Global Research Sector - Petrochemical December 2013
GCC Petrochemical Sector Quarterly – 3Q13
GCC petrochem companies profit was up by 7.9% QoQ but was down 8.5% YoY Fertilizer prices went down while petrochemical product prices rose Gross margins of the Global Universe fell to 30.8% in 3Q13 from 33.5% in 2Q13 Global gas prices fell during 3Q13 while coal prices extended its tumult
GCC petrochemical companies profit rose by 7.9% QoQ but were down 8.5% YoY GCC petrochemical companies 3Q13 earnings went up by 7.9% QoQ to USD2.85bn compared to USD2.64bn in the previous quarter. On a YoY basis the earnings declined by 8.5% mainly because of lower income reported by IQ, SAFCO, RABIGH. SABIC’s profit rose by 7.0% QoQ (contributing 60.4% in 3Q13 compared to 54.0% in 3Q12 and 60.9% in 2Q13). Third quarter performances of various petrochemical companies was better than the previous quarter as prices of various petrochemical products rose along with that production of some companies increased after their debottlenecking and maintenance exercises. Within the GCC petrochemical companies, Global Research Petrochemical Universe results remained higher as the profitability went down by 6.3% as compared to the GCC total of 8.5%.
Q13 Fertilizer price went down while that of other petrochemical products went up Prices of petrochemical products went up but within petrochemicals, fertilizer prices went down.
3 Prices of various fertilizer products fell in the range of 15-31% on a YoY basis during 3Q13. Highest
drop was reported by Ammonia at 31% while the lowest drop was reported by potassium chloride at 15.7%. Petrochemical prices went up considerably. LDPE prices were up 18.9% YoY while that of
– Methanol, Melamine and Ethylene were up by 15.6%, 26.6% and 3.4% respectively.
Gross margins of the Global Universe fell to 30.8% in 3Q13 from 33.5% in 2Q13 Global Research Petrochemical Universe results remained higher as the profitability went down by 6.3% as compared to the GCC total of 8.5%. The drop in income was largely due to increase in cost of sales which dropped the gross and operating margins by 269bps and 181bps respectively. Among Global’s universe, on a YoY basis YANSAB margins rose the most by 6.4pps followed by 0.17pps of SIPCHEM. While the margins of SAFCO and DANA gas dropped by 11.2pps and 9.4pps respectively.
Global gas prices fell during the quarter while coal price extends its tumult
GCC Petrochemical GCC During 3Q13 gas spot prices was down 11.4% QoQ. Specific factors contributed to the return of natural gas prices closer to the USD4.0/mmbtu range. These include: (1) hot summer temperatures compared to a year ago (2) Gas production increased. (3) Storage inventories increased. On the other hand coal prices continued it slid. During 3Q13, South African and Australia coal prices dropped by 9.1% and 10.0% on a QoQ 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.
Global Research Petrochemical Coverage Faisal Hasan, CFA Ticker Mkt Cap Price* Stock Performance P/E P/BV Head of Research [email protected] (USDmn) In (LC) 1m 3m 12m 2014e 2014e Tel: (965) 2295-1270 SABIC, KSA 86,986.1 108.75 9.0% 12.7% 21.9% 12.1 1.8 SIPCHEM, KSA 2,805.8 28.70 8.7% 16.9% 55.1% 17.0 1.6 Hettish Karmani SAFCO, KSA 13,775.2 155.00 4.9% 4.4% 2.7% 11.1 5.5 Manager YANSAB, KSA 10,198.4 68.00 5.0% 18.3% 51.1% 15.0 2.4 [email protected] Tel: (965) 2295-1281 IQ, Qatar 27,914.6 168.00 5.3% 10.4% 21.7% 9.7 2.5 Source: Bloomberg & Global Research Global Investment House * Market prices as of 2 December 2013 www.globalinv.net
Global Research – GCC GCC Petrochemical Quarterly Report
GCC Petrochemical Companies Financial Performance
GCC petrochemical companies’ 3Q13 earnings went up by 7.9% QoQ to USD2.85bn compared to USD2.64bn in the previous quarter. On a YoY basis the earnings declined by 8.5% mainly because of lower income reported by IQ, SAFCO, RABIGH. SABIC’s profit rose by 7.0% QoQ (contributing 60.4% in 3Q13 compared to 54.0% in 3Q12 and 60.9% in 2Q13). Third quarter performances of various petrochemical companies was better than the previous quarter as prices of various petrochemical products rose along with that production of some companies increased after their debottlenecking and maintenance exercises. Third quarter being an off season for fertilizer companies was instrumental in declining the profits of SAFCO and IQ.
