RIYADH, (Reuters) – Saudi Arabian Fertilizers Co.(SAFCO) beat profit forecasts in the second quarter as the affiliate of Saudi Basic Industries Corp (SABIC) boosted production and a world food crisis spurred fertiliser prices.
SAFCO’s near 125-percent surge in profit in the three months to June 30 would reflect positively on the earnings of SABIC, the world’s biggest chemicals firm by market value, its chief executive said.
“The increase in productivity in the factories was good in the second quarter compared with the first quarter,” Mohamed al-Mady, chief executive officer of SABIC and SAFCO, said in an interview with Al-Arabiya Television.
“But more important than this was the increase in prices which is due to the rise in global oil prices and the increase in the demand for food,” Mady said.
SAFCO, in which SABIC owns a 42 percent stake, made a profit of 1.19 billion riyals ($317.6 million) in the three months ending June 30, up from 530.3 million riyals a year earlier.
The rise resulted from “improvement in the selling price of core products and the volume of sales”, SAFCO said in a statement on the bourse website, without giving details.
Mady said fertiliser prices rose 20 to 25 percent in the second quarter as oil prices — which have more than doubled in the last year — surged to levels above $140 a barrel by the end of June.
The quarterly earnings were 12.3 percent higher than the best of three forecasts in a Reuters net profit survey last month, signalling that SABIC could also outpace expectations in the quarter.
SAFCO shares jumped as much as 3.68 percent after the earnings release.
The price of urea, which makes up about 84 percent of SAFCO’s production volume, almost doubled in the second quarter while that of ammonia rose by around 40 percent, said Hesham Abu Jamee, head of asset management at Bakheet Financial Advisors.
SAFCO would likely almost double full-year profit to 4.3 billion riyals from 2.21 billion riyals last year, Abu Jamee said.
“SAFCO produces urea and ammonia whose prices rose vertically in the second quarter,” Abu Jamee said. “It sells mostly to East Asian markets … and China’s ban of exports of fertilisers has pushed both prices and demand up.”
Mady said SAFCO could continue to post similar profit growth if demand and prices for urea remained high.
Global demand for fertilisers has surged as the world contends with a food crisis. SAFCO launched a fourth production line last year that raised output by 50 percent.
The pass through of SAFCO’s profits into SABIC’s bottom line might not be significant since the chemicals conglomerate has a diversified portfolio of products, Abu Jamee added. He said SAFCO would contribute only 8 to 10 percent to SABIC’s profit.
SABIC posted its smallest growth in quarterly profit in almost two years in the first quarter as a U.S. economic slowdown hurt demand for chemicals even as Asian demand jumped.
Analysts in the Reuters survey expect SABIC will post profit of between 7.16 billion riyals and 7.63 billion riyals in the quarter.