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Saudi Petrochemical Groups Hit by Oil Price Fall

Source: Reuters 1/14/2016, Location: Middle East

Saudi Arabian petrochemical firms felt the full impact of lower oil prices in results posted on Thursday, with Saudi Arabia Fertilizers Co (SAFCO) reporting its fourth-quarter net profit fell by more than half. The decline at SAFCO follows lower earnings earlier in the day from Saudi Kayan Petrochemical Co and Yanbu National Petrochemical Co (Yansab). The firms largely blamed lower product prices caused by the sustained drop in oil prices and their poor showing is expected to be reflected in results from Saudi Basic Industries Corp (SABIC), one of the world's largest petrochemicals companies and parent to all three firms. SABIC is due to announce its earnings on Monday and four analysts polled by Reuters forecast the state-controlled firm's fourth-quarter profit will fall by 2 percent. Petrochemical product prices are closely linked to those of oil, while Saudi firms receive subsidized energy and feedstock. That means high oil prices give them better margins and a competitive advantage over rival manufacturers from non-oil producing regions, although this benefit diminishes as crude prices decline. Oil prices are at around 12-year lows. SAFCO's fourth-quarter profit fell 51.4 percent to 379 million riyals ($101.1 million), it said in a filing, short of analysts forecasts of 474.4 million riyals. The firm, which has now reported declining profits in ten of the last 11 quarters, blamed lower product prices and higher costs due to the accelerated depreciation of fixed assets for its latest drop. It did not give further details. Saudi companies issue brief earnings statements early in the reporting period before publishing more detailed results later. SAFCO is a big producer of urea, which has suffered a prolonged drop in prices due to China's increased output. YANSAB, KAYAN Yansab posted a fourth straight quarterly profit decline, with its net income for the three months to Dec. 31 falling 36.4 percent to 393.1 million riyals, although this beat the average analyst estimate of 345.8 million riyals. Yansab previously said it was trimming its dividend payout for the second half of 2015, having also cut it in the first half of the year. The firm said lower sales prices had eliminated the benefits from higher sales volumes and so caused the profit drop. Saudi Kayan fared even worse, swinging to a fourth-quarter net loss of 624.1 million riyals versus a profit of 11.78 million riyals a year earlier. Kayan's loss would have been greater had it not rescheduled maintenance work due in October. It previously estimated these repairs would cost 340 million riyals. The results, published before market hours, dragged Kayan's shares down 8.7 percent. SAFCO and Yansab, which disclosed earnings after market close, slid 0.7 and 3.7 percent respectively. SABIC dropped 2.2 percent, against a wider market index decline of 3.3 percent.

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