RIYADH, 18 July 2007 — Saudi Basic Industries Corp. (SABIC), the world’s largest chemical company by market value, posted its fourth straight record profit in the second quarter on higher product prices and output.
Net income in the three months to June 30 surged 42.2 percent to SR6.5 billion ($1.7 billion), beating analysts’ forecasts in a Reuters survey last month, which ranged from SR5.95 billion to SR6.45 billion.
Sales volumes rose 14 percent in the first half compared with the year-earlier period, SABIC said in a statement on the Saudi bourse website yesterday. The year-on-year rise in the second quarter was 12 percent.
At 3.77 million tons of output in 2005, SABIC is the largest Gulf Arab steel producer. “Prices of products were good, and sold quantities were higher, whether for chemical products or steel,” Chief Executive Officer Mohamed Al-Mady told Reuters by telephone. He did not give details.
Higher product prices outpaced a rise in the costs of feedstock, iron ore and other raw materials. “We have managed to overcome this rise so far,” Mady said. “We expect to continue coping well with it in 2007 by boosting turnover.”
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 Corp., rely for feedstock on naphtha, which is linked to oil prices that have risen. Product prices are also generally linked to oil prices.
The average price of a basket of SABIC’s biggest products — excluding steel but including urea, ethylene and polypropylene — grew 10.2 percent in the second quarter from a year ago to a record $974 per ton, according to HSBC. HSBC had forecast profit at SR6.33 billion and had given SABIC stock an “overweight” recommendation.
SABIC, which the Saudi government launched in 1976 to reduce the country’s reliance on crude oil sales, made 7.15 million tons of ethylene last year, its main product by volume. “It’s a very strong set of results,” said Peter Hutton, an HSBC analyst in Riyadh who covers SABIC. SABIC’s first-half earnings-per-share rose to SR5.1 compared with SR3.1 a year earlier, it said.
The state-controlled company added capacity in the second quarter when Saudi Arabian Fertilizer Co. (SAFCO), of which SABIC owns 43 percent, started operations in April of a 1.1 million-tons-per-year urea plant. Urea is used to make fertilizer. SAFCO reported record profit in the second quarter. Global prices for reinforcing steel bar rose 23.5 percent in the quarter to about $630 per ton from a year earlier.
HSBC expected operating income from SABIC’s metals business to grow 138 percent in the second quarter to 891 million riyals, it said in a July 14 report on the company. The year-on-year rise in chemical prices may ease in the fourth quarter on expectations that more global capacity will come on stream next year, clipping profit growth, Hutton said.
SABIC, which plans to raise output to 80 million tons a year by 2012 from 50 million now through acquisitions and new projects, agreed to buy GE Plastics in May for $11.6 billion. Base chemicals account for about 40 percent of SABIC’s output, according to its website. In 2005, the company made 49.1 million tons of products, including plastics, fertilizer and steel.
