Sabic reports sharp decline in profit ahead of Aramco buyout
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