SABIC’s product diversity plays to price stability; assets sale under study to boost returns: CEO

Abdulrahman Al-Fageeh, CEO of SABIC

Demand for global petrochemical products is facing some pressure due to inflation and rising production process, which has led to a slight stagnation in demand, Saudi Basic Industries Corp.’s (SABIC) CEO Abdulrahman Al-Fageeh told Argaam.

During the company’s press conference on its Q3 2023 financials, Al-Fageeh said SABIC embraces a diverse mix of products that contributed to maintaining prices. This is in addition to the increase in some product prices as a result of this diversification.

For his part, Executive Vice President of Corporate Finance, Salah Al-Hareky, explained that the aggregate profit of SABIC’s subsidiaries dropped by approximately SAR 190 million. This was due to lower demand for the associate companies’ products, especially in European markets suffering economic recession, as well as the impact of the drop in the Eurozone GDP against that of the US.

SABIC has expanded petrochemical production, focusing on converting crude oil and oil liquids into petrochemical products, according to Al-Fageeh.

The Saudi Iron & Steel Co. (Hadeed) sale deal is deemed an opportunity to develop and improve SABIC’s capabilities locally and regionally. The loss stemming from the move is non-monetary, given that the value of the company’s assets is on par with the deal value, the CEO continued.

Al-Hareky expects SABIC to gain about $1.8 billion in cash consideration by Q1 2024 after finalizing the Hadeed sale deal, which will be reinvested in the company’s investment portfolio. He stressed that SABIC is currently focusing on its portfolio in the petrochemicals and specialty materials sectors. SABIC will study opportunities related to the sale of assets in order to boost investment returns, he added.

Meanwhile, Al-Fageeh pointed out that higher interest rates and uncertainty led to a slowdown in investments, which entails a negative impact on the production and manufacturing sector.

Global demand is weakening in target markets as uncertainty extends through Q4 2023, he underlined.

The agricultural and fertilizer sectors, according to the CEO, witnessed improved demand during Q3 2023. Similarly, demand enhanced slightly in the transportation, auto, electronics, and electrical sectors, while there was a sharp decline in the healthcare sector.

By Q4 2023, Al-Fageeh expected a moderate and slight improvement in the consumer goods, transportation, and food and beverage sectors, while other sectors to be almost flat.

SABIC reported a 6% quarter-on-quarter (QoQ) rise in sales volumes and value in Q3 2023, with total sales amounting to about SAR 36 billion, compared to SAR 34 billion in Q2 2023. This was due to an 11% surge in sales volumes of polymers and chemicals.

Average selling prices dropped by 1% QoQ in Q3 2023, while the prices of agricultural nutrients and fertilizer products increased by 11% QoQ.

Al-Fageeh clarified that the company managed to reduce the cost of sales by 3% QoQ in Q3 2023, achieving operating profits of SAR 1.7 billion, with a high profit margin of about 16% compared to 15% in Q2 2023.

According to data compiled by Argaam, SABIC turned to a net loss of SAR 1.04 billion in the first nine months of 2023, against a net profit of SAR 16.24 billion a year earlier. During the third quarter of this year, the giant petrochemical producer swung to a net loss of SAR 2.9 billion due to the sale of Hadeed.