Sabic second-quarter net income down on declining demand

Revenue at the end of three months to June 30 declined by 17% to 35.87bn Saudi riyals

Sabic said a drop in prices of petrochemicals products contributed to the decline in its quarterly profit. ArabianEye

Saudi Basic Industries Corporation (Sabic), the biggest petrochemicals producer in the Middle East, reported a 68 per cent slide in second-quarter net income as lower demand due to a global economic slowdown dented profitability.

Net income for the three-month period ending June 30 dropped to 2.12 billion Saudi riyals (Dh2.01bn), Sabic said in a statement to the Saudi bourse Tadawul, where its shares trade. Quarterly income was the lowest since 2009 and missed the average estimate of 3.37bn riyals profit of analysts polled by Bloomberg.

The company, which in March reached an agreement with Saudi Aramco, the world’s largest oil exporting company, to sell 70 per cent of its stake for $69.1bn (Dh253.8bn), said the drop in the prices of petchems products also contributed to the decline in its quarterly profit.

“The slowdown in global GDP growth coincides with a decline in petrochemicals prices due to a significant increase in new supply capacity resulting in lower product prices and margins in key product lines,” said Yousef Al Benyan, vice chairman and chief executive of Sabic

Revenue at the end of three months to June fell by 17 per cent to 35.87bn riyals, while its earnings before interest, taxation, depreciation and the amortisation dropped by an 11 per cent to 9.07bn riyals, according to Sabic’s bourse filing.

Income from operations reached 4.83bn riyals, a 55 per cent decrease year-on-year, it added. Despite a rise in crude prices by 10 per cent over the period, which translates into higher feedstock expenses, Sabic said cost of sales reached 25.84bn in the second quarter of 2019, slightly lower than the first quarter of this year.

“Though lower petrochemicals prices have negatively affected Sabic’s second-quarter results, our operational performance remains robust,” Mr Al Benyan said. “Sabic remains optimistic on industry fundamentals over the long term and we continue to invest for growth.”

The company recently received all necessary regulatory approvals to increase its stake in Ar-Razi, the world's largest methanol complex, to 75 per cent, he said. The company has also renewed its partnerships with Japan Saudi Arabia Methanol Company for a further 20 years. It also obtained approvals to establish a petchems joint venture with Exxon Mobil in the US Gulf Coast, Mr Al Benyan said.

Last week however, Sabic shelved its plan for a speciality chemicals venture with Swiss company Clariant, citing "unfavourable market conditions". The companies were in discussion to merge Sabic's specialities business with Clariant's high-performance materials segment.

Sabic has a 25 per cent stake in the Swiss company, in which it became the largest shareholder last year.

Despite a longer-term positive outlook, Sabic said new capacities coming on to the market in its key product lines that pressured the company’s product prices and margins in the first half of 2019 are expected to continue to impact earnings in the second half of this year.