KUWAIT. Global Investment House has released its GCC Petrochemical Sector Quarterly report for the second quarter of 2013.
GCC petrochemical companies profit rose by 4.0% YoY but were down 8.9% QoQ
GCC petrochemical companies’ 2Q13 earnings went up by 4.0% YoY to USD2.64bn compared to USD2.54bn in the same period last year. On a QoQ basis the earnings declined by 8.9% mainly because of lower income reported by SABIC, IQ & SAFCO. SABIC’s profit declined by 7.9% QoQ (contributing 60.9% in 2Q13 compared to 60.3% in 1Q13 and 55.6% in 2Q12).
Second quarter performances of various petrochemical companies was meager than the previous quarter as prices of various petrochemical products tumbled along with that production of some companies declined as some of them underwent shutdowns for maintenance.
Within the GCC petrochemical companies, Global Research Petrochemical Universe results remained higher as the profitability went up by 5.5% on a YoY basis. While on a QoQ basis the net income was down by 12.0%.
Off fertilizer season the main reason behind fall in income on a QoQ basis
Second quarter is generally an off season for the fertilizer companies. Big conglomerates like SABIC and IQ are heavily invested in fertilizer business. SAFCO for SABIC and QAFCO for IQ add significant income to the bottom line of the parent company. SAFCO income went down by 25.6% on QoQ basis while that of QAFCO dropped by 17.8% during 2Q13.
Fertilizer product prices were instrumental in the decline. Prices of Urea and Ammonia dropped on a QoQ basis by 13.7% and 21.6% respectively. While that of DAP, TSP and Phosphate rock fell in the range of 0.4-4.1%.
Gross margin of the sector rose to 30.5% in 2Q13 from 29.1% in 2Q12
Petrochemical companies under Global Research coverage reported an increase in the gross margin on YoY basis. Gross margin in 2Q13 stood at 30.5% despite 3.7% YoY drop in the revenue. Cost on the other hand declined by 5.7% which gave support to the margins. Among Global’s universe, DANA’s margins dropped the most by 13.1pps. SIPCHEM and Industries Qatar margins rose by 5.7pps and 3.3pps respectively.
Global gas prices continues to escalate while coal price extends its tumult
During 2Q13 gas spot prices was up 14.2% QoQ and 74.7% higher on a YoY basis. Specific factors contributed to the return of natural gas prices closer to the USD4.0/mmbtu range.
These include: (1) colder winter temperatures compared to a year ago, with declining power burn. (2) Natural gas production gains slowed. (3) Storage inventories decreased below five-year average levels.
On the other hand coal prices continued it slid. During 2Q13, South African and Australia coal prices dropped by 14.2% and 10.1% on a YoY basis. The fall has been propelled by higher supplies and lower demand from countries like India and China.
Rising exports from Australia have created a coal surplus of as much as 20mn tons, or about 2.5% of global trade in 2012. With the winter season again nearing we see further upside in Global gas prices while for coal prices to improve we are of the view that Chinese coal demand needs to pick pace.
To view the full report, kindly click here.
To access other reports released by Global Investment House on the region, please click here.