SABIC says U.S. mortgage crisis hit chemical demand

RIYADH (Reuters) - Saudi Basic Industries Corp. 2010.SE (SABIC) said on Saturday weak demand from the United States and Europe had hit fourth quarter profit and was waiting to see full impact of the fallout from U.S mortgage crisis.

The world's largest chemical maker by market value reported a 12.3 percent rise in fourth-profit profit, missing forecasts and ending a run of record profits that began in 2006 on surging demand for chemicals, steel and fertiliser.

"Right now there is a correction in demand," Chief Executive Officer Mohamed al-Mady told Reuters on Saturday.

SABIC agreed to pay $11.6 billion last year for GE Plastics and began including it in financial statements in the third quarter.

"We noticed a drop in demand from the U.S. market mainly from the automotive and the construction sectors, which has weakened prices. The problem in the U.S. also affected consumer goods," Mady said in a telephone interview.

"There was also a slight decline in demand from Europe on engineering plastics, but it does not compare to what we have seen in the United States," he said, declining to elaborate.

High oil prices, which hit a record $100 a barrel in the fourth quarter squeezed SABIC's margins. Crude prices are used as a benchmark for the pricing of Naphta, used to produce petrochemicals, as well as of other feedstocks.

"We had to deal with higher input costs: The price of crude oil rose 25 percent in 2007," he said.

Asked if the industry is about to face a downturn as result of the defaults on U.S. subprime mortgages or home loans for people with a poor credit history, Mady said: "The subprime crisis had an impact on our business, but we have to wait and see the full extent of the damage".

"SABIC is ready to cope with any reversal in growth cycle," he said, declining to be more specific.