Sabic, one of the world's biggest petrochemical companies, said second-quarter net profit fell 25 per cent amid lower average selling prices, higher cost of sales and a net loss at its steel and iron unit.
The quarterly results missed the expectation of analysts, triggering a drop in the company's share price.
Net profit in the three months ended June fell to 3.71 billion riyals (Dh3.63bn) compared 4.96bn riyals a year earlier. Revenues in the second quarter fell 3 per cent to 35.05bn riyals compared to 36.26bn riyals in the same quarter last year.
The results were also impacted by lower selling prices and volumes at the company's steel and iron unit Hadeed, which posted a net loss of 483 million riyals in the second quarter versus a net profit of 86m riyals a year ealier.
Analysts polled by Bloomberg had forecast a profit in the second quarter ranging from 4.66bn riyals to 4.89bn riyals. Sabic shares of dropped as much as 1.16 per cent to 98.9 riyals in Riyadh.
"Earnings were under pressure primarily due to the large drop in chemical prices from last quarter, in addition to a weak performance from the steel division where losses accelerated substantially," said Yousef Husseini, a chemicals analyst at the Cairo-based investment bank EFG-Hermes.
"The company also booked a write down for Ibn Rushd, which further pressured earnings.
"The main negative surprise was on the costs side, as COGS (Cost of goods sold) increased from last quarter, which is surprising given the pullback in LPG and naphtha prices, which normally would have provided some cost relief."
To boost profitability, Gulf petrochemical producers are targeting more overseas projects and acquisitions because of a regional gas shortage and the need to be closer to their customers.
Gulf producers – mainly based in Saudi Arabia – are tying up with international players to develop petrochemical projects, in many instances exporting their crude and expertise in return for a bigger share of the Asian market.
These producers are increasingly targeting China, which accounts for 20 per cent of their petrochemical exports, and the United States, which has cheap gas feedstock thanks to the shale gas revolution.
Sabic and ExxonMobil have agreed to conduct a detailed study for a joint petrochemical complex in Texas, with a potential capacity of 1.8 million tonnes of ethylene per year.
Sabic also signed an agreement last year with China's Shenhua Ningxia Coal Industry Group to build a coal-to-petrochemicals complex in the east Asian country.
The US is still the best market for growth, chief executive Yousef Al Benyan said in Riyadh after the earnings, according to Bloomberg News. There are several options for growth in North America, Africa and Asia, he said.
"Sabic's investment in the US with ExxonMobil is progressing well, which is a positive," said Sanyalaksna Manibhandu, head of research at NBAD Securities.
"The near-term outlook remains a concern, given the subdued outlook for the fertilizer and petrochemical segments due to oversupplied markets and limited upside for crude prices."
