SABIC studying increased specialties business
By Marwa Rashad and Reem Shamseddine
RIYADH, July 28 (Reuters) – Saudi Basic Industries Corp (SABIC) aims to grow its way out of an extended earnings slump brought on by the impact of lower oil prices on the petrochemicals sector, its acting chief executive told Reuters on Thursday.
However, cost-cutting through greater efficiencies and the sale of subsidiaries outside of the kingdom was also important in turning round the performance of one of the world’s largest petrochemicals groups, Yousef Abdullah al-Benyan said.
The company’s performance is closely tied to oil prices and global economic growth because its products – plastics, fertilisers and metals – are used extensively in construction, agriculture, industry and the manufacture of consumer goods.
Since global oil prices started to fall in mid-2014, SABIC has reported eight successive quarters of declining earnings, including a 23.2 percent slump in second-quarter profit on Wednesday.
“To go back into our growth in profitability, this needs to come from growth strategies,” Benyan told Reuters on the sidelines of a press conference.
SABIC has recently set out a number of initiatives, including an oil-to-chemicals joint venture with Saudi Aramco and a coal-to-chemicals project in China, both creating refined chemicals direct from raw materials instead of going through the costly traditional refinery process.
It said on Monday it was studying a potential petrochemicals complex with an Exxon Mobil affiliate on the U.S. Gulf Coast. Benyan told Reuters he was positive on the scheme and a decision was due by mid-2017.
Benyan also said SABIC was also studying possibilities to grow its specialties unit, which produces resins and composite materials and is seen as less vulnerable to market conditions.
Currently around 5 percent of its total business, Benyan said it could increase to around 15 to 20 percent, although a decision was unlikely before the fourth quarter.
The firm also has designs on new feedstock sources, such as U.S. shale gas, to counter a gas supply shortage in the kingdom which industry has said is restricting domestic growth.
SABIC reduced costs by 18 percent and increased production by 3 percent between the first and second quarters of 2016, Benyan said, as it sought to improve the efficiency with which it produces petrochemicals. The company also benefited from the falling price of key feedstock naphtha in Europe and China.
Product prices continued to be subdued though, resulting in a 18.1 percent decline in sales in the second quarter to 34.5 billion riyals ($9.2 billion).
As part of its cost-cutting plan, SABIC was reviewing the sale of assets which weren’t performing well, Benyan said, pointing to businesses outside Saudi as prime candidates.
“Our biggest cost cutting will come from some of the assets that we will let go, so by end of this year we will see exactly what we are going to target,” Benyan said.
Year-end would also see more clarity on its efforts to turn around its Ibn Rushd plastics and aromatics unit, for which SABIC has booked impairments worth 741 million riyals in the first half of 2016, he said during the press conference.
(Writing by David French; Editing by Andrew Torchia and David Holmes)