S Arabia’s SABIC says weak prices, low margins to persist in H2

Nurluqman Suratman

29-Jul-2019

SINGAPORE (ICIS)–SABIC expects earnings pressure from lower product prices and margins to persist in the second half of 2019, amid a slowdown in demand growth and additional supply capacities, the Saudi Arabian petrochemical giant said.

In the second quarter, the company’s net profit slumped to Saudi riyal (SR) 2.1bn ($560m), its lowest quarterly profit since late 2009, the company said in a statement filed on the Saudi stock exchange Tadawul.

Revenue for the June quarter posted a double-digit decline on a year-on-year basis on poorer product prices despite gains in upstream crude market, it said.

SABIC and Swiss chemicals producer Clariant last week shelved talks in forming a joint venture to produce high performance materials, citing current weakness in market conditions.

Saudi riyal (SR) billion Q2 2019 Q2 2018 % change  H1 2019 H1 2018 % change
Sales 35.9 43.3 -17.1 73.2 85.2 -14.1
Operational Profit 4.83 10.8 -55.3 11.0 19.8 -44.4
Net Profit after *Zakat and tax 2.12 6.7 -68.4 5.5 12.2 -54.8

*Islamic tax

“The slowdown in global GDP growth coincides with a decline in petrochemical prices due to a significant increase in new supply capacity resulting in lower product prices and margins in key product lines,” SABIC vice chairman and CEO Yousef Abdullah Al-Benyan said.

SABIC also reiterated that its global economic growth forecast is “expected to be slower in 2019 versus 2018”.

For the long term, the company remains “optimistic on industry fundamentals” and said that it is committed to invest for future growth.

SABIC recently received all regulatory approvals to increase its stake in Ar-Razi, the world’s largest methanol complex to 75% and renewed its partnerships with Japan Saudi Arabia Methanol Co for another 20 years.

The company has also obtained all the approvals needed to establish a petrochemical joint venture with ExxonMobil in the US Gulf Coast.

Petrochemicals and specialties business unit Q2 and H1 2019 results

Saudi riyal (SR) billion Q2 2019 Q1 2019 % change (quarter on quarter)  H1 2019 H1 2018 % change (year on year)
Sales 31.50 32.3 -2.5 63.8 75.2 -15.2
EBITDA* 8.27 9.04 -8.5 17.3 25.0 -30.8
Income from operations 4.49 5.6 -19.8 10.1 18.6 -45.7

*Earnings before interest, tax, depreciation and amortisation

SABIC’s petrochemical operations consists of three business segments: chemicals, polyethylene (PE) and performance polymers & industrial solutions.

CHEMICALS

  • SABIC’s methyl tertiary butyl ether (MTBE) benefited from higher oil prices earlier in the second quarter and improved demand for blending components that translated into a higher EBITDA on a quarter-on-quarter basis.
  • The monoethylene glycol (MEG) market continued to remain under pressure. MEG benchmark prices touched $520/tonne in China (CFR) in the second quarter of 2019, the lowest level since 2009.
  • “There are signs of on-purpose production cuts mainly in Asia and diversion of ethylene to other derivatives e.g. polyethylene,” the company said.
  • Methanol market dynamics were negatively affected by soft demand from China as well, and key end-markets especially, formaldehyde, with lower demand from methanol-to-olefin (MTO) plants and soft demand in India.

PE 

  • For the polyethylene business unit, EBITDA was lower quarter-over-quarter, negatively affected by lower sales volumes.

PERFORMANCE POLYMERS & INDUSTRIAL SOLUTIONS

  • Polycarbonate (PC) prices remained under pressure due to overcapacity, weaker demand from automotive and other key end markets.
  • Polypropylene (PP) industry dynamics were relatively better versus some of the other polymers.

($1 = SR3.75)

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