Record profits for Gulf’s materials sector but growth set to slow

Sabic

• Sector includes chemicals, metals, construction materials and packaging
• Q2 profits rose almost 50% to $7.1bn compared with 2021
• Over 700 factories started production in Saudi Arabia

Profits among the Gulf’s listed companies in the materials sector reached their highest levels on record in the second quarter of 2022.

However, industry experts believe supply chain issues and the Ukraine war will see growth begin to slow.

Across the whole of the GCC, the total net profit of listed companies reached $77.3 billion in Q2 2022, a quarter-on-quarter rise of 17.6 percent and an annual increase of 62.6 percent.

• Abu Dhabi’s non-oil foreign trade grows 12% in H1 2022
• Bahrain’s non-oil economy has wind in its sails
• Manufacturing and mining help Saudi industrial output rise 20.8%

The energy, banks and materials sectors were the top three by absolute profit growth and accounted for almost 90 percent of total year-on-year profit growth, according to Kuwait-based Kamco Investment Company (Kamco Invest).

The materials sector, which includes segments such as chemicals, construction materials, containers and packaging, metals and mining and paper and forest products, saw profits among listed companies reach $7.1bn between April and June – a quarter-on-quarter rise of 44.9 percent and a year-on-year increase of 39.2 percent.

Junaid Ansari, senior vice president of investment strategy and research at Kamco Invest, said the materials sector includes 80 listed companies and the quarterly rise in profits reflected higher average sale prices and volumes. 

“This was reflected in the Bloomberg Commodities index which was up more than 25 percent during Q1-2022 and the pricing contracts resulted in higher profits in the subsequent quarter,” he told AGBI. 

“Moreover, prices of commodities have remained elevated during Q2-2022 versus last year, although there was a quarter-on-quarter decline of 5.6 percent,” he added.

Global slowdown ahead

One of the biggest players in the sector is the Saudi Basic Industries Corporation (SABIC), which reported a 3.7 percent year-on-year increase in Q2 net profit, on the back of revenues rising 32 percent year-on-year rise to SAR 55.98bn ($14.93bn)

The surge in revenue was attributed to the fact that average sales prices increased 26 percent year-on-year during the quarter.

However, SABIC’s vice chairman and CEO Yousef Al-Benyan told Saudi news outlet Argaam at a press conference last month that the second half of the year was likely to be challenging.

“Due to a slowdown in global GDP growth, lockdowns in China, conflict in Europe and the continued supply chain challenges, we expect margins to be under pressure in the second half of 2022,” Al-Benyan said.

Kamco Invest’s Ansari agreed with this outlook for the whole of the materials sector: “A slowdown in global GDP growth, as forecasted by various agencies, would imply a slowdown in sales, as it would affect pricing and volume. However, since prices are elevated, we can expect to see healthy bottom-line performance in the coming quarters versus last year.”

Industrious growth

Industrial production in Saudi Arabia as a whole has been rising, increasing by 20.8 percent year-on-year in June, with mining one of the main catalysts for growth.

The Saudi General Authority for Statistics (GASTAT) found that in June the Industrial Production Index (IPI) rose 20.8 percent year-on-year.

A dive into the figures of their report showed that manufacturing activity increased 29.3 percent year-on-year in June, while mining and quarrying activity rose 19.2 percent over the same period.

The Saudi Ministry of Industry and Mineral Resources last month issued its latest Monthly Bulletin for Industry and Mining, which reported that in June some 501 new industrial licences were issued, representing a total investment value of SAR13.7bn ($3.65bn).

A total of 721 new factories started production, creating around 26,000 new jobs. 

Mining is a particularly important sector in Saudi Arabia and the materials sector across the Gulf. The Saudi Arabian Mining Co. (Maaden) reported Q2 2022 net profit more than tripled to SAR 4.03bn on higher sales prices and increased production.

Robert Wilt, the CEO of Maaden, said in an interview posted on Twitter on September 1 that he is aiming to grow the company’s earnings before interest and tax ten times by 2040.