DUSSELDORF, Germany (Reuters) – Saudi Basic Industries Corp (SABIC) said on Wednesday it expects global chemical prices to rise next year on further delays in fresh capacity and demand growth in China.
Still, new global capacity may weigh on prices in the second half of the year, said Mohamed al-Mady, chief executive officer of the world’s largest chemical company by market value.
“My assessment before was that we see a flattening in 2008 but now my assessment has changed, because we will not see some plants coming on stream,” Mady said in an interview in Dusseldorf, Germany.
State-controlled SABIC, which makes chemicals, fertilizer and steel, on Tuesday posted its fifth consecutive record profit in the third quarter on higher prices for its products and more production.
SABIC, which the Saudi government set up in 1976 to help diversify the kingdom away from crude oil exports, may be the most attractive petrochemical company in the world with an earnings yield of more than 8 percent, compared with 3 percent two years ago, Japan’s Nomura bank said in an Oct. 20 report.
Asian prices for ethylene, which costs SABIC less than $300 per ton to produce, 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, according to Houston-based consultancy Chemical Market Associates Inc (CMAI).
“There are new plants coming into the picture towards the middle of the year,” Mady said on the sidelines of a chemicals exhibition in the German city. “The first half will be better than the second half,” he said, noting 2008 would be a “good” year.
SABIC net income in the three months to Sept. 30 surged 37 percent to 7.4 billion riyals ($1.97 billion).
The quarter included earnings of the plastics unit of General Electric Co, which SABIC agreed in May to buy for $11.6 billion. The European Union approved the takeover in August.
“Companies are looking for sophisticated, value-added products,” Mady said. “SABIC is a company that would also like to take that step forward.”
On further acquisitions, Mady said: “we are in integration phase but we are not closing our eyes. We are keeping our eyes open.” He did not give details.
SABIC output, which includes chemicals, fertiliser and steel, rose 13 percent to 40.9 million tons in the first nine months of the year. Sales climbed 13 percent to 32.6 million tons. It did not give details for the third quarter.
Ethylene, SABIC’s biggest product, is a base chemical used to make plastics such as polyethylene for textiles or computer covers.
Chemical prices are linked to oil which surged in New York last week to more than $90 per barrel, a fresh record.
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., rely for feedstock on naphtha, which is linked to oil prices.
China import prices for methanol, of which SABIC produced 4.13 million tons last year, 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.