GCC Petrochemical Sector Companies Profitability (USD mn) 3Q12 2Q13 3Q13 YoY Chg (%) QoQ Chg (%) SABIC 1,683.3 1,611.2 1,724.0 2.4% 7.0% IQ 719.9 555.1 486.2 -32.5% -12.4% SAFCO 306.4 184.8 195.7 -36.1% 5.9% KAYAN (47.6) (63.5) 11.5 n/m n/m YANSAB 116.2 178.8 230.6 98.5% 29.0% TASNEE 111.3 80.8 60.4 -45.8% -25.3% RABIGH 109.1 (63.1) 3.7 -96.6% n/m PETROCHEM (0.0) (2.4) (40.1) n/m n/m SIPCHEM 41.6 46.4 49.4 18.8% 6.4% SAHARA 11.7 33.8 39.6 239.6% 17.1% APC 26.7 36.4 37.6 40.6% 3.1% CHEMANOL 6.7 0.0 5.9 -12.4% n/m ALUJAIN 2.8 9.3 15.2 437.1% 63.0% NAMA (3.5) 2.5 (3.2) n/m n/m DANA 28.3 27.2 27.8 -1.9% 2.0% SHELL OMAN 7.2 7.9 10.3 44.2% 31.3% GCC 3,120.1 2,645.3 2,854.7 -8.5% 7.9%
Profitability 3Q12 2Q13 3Q13 YoY Chg (%) QoQ Chg (%) Saudi Arabia 2,364.7 2,055.1 2,330.4 -1.5% 13.4% Qatar 719.9 555.1 486.2 -32.5% -12.4% Oman 7.2 7.9 10.3 44.2% 31.3% UAE 28.3 27.2 27.8 -1.9% 2.0% Sector 3,120.1 2,645.3 2,854.7 -8.5% 7.9%
Composition 3Q12 2Q13 3Q13 YoY Chg (%) QoQ Chg (%) Saudi Arabia 75.8% 77.7% 81.6% - - Qatar 23.1% 21.0% 17.0% - - Oman 0.2% 0.3% 0.4% - - UAE 0.9% 1.0% 1.0% - - Sector 100.0% 100.0% 100.0% - - Source: Company Reports & Zawya
Some of the companies which witnessed positive surprises in their results were KAYAN, YANSAB, SAHARA and AlUJAIN. The reason for better performance of KAYAN during Q3 compared with same quarter last year was due to the increase in the production and sales volume, increase in the average selling prices for most of the company products and decrease in the financial charges.
Sahara posted a profit growth of 239.6% on a YoY basis, on the back of major improvement in AlWaha plant performances (An Affiliate of Sahara) and the diversity of product grades produced. These led to the increase in sales, further to the increase in sale prices and lower feedstock prices.
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Global Research – GCC GCC Petrochemical Quarterly Report
Yanbu National Petrochemical Company posted a sizable rise of 29%QoQ and 98.5%YoY in net profit to SAR864.8mn in 3Q13. Increase on a YoY basis was due to higher production and sales volumes, and improvement in sales prices of most products in addition to lower financial charges while increase on a QoQ basis was due to improvement in sales prices of most products and lower financial charges.
