Business | General
Sabic faces $40m loss as global steel prices fall
Saudi Basic Industries Corporation (Sabic) and Industries Qatar will be among the major losing petrochemical companies in the GCC due to the plunge in iron and steel prices in the global market.
- By Abdul Rahman Shaheen, Correspondent
- Published: 23:21 March 19, 2009
- 95% drop in Sabic shares in last quarter of 2008
- $27m loss to Industries Qatar in first quarter of 2009
Riyadh: Saudi Basic Industries Corporation (Sabic) and Industries Qatar will be among the major losing petrochemical companies in the GCC due to the plunge in iron and steel prices in the global market.
Both companies are expected to see their iron and steel inventories lose $67.5 million (Dh247.73 million) of market value in the first quarter of this year.
Sabic's loss is estimated at about $40 million and that of Industries Qatar is $27.5 million, according to a study by HSBC Bank.
Financial research firms, including Shuaa Capital, predicted in their recent reports that Sabic, the world's largest petrochemical firm by market value, would post losses in the first quarter of 2009.
According to a report by Shuaa Capital, released last week, this loss would lead to a drop in Sabic's share market price to less than 30 riyals compared with its closing price on Wednesday at 37.40 riyals.
John Sfakianakis, senior economist at the Saudi British Bank (Sabb), which is partly owned by HSBC, said these reports revealed the viewpoints of banks and financial firms with regard to petrochemical companies in light of the decline in the global market.
It is noteworthy that the net profit of Sabic plunged 95 per cent in the last quarter of 2008 due to a sharp decline in demand for petrochemical products worldwide.
Sabic's plastics unit is likely to lose money and burn cash, thus posing short-term risks for the stock, according to Shuaa Capital report.
Its plastics unit is experiencing a weak demand environment for its products in general, and the automotive industry in particular, to which it is materially exposed.
The company paid $11.6 billion for GE Plastics last year, renaming it Sabic Innovative Plastics. Shuaa said it was unlikely that Sabic's strategically important US subsidiary could file for bankruptcy.
According to the HSBC report, the losses of Industries Qatar on its iron and steel inventories are expected to hit $90 million during the current year, in addition to the $27.5 million lost in the first quarter.
Industries Qatar, owned by the government, is one of the leading petrochemical companies in Qatar,
Steel prices dropped three per cent in the last three months while prices of cast iron of Sabic fell 10 per cent and iron ore by five per cent, the report said.
Sabic is taking precautionary measures to contain the fall in demand for its products worldwide, including exercising pressure on banks, control on inventories, improving quality of products and strengthening market plans.
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