Riyadh, Dubai: Saudi Basic Industries Corp, the Middle East’s biggest petrochemicals company, reported a 6.8 per cent drop in third-quarter profit due to lower selling prices for its products and slower growth in major markets including China.

Net income dropped to 5.22 billion riyals (Dh5.1 billion, $1.39 billion) from 5.6 billion riyals a year earlier, the Riyadh-based company said in a statement to the Saudi stock market, beating the average estimate of 5.15 billion riyals forecast by nine analysts surveyed by Bloomberg. Sabic’s profit has declined for nine consecutive quarters.

The results were “very good,” given global market conditions, and European factories became more profitable, CEO Yousef Al Benyan said a news conference in Riyadh. The company’s difficulties included higher utility costs and an economic slowdown in China, and its average selling prices fell 11 per cent, he said. Sales slid by 11 per cent to 33.31 billion riyals.

Challenging year

“We predict that 2017 is going to be a quite challenging year for us,” Al Benyan said. “We need to focus internally on how we can improve our efficiency.” Sabic is combining its polymers and chemicals units to save money on feedstock and is restructuring its metals business and folding it into a steel company, he said.

Petrochemical prices are linked partly to the oil and natural gas that producers such as Sabic use as feedstock. Benchmark Brent crude is trading near $52 a barrel, compared with a 2015 high of about $70. While petrochemical companies are often insulated from falling product prices by a parallel drop in feedstock costs, Saudi Arabian companies “could be a bit more vulnerable” because they typically buy raw materials at fixed prices from local producers, said Yousef Hussaini, an analyst at EFG-Hermes Holding SAE.

“If prices drop, their feedstock costs don’t necessarily move down at the same rate,” Hussaini said by phone from Cairo.

Sanyalak Manibhandu, an Abu Dhabi-based analyst at NBAD Securities LLC, said, “the problem with petrochemicals has been about average selling prices, and they’re not recovering.”

Austerity measures

Saudi Arabia, the world’s biggest oil exporter, has introduced austerity measures and launched its first-ever international bond sale to offset the widest budget deficit in more than two decades. The kingdom has also hiked utility prices, increasing the costs faced by energy-intensive industries including petrochemicals.

“Despite the challenges, Sabic will continue in its growth policy,” Al Benyan said. “We will expand our marketing operations and sales in China to reach the strategic share we want.” The US and Africa are also promising markets, he said. Sabic’s production this year has gained 3 per cent on the same period of 2015, al Benyan said.

The company is looking for possible acquisitions in the US or China, though its efforts are at “a very early stage.” he said.

Saudi Arabian Fertilizer Co, a Sabic affiliate, posted a 68 per cent drop in third-quarter profit on Monday, citing lower sales prices and higher costs for feedstock and electricity. The fertiliser market is oversupplied, and China has much more production than its needs, al Benyan said.

“My focus right now is on how can we be competitive enough,” he said in an interview after the news conference. “The question is at this point, how can we grow, and how can we get efficient? Because these are under our control and I think we should do a better job with them.”