Sabic profit plunges 95%, plans to halt production

Saudi Basic Industries Corp (Sabic) posted a sharp fall in fourth-quarter profit, due to a drop in demand for petrochemical products and said it would halt output at some plants and cut jobs.

Leading chemical maker Sabic, which is also the Gulf region's largest steel producer, yesterday said its profit had plunged more than 95 per cent to SAR311 million riyal (Dh304m), which was far below analysts' expectations.

The fall in demand for petrochemical products, particularly specialty plastics has had a strong impact on the performance of Sabic affiliates outside Saudi Arabia, the company said. Demand has been evaporating as the global economic crisis hits the automotive, building and construction industries.

Sabic shares, which often set the pace for Gulf markets, plunged nearly 10 percent, the maximum intraday drop allowed on the Saudi bourse, on the news.

It ended the day 9.8 per cent down at 40.50 riyals.

Sabic shares fell 13 percent in January after a 69 per cent slide in 2008.

Chief Executive Mohamed Al Mady told a news conference that there would be layoffs at Sabic Innovative Plastics, formerly GE Plastics, totalling 1,300, including 300 from its European plants.

The company, which a spokesman said employs 30,000 people, also said that it had suspended steel operations in Saudi Arabia and at a plastics plant in Spain.

Mady declined to specify how many jobs at Sabic had already gone, or where or when the rest would be lost.

SABIC said in July it would close its Teeside plant in the United Kingdom citing uneconomic viability. Analyst forecasts of fourth-quarter profit in a Reuters survey had been in a range of SAR3.6bn to SAR6.36bn.

"These numbers will come as a shock to many investors, especially the retail ones," said analyst Laurent-Patrick Gally at investment bank Shuaa Capital in Dubai.

"Until further clarity on the level of ongoing earnings is provided, and until there are some signs of stability in demand levels, it will be difficult for many people to find Sabic shares attractive."

Chief Financial Officer Mutlaq Al Morished said fourth-quarter sales fell 38 per cent in value and 11.2 per cent in volume, but did not give a figure.

Sabic's operating profit fell 86 per cent in the fourth quarter to SAR 1.61bn.

The decline is the latest example of how the global crisis has pounded Gulf firms, once thought protected from any downturn due to energy-export revenues and sovereign savings. "Getting out of the crisis will not happen overnight, it will be gradual," Al Mady said.

Sabic results are a yardstick for other petrochemical majors, such as Dow Chemical and Germany's BASF. BASF warned on Monday that a sharp slowdown in business in December and January would force it to step up cost cutting moves.

Analysts had cautioned last week that Sabic could post a big decline in quarterly profit if it included a plastics writedown.

Innovative Plastics, with operations in North America, Europe and Asia, booked a $650mn impairment charge in third-quarter results but Sabic has yet to recognise the charge, analysts at Shuaa said in a research note.

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