IQ profit drop weighs on Q3 Gulf petchem earnings

By Santhosh V Perumal

Business Reporter

Industries Qatar’s double-digit decline year-on-year (y-o-y) in profits acted as a major drag on Gulf petrochemical companies’ earnings during the third quarter (Q3) this year, according to Global Investment House.

The Gulf Co-operation Council (GCC) petrochemical companies have reported 9% decline y-o-y in earnings to $2.85bn in Q3 this year, although it was up 8% on a quarter-on-quarter (q-o-q) basis.

The overall y-o-y decline in the Gulf petrochemical sector was mainly due to lower income from Qatar (IQ), Global said in ‘GCC Petrochemical Quarterly’ report.

The drop in income was largely due to increase in cost of sales, which dropped the gross and operating margins by 269bps and 181bps respectively.

Saudi Arabian and the UAE petrochemical companies’ earnings were also on the decline, but much lesser than that of Qatar; while Oman saw a drastic increase in profitability, it said.

Qatar witnessed 32.5% and 12.4% shrinkage in profitability y-o-y and q-o-q respectively. Saudi Arabia saw a 1.5% fall y-o-y, while it was up 13.4% q-o-q and the UAE witnessed a fall of 1.9% y-o-y and rise of 2% q-o-q.

In the case of Oman, the profitability of petrochemical companies grew 44.2% and 31.3% y-o-y and q-o-q respectively in Q3 because of Shell Oman’s performance.

It said Q3 performances of various petrochemical companies was better than the previous quarter as prices of various petrochemical products rose along with production of some companies increased after their de-bottlenecking and maintenance exercises.

Sabic’s profit rose by 7% q-o-q (contributing 60.4% in Q3, 2013 compared to 54% in Q3, 2012 and 60.9% in Q2, 2013).

Finding that prices of petrochemical products went up but within petrochemicals, fertiliser prices fell, the report said prices of various fertiliser products fell in the range of 15%-31% on a y-o-y basis during Q3 this year.

Highest drop was reported for ammonia at 31%, while lowest drop was reported for potassium chloride at 15.7%, the report said, adding petrochemical prices went up considerably.

Third quarter being an off season for fertiliser companies was instrumental in lowering the profits of Safco and IQ.

Low-density polyethylene prices were up 18.9% y-o-y, while that of methanol, melamine and ethylene were up 15.6%, 26.6% and 3.4% respectively, the report said.

It also said global gas prices are expected to harden on the back of nearing winter season.

“With the winter season nearing, we see further upside in global gas prices,” it added.

Highlighting that during Q3, 2013, gas spot prices was down 11.4% q-o-q, it said specific factors contributed to the return of natural gas prices closer to the $4/mmbtu range and these include hot summer temperatures compared to a year ago as well as higher gas production and storage inventories.

On coal, the report found prices continued it slid during Q3 with South African and Australian coal prices declining 9.1% and 10% respectively on a q-o-q basis.

“The fall has been propelled by higher supplies and lower demand from countries like India and China,” it said, adding that rising exports from Australia have created a coal surplus of as much as 20mn tonnes or about 2.5% of global trade in 2012.