Sabic Profit Below Target on Slumping Plastics Demand

By Glen Carey

Jan. 20 (Bloomberg) -- Saudi Basic Industries Corp., the world’s largest chemical maker by market value, reported a record drop in quarterly profit as the global financial crisis and a slumping auto industry reduced demand for plastics and chemicals.

Net income tumbled 95 percent to 311 million riyals ($82.9 million) from 6.87 billion riyals a year earlier, the Riyadh- based company, also known as Sabic, said in a statement today. Analysts on average predicted 4.74 billion riyals in profit.

Sabic, 70 percent owned by the Saudi government, lowered its polyethylene and polypropylene prices as the first simultaneous recession for six decades in the U.S., Japan and Germany weakened demand for the plastics used in packaging and car bumpers. The Riyadh-based company, also the kingdom’s largest steelmaker, cut its domestic prices for the metal since October as construction orders slowed in the Arab world’s largest economy.

“With declining steel and fertilizers prices, and maybe some price erosion for some of their petrochemicals, and the lower level of demand, this creates a negative backdrop for earnings to develop sequentially,” said Laurent Gally, an industry analyst at Shuaa Capital PSC.

Sabic, the first major chemical company to report fourth- quarter earnings, dropped 69 percent last year for a market value of 135 billion riyals. The stock is down another 13 percent this year. BASF SE, the world’s largest chemical provider, slipped 45 percent in 2008.

GE Plastics

Faltering economies stifled petrochemical prices as well as demand, Sabic said.

The financial crisis threatens Sabic’s payback from the $11.6 billion acquisition of General Electric Co.’s plastics business in 2007. The purchase, the largest by a Gulf-based company, added a network of factories making resins and thermoplastic sheets used in cars, roofs and lighting, before the biggest U.S. carmakers hit an earnings slump that pushed them close to bankruptcy.

Renamed Sabic Innovative Plastics, the unit plans to eliminate about 1,000 jobs from its workforce of 10,500 by the end of this year as the company reorganizes its sales and marketing model to adapt to falling demand for products.

To contact the reporter on this story: Glen Carey in Dubai at gcarey8@bloomberg.net