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Saudi Basic Q3 profit probably at record on prices

DUBAI - Saudi Basic Industries Corp 2010.SE (SABIC) probably posted its fifth consecutive record profit in the third quarter as surging demand for chemicals in China and India spurred prices, a Reuters survey of analysts shows.

State-controlled SABIC, the world’s largest chemical company by market value, probably posted at near 30 percent increase in net income in the three months to Sept 30 to 7.03 billion riyals ($1.88 billion), according to the survey of three analysts. [ID:nL3029754]

The forecasts ranged from 6.75 billion riyals to 7.23 billion riyals.

‘They’re doing pretty well,’ said Patrick Rooney, managing director of Houston-based Chemical Market Associates Inc (CMAI). ‘They should be reasonably pleased.’

Shares of SABIC, of which the government owns 70 percent, have risen almost 20 percent this year, compared with a decline in the main Saudi index .SASI of more than 2 percent.

Asian prices for ethylene, which costs SABIC less than $300 to produce per ton, ranged from $1,250 per ton to $1,300 per ton in the third quarter, compared with $1,100 per ton to $1,200 per ton in the year-earlier period, said Rooney, whose CMAI has been consulting to the chemical industry since 1979.

SABIC, which the Saudi government set up in 1976 to reduce the country’s reliance on crude oil sales, made 7.15 million tons of ethylene in 2005, its main product by volume.

Ethylene is a base chemical used to make plastics such as polyethylene for textiles or computer covers. It is linked to a oil prices which soared to a record $83.90 per barrel in New York last month.

Hot market

China import prices for methanol, of which SABIC produced 4.09 million tons in 2005, ranged between $330 per ton and $350 per ton in the third quarter, compared with $260 per ton in the year-earlier period, according to CMAI data.

‘Demand is hot,’ said Rooney. ‘Developing countries like India and China are driving it while there is a lack of new capacity.’

Global chemicals demand is growing at between 7 percent and 25 percent per year, depending on the type, Rooney said.

Iran had been expected to bring on extra production of ethylene and methanol this year and last, but that has been delayed, Rooney said.

It costs SABIC about $100 to produce and deliver a ton of methanol, Rooney said.

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. 4188.T, rely for feedstock on naphtha is linked to oil prices.

Base chemicals account for about 40 percent of SABIC’s output, according to its Web site.

In 2005, the company made 49.1 million tons of products, including plastics, fertiliser and steel. It plans to increase capacity to 60 million tons by the end of this year.

SABIC is also the Gulf’s largest steel producer. In 2005, it made 3.77 million tons.

Only Gulf Arab nationals and foreign residents in Saudi Arabia can buy SABIC shares. Other foreigners are limited to buying through funds.