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Sabic profit slumps 85% as recovery slows

Sabic Sabic
Sabic’s earnings are closely linked to oil prices and global economic growth
  • Drop in prices and sales blamed on global economic slowdown
  • Revenue down 29% as profit falls to $480m
  • Saudi Aramco bought a 70% stake in firm in 2020

Saudi Basic Industries Corp (Sabic), one of the world’s largest petrochemical companies, has reported an 85 percent slump in net profit to SAR 1.8 billion ($480 million) during the first half of this year.

Sabic’s shares have fallen 4.6 percent since January, and remained mostly flat after the results were released.

Experts said a recovery in the second half of the year and beyond will be slow.

The company attributed the profit slump to the fact the average sale price of its products decreased 47 percent.

The global economic slowdown also saw a decrease in the volume of products sold in the first six months of the year. As a result, the company’s revenue fell 29 percent to SAR 76.86 billion. 

Sabic’s earnings are closely linked to oil prices and global economic growth given the reach and breadth of its products, which span plastics, fertilisers and metals. 

The company said it remains disciplined in managing its capital expenditures, estimating spending of up to $3.8 billion this year.

“Sabic has stated that it expects margins to be under pressure in the third quarter,” said Sashank Lanka, research analyst at BofA in a research note published by the bank. 

“We maintain our Neutral rating as we expect a gradual (and potentially slow) recovery in the cycle over the next six months from the trough levels witnessed over the last two quarters.”

Oliver Connor, vice president of energy equity research at Citi in London, believes a recession in the US and Europe is possible into 2024. He warned in May that this will weigh on petrochemical demand going forward.

Pritish Devassy, head of sell-side research at GIB Capital in Riyadh, is more bullish for the outlook in the second half of the year. He described demand as “recovering well,” thanks to China’s reopening.

Prices are unlikely to increase significantly in the near term though, he added.

“The supply-demand situation should start improving next year, although not by much,” Husseini said.

“It will be 2025 or 2026 before things start returning to normal given the imbalance currently – we’ve not seen anything like this for at least 15 years.”

Synergies

Saudi oil giant Aramco acquired a 70 percent stake in Sabic from the Public Investment Fund (PIF) in June 2020.

Sabic realised synergies of $130 million in the second quarter of this year and $1.51 billion since the date of acquisition. 

“The company has highlighted achieving the minimum synergies target of $1.5 billion to $1.8 billion, two years ahead of time,” BofA said. 

Opec+’s Joint Ministerial Monitoring Committee (JMMC) meeting is scheduled to meet today to assess the state of the oil markets.

Saudi Arabia is expected to extend its voluntary production cut of 1 million barrels per day into September. 

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