Oil Slump Slashes Saudi Basic Industries Q4 Profit 29%

Saudi Basic Industries Corp (SABIC), one of the world’s largest petrochemicals groups, reported a 29 per cent plunge in fourth-quarter net income on Sunday, widely missing analysts’ forecasts because of the tumble of global oil prices.

Chief executive Mohamed al-Mady told reporters his company’s outlook for 2015 depended on oil prices and was therefore unpredictable, but that SABIC faced challenges early in the year. Oil, which is closely tied to petrochemical product prices, has tumbled more than 50 per cent since last June.

The Gulf’s largest listed company earned SAR4.36 billion ($1.16 billion) in the three months to Dec. 31 compared to SAR6.16 billion a year earlier, SABIC said in a bourse statement, as sales sank 10 per cent from a year ago to SAR43.4 billion.

Profit was well below the average forecast of analysts polled by Reuters, who had predicted earnings of SAR5.50 billion. It was also below the company’s third-quarter net profit of SAR6.18 billion.

Mady said his company, which is 70 per cent state-owned, would stick to its long-term strategy of focusing investments in China, North America and Saudi Arabia, to be close to raw materials or SABIC’s markets.

He said it would continue to look hard at acquisition opportunities in the United States and at investing in the U.S. shale gas industry. A year ago, he said the company expected to enter the shale market in 2014.

Asked about the risk that falling oil would hurt the Saudi economy, Mady noted that the state budget envisaged spending staying high, and said: “This hiccup of lower crude oil prices is not the first time and will not be the last time – so this country will continue marching.”

He told Reuters that SABIC was still studying the idea of building an oil-to-chemicals plant that would allow it to diversify products, though he could not estimate the project’s likely cost if it went ahead.

“SABIC’s strategy is not to be locked in one feedstock…Shale and syngas (feedstocks) can only give you so much. Oil can give you more different chemicals,” he said.

STEEL

However, Mady said falling steel prices meant SABIC would “think twice” about proposals for two new domestic steel plants in Rabigh and Jubail that are being studied by its affiliate Saudi Iron and Steel Co (Hadeed), and are expected to cost $4.26 billion.

The company has no plans to issue new bonds this year and is considering refinancing two loans which fall due in June and November, another company official told reporters after the results announcement. The loan due in June is worth $1 billion, he said.

SABIC attributed the slide in its profits to lower average prices for the products which it sold, although this was partly offset by lower feedstock prices. Falling oil prices hit the chemicals segment of SABIC’s business most strongly, followed by polymers, Mady said.

In addition to oil, the company’s results are closely tied to global economic growth because its products – plastics, fertilisers and metals – are used extensively in construction, agriculture, industry and manufacturing consumer goods.