Global Research Petrochemical Universe Financial Performance
Within the GCC petrochemical companies, Global Research Petrochemical Universe results remained higher as the profitability down by 6.3% as compared to the GCC total of 8.5%. Nevertheless, the drop in income was largely due to increase in cost of sales which dropped the gross and operating margins by 269bps and 181bps respectively. Among Global’s universe, on a YoY basis YANSAB margins rose the most by 6.4pps followed by 0.17pps of SIPCHEM. While the margins of SAFCO and DANA gas dropped by 11.2pps and 9.4pps respectively.
Global Research Universe - GCC Petrochemical Sector Consolidated Financials (USD mn) 3Q12 3Q13 Chg (%) Sales Revenue 14,658 14,880 1.5% Cost of Sales 9,741 10,290 5.6% Gross Profit 4,917 4,590 -6.6% Operating Expense 1,003 886 -11.6% Operating Profit 3,914 3,704 -5.4% Financial Charges 234 160 -31.9% Net Profit 2,896 2,714 -6.3% Assets 115,663 113,747 -1.7% Equity 54,907 58,654 6.8%
Financial Performance Financial Debt 32,879 27,177 -17.3% Cash & Bank Balance 18,610 17,158 -7.8% Liabilities 60,756 55,093 -9.3%
3Q12 3Q13 Chg Gross Margins (%) 33.5% 30.8% -269bps Operating Exp. as % of Assets (%) 3.5% 3.1% -35bps Operating Margins (%) 26.7% 24.9% -181bps Net Margins (%) 19.8% 18.2% -152bps Financial Charges as % of Debt (%) 2.9% 2.4% -50bps Debt as % of Assets (%) 28.4% 23.9% -453bps Liabilities as % of Assets (%) 52.5% 48.4% -409bps
Ratio Analysis Ratio Cash as % of Assets (%) 16.1% 15.1% -101bps Equity as % of Assets (%) 47.5% 51.6% 409bps Return on Equity (%) 21.1% 18.5% -259bps Return on Assets (%) 10.0% 9.5% -47bps Source: Company Report * Consolidated Financials of 6 Listed Companies
Performance of various companies during the third quarter remained depressed mainly because of off fertilizer season. Prices of Urea and Ammonia dropped on a YoY basis by 30.9% and 19.3% respectively. Prices of other fertilizer products such as DAP, TSP and Phosphate rock fell in the range of 15-25%.
December 2013 3
Global Research – GCC GCC Petrochemical Quarterly Report
Global Research Petrochemical Companies – 3Q13 Result
Saudi Basic Industries Corporation (SABIC) Saudi Basic Industries Corporation (SABIC) reported 3Q13 net income of SAR6.46bn compared to SAR6.31bn for the same quarter last year, representing an increase of 2.4%. The increase in net income on a YoY basis was attributed by the company to higher sales volumes as well as high product prices along with better performance of associates i.e. Kayan, Yansab and SAFCO. Saudi Kayan swung from losses to profit after record 18 quarters. Last time Kayan profit was seen in 3Q08. Company attributed its profits to increase in volume, price as well as drop in financial charges. During third quarter, earnings of SAFCO rose on a QoQ basis by 5.9% while that of YANSAB almost doubled. Gross and operating margins of the company also improved marginally during the quarter to 29.6% and 23.1% respectively.
Saudi International Petrochemical Company (SIPCHEM) SIPCHEM reported net income of SAR185.2mn in 3Q13, up QoQ & YoY by 6.4% and 18.8% respectively. The results were in line with Global Research estimates. Quarter on quarter increase was largely due to decrease in operating expenses which was because of the turnaround activities carried out by the company in 1Q/2Q-13. While on a YoY basis the results were higher because of better sales price. The company did not talk about any further developments about its earlier announced expected merger with Sahara Petrochemicals. Global Research full year estimates of SAR542.6mn for 2013 remain intact and we will not be revising the estimates based on third quarter performance.
