Sabic continues to lead Gulf petchem companies’ growth

Earnings of petrochemical companies in the Gulf Cooperation Council (GCC) petrochemical companies declined by 10.2 percent to $3.1 billion in the first quarter of 2012 compared to $3.5 billion in the same period last year, Global Investment House said in a study.

On a quarter-on-quarter basis, though, the earnings improved by 23.9 percent mainly due to stronger product prices and higher volumetric sales.

Overall net income registered by the companies covered by the report was $2.96 billion in Q1 2012 compared to $3.09 billion in the comparable period last year.

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 the first quarter of this year, the companies were able to reduce the cost of funding which dropped the interest expense by 13.5 percent Y-o-Y, it said, adding overall interest expense during Q1 2012 dropped to $249 million against $288 million in the previous year period.

The performance of regional petrochemical companies was mixed on a q-o-q basis with Sabic (Saudi Basic Industries), Industries Qatar, Yansab (Yanbu National Petrochemical Company), Sahara Petrochemical, Shell Oman, Petro Rabigh and Dana Gas reporting better than expected earnings while other stocks such as Saudi Kayan Petrochemical, Safco (Saudi Arabia Fertilizers), Tasnee (National Industrialization), Sipchem (Saudi International Petrochemical Co) and Nama Chemicals reporting drop in earnings or extended their losses.

The drop in year-on-year net profit for petrochemical companies was due to rising cost which climbed by more than 16 percent, cutting the gross margins of the sector to an average of 33.1 percent in 1Q12 compared to 37.4 percent in the same period last year.

Margins dropped in the case of Sipchem and Industries Qatar, while Dana was the only company to register growth in gross margins.

As natural gas prices continued to drop, the feedstock used in the petrochemical industry fell by 26.2 percent q-o-q and down 41.3 percent y-o-y. The drop in average prices of benchmark was mainly because of discovery of considerable amount of natural gas reserves in western countries. On an average, price of petrochemical products rose by 2.2 percent q-o-q during Q1 2012, it said, adding price of ethylene witnessed an increase of 17.8 percent q-o-q; while price of LDPE and LLDPE dropped q-o-q by 6.9 percent and 0.1 percent respectively.