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Weak Selling Prices Hold Back SABIC Q2 Profits

19.07.2010 -

Weak selling prices are hurting profits at Saudi Basic Industries Corp's (SABIC), second-quarter results from the world's biggest chemicals company by value revealed on Sunday. Net profit rose 177% from a year ago to 5.02 billion riyals ($1.34 billion) as new output came on stream, but it missed analysts' forecasts of 5.62 billion riyals and undershot first quarter earnings of 5.43 billion as selling prices ate into margins.

Without giving figures, SABIC said sales rose in both volume and value during the second quarter compared to a year ago after the addition of new capacities under its Saudi-based affiliates Yansab, and Sharq and under its Tianjin joint-venture with Sinopec.

"The (profit) decline compared to the first quarter is due to a decline in the prices of the majority of products, an increase in feedstock prices and also an increase in iron ore prices," it said. Ibrahim al-Alwan, deputy chief executive at Saudi investment bank KSB Capital, said the result was a disappointment.

"The market will not like these earnings," said Alwan, whose firm came closest in forecasting SABIC second-quarter earnings. "Global demand eased a bit during the second quarter compared to the first quarter especially with the entry of new production capacities. SABIC has not drawn full benefits from the entry of its own new production capacities," Alwan said. "The global recovery is just not there really for SABIC to speed up the recovery of its profits to the records seen in 2007 and 2008".

SABIC said it would offer shareholders a 1.5 riyal per share dividend for the first half, or 43.1% of its total earnings per share for the period. Before the global crisis started in 2009 taking its toll on the Saudi firm and its global competitors such as BASF and Dow Chemical, SABIC was making quarterly profits of between 6.4 billion and 7.5 billion riyals.

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