Industries Qatar (IQ) Industries Qatar reported net income of QAR1.76bn in 3Q13 compared to QAR2.05bn in 2Q13 and QAR2.62bn in 3Q12. Sizable drop in the income on QoQ basis can be attributed to weak petrochemical (fertilizer) prices and also to the off fertilizer season along with increase in natural gas prices. Profit was down also because of shutdowns at its various facilities (LDPE plant - 5 days, Ammonia - 24 days, Urea - 21 days and DR, EF / CC, RM: 30 days). Company share of profit from associates and joint ventures also declined on a QoQ basis by 13.6% to QAR1.34bn compared to QAR1.55bn in 2Q13. As a result of overall increase in cost (largely due to increase in natural gas prices), gross margins declined to 32.5% compared to 34.0% in the previous quarter.
Saudi Arabia Fertilizer Company (SAFCO) Saudi Arabia Fertilizer Company (SAFCO) announced its 3Q13 financial result and posted net income of SAR734mn; indicating YoY decline of 36.1% and QoQ growth of 5.9%. The company cumulative 9M-2013 net income was recorded at SAR2.4bn, a notable decline of 13.3% over the net profitability recorded in corresponding period last year. We believe YoY decline in net income was mainly associated with a significant decline of 20.5% in the average prices of urea on 9M basis and 25.0% on YoY quarterly basis. However, it is worthy to notice that QoQ increase in the net income was mainly associated with the increase in volumetric sales (due to seasonal demand) which overcome QoQ decline of 10.5% in the average prices of urea.
Yanbu National Petrochemical Company (YANSAB) Yanbu National Petrochemical Company posted a sizable rise of 29%QoQ and 98.5%YoY in net profit to SAR864.8mn in 3Q13. Increase on a YoY basis was due to higher production and sales volumes, and improvement in sales prices of most products in addition to lower financial charges while increase on a QoQ basis was due to improvement in sales prices of most products and lower financial charges.
Dana Gas (DANA) Dana Gas made a net profit of AED102mn (USD27.8mn) in the third quarter compared with AED104mn in the same period of last year. Gross revenues for the third quarter were AED623mn, up 21% from AED512mn a year ago. Delays in getting paid for operations in both Kurdistan and Egypt contributed to Dana having to restructure a USD920mn Islamic bond in April and helped spark a legal battle with the Kurdish region government (KRG). Dana Gas said it had collected USD8mn in Egypt during the third quarter but that the trade receivables from the North African country still grew to USD298mn by the end of September, up from USD262mn at the end of the second quarter.
December 2013 4
Global Research – GCC GCC Petrochemical Quarterly Report
Event Update post 3Q13
GPCA expects GCC fertilizer production capacity to rise by 47 per cent The Gulf Petrochemicals and Chemicals Association (GPCA) has estimated that the GCC fertilizer industry’s production capacity will increase by 47 per cent from 2012 levels to 46.6mn tons by 2018. The GPCA arrived at this estimate after considering the fertilizer projects currently in the industry’s pipeline, pegged at USD10bn. In 2012, the fertilizer production capacity of the six GCC nations (UAE, Saudi Arabia, Qatar, Kuwait, Oman and Bahrain) was around 31.4mn tons. The industry’s capacity has been estimated to grow by ten per cent per annum over the next five years.
Sahara Petrochemical Co. announces the developments regarding the use of proceeds from the rights issue shares subscription Sahara Petrochemicals subscription proceeds amounted to SAR1.46bn. Of the total SAR866mn were already used as of end of the 3rd Quarter, 2013.The remaining balance of the subscription proceeds is SAR596mn. The used proceeds worth SAR866mn has been spent in following divisions.
- SAHARA & Maaden Petrochemicals Company-SAMAPCO SAR 52.3mn - Saudi Acrylic Polymer Company-SAPCO SAR 95.1mn - Butanol Project SAR 74.8mn - Utilities and off sites SAR 164.7mn - Loan Repayment SAR 384.7mn - Others SAR 94.4mn
National Industrialization Company (TASNEE) recently signed a SAR4bn Murabaha facility deal The National Industrialization Company (TASNEE) recently signed a SAR4bn Murabaha facility deal with a number of Saudi and UAE banks. The Shariah-compliant deal was signed with Riyad Bank, Al-Rajhi Bank, Bank Albilad, Emirates NBD, Saudi British Bank (SABB), Samba Financial Group (SFG), Banque Saudi Fransi, and the Saudi Investment Bank. TASNEE has also acquired Cristal Global, one of the major manufacturers of titanium dioxide (TiO2) products. Cristal, which is the world's second largest producer of TiO2, employs nearly 4,000 employees in five continents.
