Sabic re­ports sharp de­cline in profit ahead of Aramco buy­out

Muscat Daily - - BUSINESS -

Riyadh, Saudi Ara­bia – Saudi Ba­sic In­dus­tries Corp (Sabic) ex­pects earn­ings to come un­der fur­ther pres­sure this year from slug­gish eco­nomic growth and an over­sup­ply of petro­chem­i­cals. The shares fell.

The Mid­dle East’s big­gest chem­i­cals maker re­ported its first quar­terly loss in a decade last quar­ter due to lower sales prices and write­downs at a joint ven­ture. The same fac­tors that squeezed prices and profit mar­gins last year are likely to per­sist in 2020, the state-run com­pany said on Wed­nes­day.

“We see there is a slow­down in growth glob­ally, specif­i­cally in China and Europe,” chief ex­ec­u­tive of­fi­cer Yousef al Benyan told re­porters in Riyadh. “These are very im­por­tant re­gions that are go­ing to im­pact the over­all de­mand of our chem­i­cals in­dus­try.”

Ad­di­tional pro­duc­tion ca­pac­ity in the US and China “has re­ally put pres­sure on mar­gins,” he said.

Sabic is an im­por­tant part of Crown Prince Mo­hammed bin Sal­man’s am­bi­tion to over­haul the king­dom’s econ­omy by de­vel­op­ing new in­dus­tries and man­u­fac­tur­ing. Saudi Aramco is pre­par­ing to buy the sov­er­eign wealth fund’s ma­jor­ity stake in Sabic as the oil pro­ducer seeks to be­come a global chem­i­cals pow­er­house.

The com­pany posted a loss of SAR720mn in the last three months of 2019 com­pared with a profit of SAR3.22bn in the yearear­lier pe­riod. A SAR1.3bn im­pair­ment pro­vi­sion at the Ibn Rushd pe­tro­leum prod­ucts joint ven­ture also cut into earn­ings.

“The trade war be­tween the US and China has re­ally cre­ated a level of anx­i­ety in the mar­ket, which neg­a­tively im­pacted de­mand and also the prices,” Benyan said. Sabic is look­ing at ad­di­tional ways to cut costs in re­sponse to the eco­nomic slow­down, he said.

Saudi Aramco plans to com­plete its takeover of Sabic this year, in a push to di­ver­sify away from sales of crude oil. The two com­pa­nies haven’t spec­i­fied any po­ten­tial cost sav­ings from the deal. Aramco has said that the Sabic shares it won’t own will con­tinue to trade on the Riyadh ex­change.

While Sabic it­self has been in the mar­ket for ac­qui­si­tions in spe­cialty chem­i­cals, it has so far been un­able to agree with Clari­ant AG of Switzer­land about col­lab­o­rat­ing in a high-per­for­mance plas­tics ven­ture, Benyan said.

The Saudi state-run com­pany ac­quired a 24.99 per cent stake in Clari­ant in 2018, but Sabic’s takeover by Aramco has ham­pered its ties.

“Clari­ant will re­main one of our fu­ture growth op­por­tu­ni­ties,” he said. “We will wait for the right mo­ment when the mar­ket re­ally im­proves in or­der for us to go back and ne­go­ti­ate with them.”

The same fac­tors that squeezed prices and profit mar­gins last year are likely to per­sist in 2020

Yousef al Benyan

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