Safco Quarterly Profit Falls on Lower Chemical Prices

By Glen Carey

Jan. 11 (Bloomberg) -- Saudi Arabian Fertilizer Co., a unit of Saudi Basic Industries Corp., posted its first decline in quarterly profit in more than two years as fertilizer prices dropped because of the global financial crisis.

Net income for the fourth-quarter fell 28 percent to 536 million riyals ($142.9 million) from 742 million riyals in the year-earlier period, the Dammam, Saudi Arabia-based company said in a statement today on the Saudi bourse Web site. Earnings per share for the quarter weren’t provided.

The worst financial crisis since the Great Depression has weakened global demand for petrochemicals and fertilizers produced by Saudi Arabian companies, including Saudi Basic, the largest chemicals maker in the world by market value.

“Safco’s margins are getting hit because we have seen the prices of petrochemical and fertilizers declining,” Faisal Hasan, head of research at Global Investment House KSCC, said in a telephone interview from Kuwait today. “In the petrochemical and plastic segments, we have seen a decline in demand. This will have an impact on Saudi companies that rely on international markets for their sales.”

Demand Decline

Global prices for major farm inputs such as crop nutrients have fallen between 60 percent and 75 percent from records reached in mid-2008, Rabobank Groep NV, the world’s largest lender to farmers, said Jan. 7. Fertilizer-makers globally, including Yara International ASA, the world’s largest, Mosaic Co. and Agrium Inc. are trimming output amid rising inventories as farmers delay purchases on expectations fertilizer prices will fall.

Global Investment, which has a “hold” recommendation and a price estimate of 252.5 riyals for Safco, had forecast quarterly net income of 1.104 billion riyals for the company. Credit Suisse Group AG has a “neutral” recommendation and a price estimate of 110.93 riyals for the fertilizer maker.

Safco, which is 43 percent owned by Saudi Basic, doubled its production capacity to 5 million tons after an expansion in April 2007. It produces 66 percent of the kingdom’s fertilizers, according to a Global Investment report on Safco in June. At the end of 2007, Saudi Arabia had fertilizer production capacity of 6.8 million tons, accounting for 25 percent of the Middle East’s total capacity, according to Global Investment.

Safco’s shares declined 6.4 percent to 94.5 riyals in trading yesterday in Riyadh, valuing the company at 23.6 billion riyals. The stock has risen 5.3 percent this year after dropping 43 percent last year.

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