Dana Gas awards contract for Zora offshore field Dana Gas announced today that Adyard Abu Dhabi, a subsidiary of Interserve Plc, has been awarded a USD17mn contract for the fabrication of an offshore platform for the Zora Field Development Project, which spans the territorial waters of Sharjah and Ajman. The platform is an important element in the overall scope of the Zora project, the aim of which is to extract the reserves from the Zora field through an offshore facility and to transport them via a 35km subsea pipeline to an onshore gas processing facility located in Sharjah.
UAE's Dana Gas Filed Arbitration after Kurdish Govt Tried to Sell Asset A consortium led by Dana Gas, an energy firm based in the United Arab Emirates, filed an arbitration case in London last month against the government of Iraq's autonomous Kurdistan region because a Kurdish minister offered to sell one of its main assets to at least one third party amid a long-running dispute over unpaid dues for gas supplies.
The asset that had been offered to other parties was the Chemchemal field west of Sulaymaniyah, Mr. Allman-Ward said. According to Dana’s estimates, the field has 30 trillion standard cubic feet of gas reserves and promises to be one of the largest in Kurdistan.
As the dispute intensifies, Dana’s claimed unpaid bills for its gas have piled up. The company had AED1.65bn (USD449mn) of receivables from its share of the Kurdistan operations at the end of the third quarter, up from AED1.3bn at the end of last year.
December 2013 5
Global Research – GCC GCC Petrochemical Quarterly Report
Oil, Gas & Coal Prices
120 120
116 116
112 112
108 108
(USD/bbl) (USD/bbl)
104 104
100 100
3Q11 2Q12 1Q13 4Q11 1Q12 3Q12 4Q12 2Q13 3Q13
3Q11 2Q12 1Q13 4Q11 1Q12 3Q12 4Q12 2Q13 3Q13 Crude Oil, OPEC Crude Oil, Brent
107 4.5
103 4.0
99 3.5
95 3.0
(USD/bbl) (USD/mmbtu) 91 2.5
87 2.0
3Q11 2Q12 1Q13 3Q11 2Q12 1Q13 4Q11 1Q12 3Q12 4Q12 2Q13 3Q13 4Q11 1Q12 3Q12 4Q12 2Q13 3Q13
Crude Oil, WTI Natural Gas, US
120 125
110 115
100 105
90 95
(USD/ton) (USD/ton)
80 85
70 75
3Q11 2Q12 1Q13 3Q11 2Q12 1Q13 4Q11 1Q12 3Q12 4Q12 2Q13 3Q13 4Q11 1Q12 3Q12 4Q12 2Q13 3Q13
Coal, South Africa Coal, Australia
Source: Bloomberg & World Bank Pink Sheets
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Global Research – GCC GCC Petrochemical Quarterly Report
Petrochemical Product Prices
1,050 1,650
990 1,550
930 1,450
870
(USD/ton) (USD/ton) 1,350 810
750 1,250
3Q11 2Q12 1Q13 3Q11 2Q12 1Q13 4Q11 1Q12 3Q12 4Q12 2Q13 3Q13 4Q11 1Q12 3Q12 4Q12 2Q13 3Q13
Ethylene LDPE
1,450 375
1,390 360
1,330 345
1,270 330
(USD/ton) (USD/ton)
1,210 315
1,150 300
3Q11 2Q12 1Q13 3Q11 2Q12 1Q13 4Q11 1Q12 3Q12 4Q12 2Q13 3Q13 4Q11 1Q12 3Q12 4Q12 2Q13 3Q13
