Clouds still not lifting on Saudi petrochem industry

• Poor results for petrochems in Q1
• Sabic made loss of $323m
• High feedstock prices to blame

Saudi Arabia’s petrochemical companies underperformed in the first quarter and little improvement is expected for the remainder of the year, analysts say.

Saudi Basic Industries Corp (Sabic), the world’s seventh largest chemicals manufacturer by sales, made a net loss of $323 million in the three months to March 31, compared with a near $70 million profit in the same period last year.

It blamed that on higher feedstock prices and $285 million in company restructuring costs that it says will later provide $92 million in annual savings.

Quarterly revenue actually rose 6 percent year on year to $9.2 billion.

Although Sabic did not go into details about this restructuring it probably takes the form of cutting staff across its global operations, industry watchers say.

“That’s not really going to move the needle much, but it’s better than nothing,” says Yousef Husseini, director of chemical equity research at investment bank EFG Hermes in Cairo.

Petrochemicals, which are made from oil and gas, are among the kingdom’s most important industries. They accounted for a little under 10 percent of total Saudi exports last year and 4 percent of its total market capitalisation of publicly listed companies at December 31.

“It’s not as nuanced as if the company had started to make strategic cost efficiencies,” says Oliver Connor, director of energy equity research at Citigroup in London. “You can’t cut staff every quarter.”

Other Saudi petrochemical producers reported a similar weakening of earnings. Yanbu National Petrochemical Company (Yansab) said first-quarter profit fell almost 90 percent to less than $4 million. 

And Basic Chemical Industries (BCI) reported profit was down more than 70 percent to less than $1 million. Losses also worsened at Saudi Kayan Petrochemical Company.

Only Advanced Petrochemical Company performed better in the first quarter over the same period last year, making a profit of almost $20 million versus a loss of $16 million during the same time the previous year.

“I was expecting Q1 earnings to be weaker year on year, but most companies did even worse than our forecasts due to lower product prices and higher costs for many feedstocks,” says Husseini.

Saudi Arabia’s government raised feedstock prices from January 1, increasing the price of ethane and methane by 20 and 23 percent respectively.

• Gloomy outlook for Saudi petrochemicals
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• Aramco and Sinopec move ahead with petrochemical expansion

“Product prices were more or less flat in the first quarter, while feedstock prices rose which squeezed Saudi petrochemicals producers’ margins,” Connor says. “There’s no indication of improving demand for petrochemicals.”

Saudi Arabia’s petrochemicals producers last year benefitted from delays to additional global capacity becoming operational that enabled production margins to improve slightly. Now though, this capacity is becoming active, which will be detrimental to margins in 2025.

This gloomy outlook has weighed on investor confidence, as shown by the performance this year of Saudi Arabia’s listed petrochemical companies. All 10 stocks are down in the year to date, ranging from roughly 4 percent to almost 35 percent, with the average at about 16 percent, AGBI analysis shows.