Sabic beat forecasts with a fifth straight record profit and said Asian demand would support prices of its chemicals and steel products in 2008 despite slowing US growth.
Net income in the three months to September 30 surged 37 per cent to SR7.4 billion ($1.97 billion) on higher prices for its products and greater output.
The quarter included earnings of the plastics unit of General Electric, which Sabic agreed in May to buy for $11.6 billion. The European Union approved the takeover in August.
“China and India still represent the main areas of growth for our type of products,” Sabic chief executive officer Mohamed Al Mady said.
Sabic output, which includes chemicals, fertiliser and steel, rose 13 per cent to 40.9 million tons in the first nine months, the company said. Sales climbed 13 percent to 32.6 million tons.
Earnings per share in the nine months to September 30 rose to SR8.06 from SR5.67 in the year-earlier period, the state-controlled company said in a statement.
Analysts’ forecasts for third-quarter profit ranged from SR6.75 billion to SR7.23 billion, according to a recent survey.
Sabic, which the Saudi government set up in 1976 to reduce the country’s reliance on crude oil sales, made 7.15 million tonnes of ethylene in 2005, its main product by volume. China is its biggest market.
Asian prices for ethylene, which costs Sabic less than $300 per ton to produce, ranged from $1,250 per tonne to $1,300 per tonne in the third quarter, compared with $1,100 per tonne to $1,200 per tonne in the year-earlier period, according to Houston-based Chemical Market Associates Inc (CMAI), which has been consulting to the chemical industry since 1979.
Ethylene is a base chemical used to make plastics such as polyethylene for textiles or computer covers.
Delays in bringing more global production capacity on stream and demand-growth in China and India, will probably offset a fall in demand-growth in the US, helping to keep prices largely unchanged into 2008, Mady said.
“There is a decline in growth from the US,” Al Mady said. “With the increase in the price of oil, prices should stay at their levels.”
Chemical prices are linked to oil which surged in New York to more than $98 per barrel, a fresh record.
Al Mady said talks with China’s Shide to develop a $5.2 billion petrochemical project in China’s Dalian area had stalled, although it was making progress on another venture with Sinopec.
Sabic has been in talks for three years with Shide to build the complex – including an oil refinery and an ethylene plant – in northeastern Dalian.
“On Dalian, there is no progress so far,” Al Mady said. “We are in talks with other Chinese partners apart from Dalian, including Sinopec, and there is positive progress in the talks with Sinopec.”
A industry source close to the deal said in China in May that Sabic may invest more than $1 billion in building a one million tonne-per-year naphtha cracker with Sinopec to produce ethylene in the northern city of Tianjin.
Sabic may be the most attractive petrochemical company in the world with an earnings yield of more than eight per cent, compared with three per cent two years ago, Japan’s Nomura bank said in an October report.
