Markets Update: With petrochemicals companies around the world feeling nervous amid flagging global growth, the last thing investors in Petro Rabigh want to hear is an unexpected loss.
Saudi petrochemicals firm posts heavy loss
With petrochemicals companies around the world feeling nervous amid flagging global growth, the last thing investors in Petro Rabigh want to hear of is an unexpected loss caused by a longer than expected bout of maintenance.
But last month they got just that after the Saudi Arabian petrochemical producer reported a quarterly loss of 280.5 million Saudi riyals. The company attributed that to extended maintenance at its refinery, which was due to return to full capacity by August.
"Petro Rabigh's Q3 results were significantly below our expectations due to extended maintenance, which was not clearly communicated to the investors," Al Rajhi Capital analysts wrote in a research report.
"These prolonged maintenances have raised concerns that the company has technical issues at its plant, which might lead to further unplanned shutdowns in the near future." The company's stocks fell 1.11 per cent to 22.30 riyals yesterday, lagging behind the wider Saudi Tadawul All-Share Index.
As it is a joint venture between Saudi Aramco and Sumitomo Chemical, the company faces no problem acquiring a cheap source of feedstock.
The current highs in oil prices are positive for the petrochemicals industry across the board, said Tony Potter, the managing director of Chemical Market Associates, a petrochemical consultancy in Dubai.
"High oil prices lead to high petrochemical prices, and that means that Saudi profitability tends to generally be pretty good because it's based on gas and discounted natural gas liquids," he said. But a second problem is that faltering global growth may reduce demand for petrochemicals, the Al Rajhi analysts added.
"We have lowered our assumption for petrochemical prices for Q4 considering escalating global economic concerns and weaker industrial activities in China," the report said.
"However, our estimate for net income for 2012 is conservative as compared to the consensus estimates of 782m riyals considering the company's inconsistent performance over the last few quarters and weakness in petrochemical product prices."
* with additional reporting by April Yee