GCC petrochemical companies profits fall 11.9% in 4Q

Mar 30, 2012 00:27 

RIYADH: Profits of the GCC petrochemical companies in 4Q11 declined by 11.9 percent YoY to $732.2 million as compared to $831.6 million in the same period last year due to lower pricing in global markets, according to a report by Global Investments House (Global).

On country basis, UAE stood out with profitability growth of 149.2 percent followed by 11.1 percent in Qatar during 4Q11, the report said.

Net earnings of Saudi Arabia and Oman petrochemical sector dropped by 16.6 percent and 25.0 percent respectively.

Leading contributor to the overall sector profitability was SABIC (Saudi Basic Industries Corp.) at 51 percent, followed by Tasnee at 20 percent and Industries Qatar and SAFCO at 17 percent and 12 percent respectively.

Companies, which reported huge losses, were Saudi Kayan and Nama Chemicals at $50.9 million and $61.3 million respectively, according to the report.

The GCC petrochemical firms witnessed a nominal growth in profitability during 4Q11. Growth in profitability, according to the report, was restricted due to increase in the cost of sales and rise in operating cost.

Cost of sales rose during the period due to rise in the price of feedstock, that is naphtha by 4.2 percent YoY during 4Q11. The increase in the price of naphtha was due to rise in the price oil (WTI) by 10.5 percent YoY during 4Q11.

On the other hand, price of natural gas, other feedstock used in the petrochemical industry, fell by 8.8 percent. However, it was not able to provide much needed relief as most of the petrochemical companies in Saudi Arabia have switched to naphtha for feedstock. Average gas prices were recorded at $4/mmbtu in 2011 as compared to $4.4/mmbtu in 2010. Drop in average prices of benchmark was mainly because of discovery of considerable amount of natural gas reserves in Western countries, especially US shale.

Overall net income registered by the petrochemical companies, according to the report, was $2.47 billion in 4Q11 as compared to $2.42 billion in the comparable period last year.

In 2011, the sector profitability went up by 40.2 percent to $12.2 billion. SABIC continued to remain the lead contributor to the sector profitability at 63.7 percent followed by Industries Qatar and SAFCO at 17.8 percent and 9.0 percent respectively.

During 4Q11, the companies were able to reduce the cost of funding which dropped the interest expense by 1.9 percent YoY. Overall interest expense during 2011 dropped by 4.1 percent to $1.08 billion as compared to $1.13 billion in 2010. 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.

Following is a quick review of GCC leading petrochemical companies profits (4Q11):

SABIC: Saudi Basic Industries Corporation posted after tax profit of SR29.2 billion in 2011 compared to the net income of SR21.5 billion in 2010. The growth in income was because of both volumes as well as prices. These factors led the company's sales revenue to show YoY growth of 24.9 percent in 2011, where gross and net profitability margins were recorded at 32.7 percent and 15.4 percent in 2011, respectively. On quarterly basis, 4Q11 profitability declined by 9.8 percent YoY and 36.0 percent QoQ.

INDUSTRIES QATAR: Reported after tax profit of QR1.68 billion ($0.46 billion) up YoY by 11.1 percent. Sales revenue went up by 9.6 percent YoY to QR4.0 billion ($1.1 billion). The growth was mainly associated with the increase in the prices of petrochemical and fertilizer products on an average by 3 percent and 28.0 percent respectively. With the increase in sales and drop in cost the company's gross, operating and net profitability margins, rose to 51.8 percent, 45.7 percent and 42.0 percent respectively during the 4Q11.

Meanwhile, Industries Qatar expects to make a net profit of QR8.3 billion ($2.28 billion) and revenues to reach QR18.3 billion in 2012 on the back of higher earnings at some its units.

DANA GAS: Dana Gas 4Q11 net profit of AED147 million was higher by 150.0 percent YoY. The rise in net profits is due to higher production, higher realized oil prices and cost control measures. For the whole year, gross revenues increased by 42.0 percent YoY to AED2.52 billion. The Group's net production averaged 66,200 boepd, an increase of 19.0 percent YoY, from its interests in Egypt and Kurdistan interests. Operations in Kurdistan have been the main growth driver for the company. The first LPG train was commissioned in January 2011 while the second LPG train was commissioned in April 2011 in Kurdistan.

YANSAB: Yanbu National Petrochemical Company (YANSAB) reported a net profit of SR664.9 million in 4Q11, an increase of 20.0 percent YoY. The company attributed the improvement to increase in production and sales quantities. The company started its commercial operations in March 2010 and has seen its net profit increase by 89.8 percent YoY in 2011 to SR3,174 million. However, the net profit for 4Q11 fell below our estimate of SR872.5 million. On a QoQ basis the net profit declined by 20.0 percent due to lower sales price in 4Q11.

SIPCHEM: Saudi International Petrochemical Company (SIPCHEM) posted strong profitability due to better than expected operational performance. The company experienced a significant rise in net profit by 68.8 percent YoY to SR211.2 million in 4Q11. The company cited improvement in operational performance, product prices, volume sales and margins as the reason behind growth in profitability. On an annual basis, sales revenue increased by 66.8 percent in 2011. Meanwhile, net profit increased by a hefty 86.7 percent YoY.

SAFCO: Reported after tax profit of SR1.27 billion ($340mn) during 4Q11 up YoY by 24.5 percent. Sales revenue went up by 15.6 percent YoY to SR1.5 billion ($401 million). The growth was mainly associated with the increase in the prices of urea and ammonia by 22.5 percent and 49.1 percent respectively. With the increase in sales and drop in cost the company's gross, operating and net profitability margins, rose to 75.0 percent, 73.1 percent and 84.8 percent respectively during the 4Q11.

© Arab News 2012