Abu Dhabi, UAETuesday 17 September 2019

Sabic earnings hit by rising cost of materials

The world's fourth-largest chemicals firm said its performance for 2019 won't be as strong as the previous year

Sabic chief executive Yousef Al Benyan. Slowing global demand is among reasons for firm's weaker performance. Chris Whiteoak/The National
Sabic chief executive Yousef Al Benyan. Slowing global demand is among reasons for firm's weaker performance. Chris Whiteoak/The National

Saudi Basic Industries Corporation (Sabic), the largest listed company in the Middle East, reported a 38 per cent decline in its first-quarter net profit.

The company, which reached an agreement with Saudi Aramco, the world’s largest oil exporting company, to sell 70 per cent of its stake for $69.1 billion (Dh253.8bn) last month, reported a net profit of 3.41 Saudi riyals (Dh3.34bn) for the quarterly period ending March 31. Sabic had made a profit of 5.2bn riyals for the same period last year.

The world’s fourth-largest chemicals company cited a rise in global prices for some primary products used in the production of polycarbonate and methanol as having had an impact on its bottom line. Polycarbonates are used to manufacture plastics that can withstand high temperatures, while methanol is a flammable substance used as a solvent and to produce biodiesel.

The company also revised down its performance for 2019, saying it will not be as high as it was in the previous year.

“Sabic continues to work on internal corporate affairs to reduce external impacts,” Yousef Al Benyan, Sabic chief executive, said in Riyadh.

Average prices decreased 8 per cent on a quarterly basis, Sabic said, citing slowing demand globally, a sluggish start to the year as well as high build up of inventories as reasons behind the decline in profit.

Analysts had expected Sabic to generate a profit of 3.98bn riyals in the first quarter, according Refinitiv, a global provider of financial markets data.

The chemical giant’s forecast for the year is now 21.25bn riyals, compared with 21.54 billion in 2018, said Refinitiv.

The market for polycarbonate has cooled off from the start of the year, with demand growing only in North America.

Petrochemicals companies in the Middle East have seen mixed fortunes over the past couple of years, due to the vagaries of the oil markets. Saudi Arabia’s Rabigh Refining and Petrochemicals Company (Petro Rabigh) last year saw a 26 per cent decline in second-quarter net profit due to lower refined products margin, even though its earnings had jumped 600 per cent in the first half.

Sabic enjoyed a fairly profitable 2018, with its second-quarter profits for the year jumping 81 per cent on the back of higher selling prices and improved sales. The three-year slump in oil prices has generally favoured petchems capacity addition in the region, with national oil companies looking to boost margins from the sale of products.

Updated: April 28, 2019 06:42 PM