RIYADH (Reuters) – A surge in the price of oil has preserved Saudi Basic Industries Corp’s margins, offsetting the impact of the global economic slowdown on demand from some parts of the world, the company CEO said on Saturday.
SABIC posted earlier on Saturday a 16.5 percent rise in second-quarter profit to a record 7.54 billion riyals ($2.02 billion), close to the top of analysts’ forecasts.
As a state controlled company, Sabic has access to cheap energy inputs.
“This year is very strange, you see a slowdown (in demand) from some areas and the opposite elsewhere … But there is good demand on some products that offset the decline,” Chief Executive Mohamed al-Mady said in an interview.
“We have a lot of products, some did better than expected … On Asia for instance, we made very good profits,” Mady told Reuters by telephone.
SABIC said the surge in quarterly net profit was due to the consolidation of GE Plastics, which it bought last August for $11.6 billion, and stronger sales despite the global economic slowdown.
Annual growth of operating profit almost doubled to 26.7 percent in the second-quarter from the first-quarter after a 55.8 percent rise in turnover during the three months to June 30, based on Reuters calculations and SABIC’s financial data.
“The rise in oil prices preserved our margins … But whether we will keep this pace depends on the conditions of the market, we will have to keep the same levels of productivity,” Mady told Reuters.
Asia and Saudi Arabia represent the largest markets for SABIC, he said.
Crude prices are used as a benchmark for the pricing of feedstocks including naptha, used to produce petrochemicals.
Crude has risen from $20 a barrel in January 2002 to a peak of $147.27 last week on growing demand from nations like China and rising cash inflows into commodities from investors seeking to hedge against inflation and the weak dollar.
The world’s biggest petrochemical company by market value expects to start production at three new industrial units by early-2009.
“We don’t know how the impact will be on prices (from the three new units) but we are very optimistic that they (prices of their products) will be competitive,” he said.
SABIC’s 51-percent owned Saudi-based Yanbu National Petrochemical Co. will start production before end-2008. It will produce about 4 million tonnes of petrochemical products each year, a third of which will be ethylene.
The two other plants, the 2.1 million-tonne per year Sharq plant in Saudi Arabia and the 400,000 polyethylene plant in the UK’S Wilton, Teeside will start by early 2009.
SABIC has renamed GE Plastics as SABIC Innovative Plastics after it paid $11.6 billion for it in August.