Market and product

July 19 (Bloomberg) -- Petrochemical product prices will be stable in the third quarter and the outlook for the period depends on the global economy, Saudi Basic Industries Corp. Chief Financial Officer Mutlaq al-Morished said today.

“We see prices being stabilized,” al-Morished said at a press conference in Riyadh. “It’s difficult to predict because it’s related to what’s happening with growth.”

Sabic, as the world’s biggest petrochemicals maker is known, said yesterday that second-quarter profit almost tripled on higher prices and as demand for fertilizers and plastics recovered in a strengthening global economy. Net income surged to 5 billion riyals ($1.34 billion) from 1.81 billion riyals in the year-earlier period, the Riyadh-based company said.

Second-quarter sales rose 4 percent from the first three months, al-Morished said today, without giving a figure. The company reported revenue of 34 billion riyals in the first quarter, according to company data, indicating sales in the last three months exceeded 35.4 billion riyals. Production rose 6 percent from the first quarter, al-Morished said.

“Sabic remains a pure play on the global economy,” Mohamad Hawa, a research analyst at Credit Suisse Group AG, wrote in a company report today. “While our house view remains positive on recovery, one cannot ignore the signs of lower pace of recovery which increase the uncertainty of demand outlook.” Credit Suisse maintained its “outperform” rating and share price target of 120 riyals.

Sabic shares closed unchanged at 87.75 riyals in Riyadh trading. The stock has gained 6.4 percent this year, valuing the company at 263 billion riyals.

Growth Areas

The company, which in May delayed a bond sale, citing unfavorable terms, is always looking for financing, and closing any transaction depends on pricing, al-Morished said. With 50 billion riyals in cash on the balance sheet, “the company is very well capitalized,” he said. “We have the luxury to wait.”

Sabic has used financing from local banks to fund expansion as the company seeks to triple petrochemicals production to 130 million tons by 2020. Sabic signed an agreement on June 29 for a 4.5 billion-riyal credit facility to finance growth in production capacity.

Growth for the petrochemicals industry will come from Asia and the U.S., al-Morished said. Sabic is not seeing a decline in demand from Europe, he said, as some economies there struggle to reduce public debt.

“Quantities are fine,” al-Morished said when asked about the impact of the European debt crisis on demand for the company’s products there.

Sabic Innovative

Sabic Innovative Plastics, the U.S. unit purchased from General Electric Co. for $11.6 billion in 2007, contributed to the company’s first-quarter loss last year as the global recession cut demand for products such as cars. The loss was the first since the fourth quarter of 2001, according to Bloomberg data.

“With the improvement in the world economy and the U.S. economy, we are doing quite well,” al-Morished said. “We have seen sales picking up, not only from Sabic Innovative, but in all the commodities. We have seen an increase in the U.S.”

The International Monetary Fund on July 8 raised its forecast for global economic growth this year to 4.6 percent, which would be the fastest since 2007, from the 4.2 percent it predicted in April.

Sabic started commercial operations this year at its units Eastern Petrochemical Co., known as Sharq, and Yanbu National Petrochemical Co., known as Yansab. In addition, Sabic and China Petroleum & Chemical Corp., or Sinopec, started producing this year at a joint-venture complex in Tianjin, China.

(Source: Bloomberg, By Glen Carey, Editors: Chris Staiti, Stephen Cunningham)