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Petrochemicals producer in $40m blow

Sabic, majority-owner of Yansab, has warned that margins are 'continuously under pressure' Reuters/Faisal Al Nasser
Sabic, majority-owner of Yansab, has warned that margins are 'continuously under pressure'
  • Yansab reports ‘technical upset’
  • Stoppage could last into September
  • Profits plunge across sector

A major Saudi Arabian petrochemicals company has announced a temporary shutdown at some of its plants which is likely to cost it SAR150 million ($40 million).

Yanbu National Petrochemical Company (Yansab) said a “technical upset” forced the shutdown on August 14 and is likely to continue into early September.

“The work is in progress to overcome this issue and carry out the necessary repairs,” the company, which is 51 percent owned by Saudi Basic Industries Corporation (Sabic), said in a filing to the Saudi Stock Exchange where it is listed.

“It is expected that this shutdown will continue for another 11 days and the expected financial impact of this shutdown is estimated at 150 million Saudi riyals,” the company added.

It is a difficult time for Saudi Arabia’s petrochemicals producers, who reported plunging profits in the second quarter. They are likely to face further struggles due to weak demand, oversupply and high costs.

Yansab saw its net profit in Q2 slump to SAR27 million versus SAR288 million a year earlier on revenue of SAR1.3 billion, a 36 percent year-on-year decrease. 

It said the drop was attributable to lower average sales prices and lower production and sales.

Average sales prices in the second quarter declined by 11 percent compared to the prior three months while sales prices fell by 30 percent and volumes dropped by 8 percent compared to the same quarter of 2022. 

In the first six months of 2023, Yansab reported a loss of SAR342 million compared to a SAR571 million profit in H1 2022 on the back of a preventative maintenance programme, which is estimated to have resulted in a SAR385 million financial impact.

Its share price fell nearly 3 percent in early trading on Tuesday to under SAR43, well down on its 52-week high of SAR52.5 but higher than its annual low of SAR38.

Analysts told AGBI last week that there seems little scope for the industry to rebound until at least 2024 as petrochemicals prices continued to fall in early Q3.

Sabic, the kingdom’s top petrochemicals maker and majority-owner of Yansab, reported an 85 percent year-on-year decline in second quarter net profit and warned that margins will “be continuously under pressure” in the third quarter.

Industry-wide, petrochemical margins have tumbled to two-decade lows.

Huge oversupply in China’s once-buoyant real estate sector, which was a major consumer of petrochemicals, suggests demand for petrochemicals from the world’s No 2 economy will remain subdued.

The correlation between China’s GDP expansion and petrochemicals demand growth has been strong over time, according to EFG Hermes.

China began increasing its own petrochemicals capacity significantly from 2021, with 2023 likely to be the peak in terms of its annual capacity expansion.

Global demand for ethylene and propylene is forecast to surge 29 percent from 2023 to 426.8 million metric tons by 2030. 

Capacity is expected to jump 25 percent from 2023 to 485.9 million metric tons by 2030, according to research firm Wood Mackenzie.

New capacity in China is expected to make up more than half of that growth, according to the International Energy Agency.