Saudi Basic Industries Corporation (Sabic), the Middle East's biggest petrochemicals company, reported a 90 per cent slide in first-quarter net profit as a result of lower prices.
Net profit after zakat and tax in the three months to the end of March fell to 660 million Saudi riyals ($176 million) from 6.47 billion riyals in the same period last year, Sabic said on Thursday in a statement to the Tadawul stock exchange, where its shares are traded.
Revenue during the period fell nearly 25 per cent to 39.69 billion riyals.
“We are closely monitoring the changes and the recovery of the global market demand," Sabic chief executive Abdulrahman Al Fageeh said.
New capacities in the first quarter of 2023 are adding more pressure on global prices, while there is limited relief on variable cost, he said.
“We continue to keep our operating costs under control and maintain our strong balance sheet. Despite current market uncertainties, our determination to deliver on growth, innovation and sustainability remains intact.”
Sabic's average sales prices fell by 22 per cent in the first quarter, compared with the same period a year earlier.
Meanwhile, the company's sales volumes dropped by 3 per cent in the latest reported quarter.
A rise in oil prices increased the costs of petrochemical feedstocks, which are produced from a derivative of crude.
Brent, the benchmark for two thirds of the world's oil, surged to nearly $140 a barrel after Russia's invasion of Ukraine last year. The international benchmark has since given up most of its gains and is currently trading at about $73 a barrel.
Sabic said it expects its margins to remain "under pressure" in the current quarter due to the uncertainty stemming from high inflation and interest rates.
While the reopening of China, the world's second-largest economy, is supporting global growth and the recovery from the Ukraine war and the Covid-19 pandemic is on track, the rebound across countries is fragmented, the International Monetary Fund said in its World Economic Outlook on Wednesday.
Inflation globally is beginning to decline and is expected to drop to 7 per cent this year and 4.9 per cent in 2024, from 8.7 per cent in 2022, the fund said.
The global petrochemicals industry is growing and is projected to be worth about $800 billion by 2030, up from about $475 billion in 2020, according to Precedence Research.
Sabic is playing a key role in the kingdom’s plan to reduce its reliance on oil exports.
Last year, the company announced plans to set up a plant to convert crude oil into petrochemicals in Ras Al Khair, with a capacity of 400,000 barrels per day of oil.
In December, Sabic signed an agreement with Oman’s state energy company OQ and Kuwait Petroleum International to set up a petrochemical complex in the sultanate.
The complex will manufacture petrochemical products for markets linked to the energy transition process, clean technology, mobility and construction, among others.
