the underlying tightness of the oil market could yet give way to renewed market stability or even some upward pressure during the remainder of the year.”
Basil Al-Ghalayini, CEO of BMG Financial Group, told Arab News: “Although SABIC enjoys a competitive edge since much of its feedstock comes from subsidized natural gas supplied by the government, SABIC got hit with profits fallen in the first half of the year due to global economic slowdown, especially in China.”