LLDPE Methanol
1,200 1,500
1,150 1,380
1,100 1,260
1,050 1,140
(USD/ton) (USD/ton)
1,000 1,020
950 900
3Q11 2Q12 1Q13 4Q11 1Q12 1Q13 2Q13 3Q13 4Q11 1Q12 3Q12 4Q12 2Q13 3Q13 2Q11 3Q11 2Q12 3Q12 4Q12
MTBE Melamine
Source: Industries Qatar & Global Research
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Global Research – GCC GCC Petrochemical Quarterly Report
Fertilizer Prices
700 500
640 460
580 420
520 380
(USD/ton) (USD/ton)
460 340
400 300
3Q11 2Q12 1Q13 3Q11 2Q12 1Q13 4Q11 1Q12 3Q12 4Q12 2Q13 3Q13 4Q11 1Q12 3Q12 4Q12 2Q13 3Q13
DAP Urea
500 700
470 620
440 540
410 460
(USD/ton) (USD/ton)
380 380
350 300
3Q11 2Q12 1Q13 3Q11 2Q12 1Q13 4Q11 1Q12 3Q12 4Q12 2Q13 3Q13 4Q11 1Q12 3Q12 4Q12 2Q13 3Q13
Potassium Chloride Ammonia
600 200
540 185
480 170
420 155
(USD/ton) (USD/ton)
360 140
300 125
3Q11 2Q12 1Q13 3Q11 2Q12 1Q13 4Q11 1Q12 3Q12 4Q12 2Q13 3Q13 4Q11 1Q12 3Q12 4Q12 2Q13 3Q13
Triple Super Phosphate Phosphate Rock
Source: IQ, Bloomberg & World Bank Pink Sheets
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Global Research – GCC GCC Petrochemical Quarterly Report
Metal Prices
2,500 9,000
2,340 8,600
2,180 8,200
2,020 7,800
(USD/ton) (USD/ton)
1,860 7,400
1,700 7,000
3Q11 2Q12 1Q13 3Q11 2Q12 1Q13 4Q11 1Q12 3Q12 4Q12 2Q13 3Q13 4Q11 1Q12 3Q12 4Q12 2Q13 3Q13
Aluminum Copper
1,800 180
1,700 164
1,600 148
1,500 (¢/dmtu) 132 (USD/toz)
1,400 116
1,300 100
3Q11 2Q12 1Q13 4Q11 1Q12 3Q12 4Q12 2Q13 3Q13 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13
Gold Iron ore
4,000 230
3,600 220
3,200 210
Ton) 1
(¢/toz) 2,800 200 (USD
2,400 190
2,000 180
3Q11 2Q12 1Q13 4Q11 1Q12 3Q12 4Q12 2Q13 3Q13 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13
Silver Zinc
Source: Bloomberg & World Bank Pink Sheets
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Global Research – GCC GCC Petrochemical Quarterly Report
Indices
205 220
199 210
193 200
(x) (x) 187 190
181 180
175 170
3Q11 2Q12 1Q13 3Q11 2Q12 1Q13 4Q11 1Q12 3Q12 4Q12 2Q13 3Q13 4Q11 1Q12 3Q12 4Q12 2Q13 3Q13
Energy Non Energy Commodities
220 300
204 280
188 260
(x) (x) 172 240
156 220
140 200
3Q11 2Q12 1Q13 4Q11 1Q12 3Q12 4Q12 2Q13 3Q13 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13
Raw Materials Fertilizers
210 2,000
198 1,700
186 1,400
(x) (x) 174 1,100
162 800
150 500
3Q11 2Q12 1Q13 3Q11 2Q12 1Q13 4Q11 1Q12 3Q12 4Q12 2Q13 3Q13 4Q11 1Q12 3Q12 4Q12 2Q13 3Q13
Metals and Minerals Baltic Dry Index
Source: Bloomberg & World Bank Pink Sheets
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Global Research – GCC GCC Petrochemical Quarterly Report
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December 2013 11
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