RIYADH, (Reuters) – Saudi Basic Industries Corp (SABIC) expects higher steel prices and new petrochemical units to deliver a second-quarter net profit above the $1.45 billion it made in the first quarter.
The world’s biggest chemical firm by market value saw net profit during the first quarter rise 19 percent from the fourth quarter of 2009.
Asked if SABIC would be able to replicate during the second quarter the same growth rate, Chief Executive Mohamed al-Mady said: “All indicators show that (quarter-to-quarter) growth will continue, although at a lower pace”.
Earlier this year, the company started units at both the 4 million tonne per year Yanbu National Petrochemicals Co 2290.SE (Yansab) and at the expanded Jubail’s Eastern Petrochemical Co (Sharq), and will soon start commercial operations at the 3.2 million tonne per year Tianjin complex in China, a joint-venture with Sinopec.
“Predicting prices is tough under the current conditions. Prices of some petrochemical products started contracting and there are new capacities entering the international market … We will play on quantities to help our revenues grow,” Mady told reporters at SABIC’s headquarters.
SABIC’s turnover rose to 34 billion riyals in the first quarter, up from 19.6 billion riyals a year earlier and 32 billion riyals in the fourth quarter of 2009.
What helped SABIC during the first quarter was an improvement in U.S. demand and sustained solid demand from China, he said. “The automotive business improved dramatically … electronics as well,” Mady said.
Saudi Fertilizers Co 2020.SE, in which SABIC holds a nearly 43 percent stake, has put on hold a fifth expansion programme to add 2.7 million tonnes of urea and ammonia per year at a cost of $500 million and which was set to start in 2011.
“The focus now is on Safco’s joint venture with Hadeed for the flat steel products plant. It’s a promising plan,” Mady said.
He was referring to a 1.7 million tonne per year plant that is jointly owned by SABIC’ two affiliates.
Hadeed is the steel subsidiary of state-controlled SABIC which covers about 62 percent of the kingdom’s steel demand. In 2009, it contributed to 10 percent of SABIC’s total turnover and about 20 percent of SABIC’s net profit.
SABIC could have realised a higher net profit in the first quarter if the firm had raised steel prices in step with the global increase in iron ore prices earlier in the year, Mady said.
SABIC did end up raising steel prices by 35 percent — or by a net 700 riyals per tonne — this week, after a first increase on March 1 of 100 riyals per tonne.
Hadeed’s Chairman Abdulaziz al-Humaid said iron ore prices were double their level a year earlier.
SABIC is seen as the Saudi steel industry’s rainmaker because of its large production and its closeness to the government.
“There is a deficit in the Saudi steel market, plants are running at full capacity,” said Mady. “Hadeed produced 7 percent more than its production capacity (during the first quarter) … Our (steel) market share rose to 62 from 55 percent”.