SABIC wants to grow its way out of earnings slump
(Reuters) Saudi Basic Industries Corp. (SABIC) aims to grow its way out of an extended earnings slump brought on by the impact of lower oil prices on the petrochemicals sector, its acting chief executive told Reuters on Thursday.
However, cost-cutting through greater efficiencies and the sale of subsidiaries outside of the kingdom was also important in turning round the performance of one of the world's largest petrochemicals groups, Yousef Abdullah al-Benyan said.
The company's performance is closely tied to oil prices and global economic growth because its products - plastics, fertilizers and metals - are used extensively in construction, agriculture, industry and the manufacture of consumer goods.
Since global oil prices started to fall in mid-2014, SABIC has reported eight successive quarters of declining earnings, including a 23.2% slump in second-quarter profit on Wednesday.
SABIC has recently set out a number of initiatives, including an oil-to-chemicals joint venture with Saudi Aramco and a coal-to-chemicals project in China, both creating refined chemicals direct from raw materials instead of going through the costly traditional refinery process.
It said on Monday it was studying a potential petrochemicals complex with an ExxonMobil affiliate on the US Gulf Coast. The final decision on the project is due by mid-2017.
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SABIC is also studying possibilities to grow its specialties unit, which produces resins and composite materials, and is seen as less vulnerable to market conditions.
The specialties unit is currently around 5% of its total business, but Benyan said it could increase to around 15% to 20%, although a decision was unlikely before the Q4.
The firm also has designs on new feedstock sources, such as US shale gas, to counter a gas supply shortage in the kingdom which is restricting domestic growth.
SABIC reduced costs by 18% and increased production by 3% between the Q1 and Q2 of 2016, Benyan said, as it sought to improve the efficiency with which it produces petrochemicals. The company also benefited from the falling price of key feedstock naphtha in Europe and China.
Product prices continued to be subdued though, resulting in a 18.1% decline in sales in the Q2 to $9.2 B.
As part of its cost-cutting plan, SABIC was reviewing the sale of assets which weren't performing well, Benyan said, pointing to businesses outside Saudi as prime candidates.
Year-end would also see more clarity on its efforts to turn around its Ibn Rushd plastics and aromatics unit.
Reporting by Marwa Rashad and Reem Shamseddine; Writing by David French; Editing by Andrew Torchia and David Holmes
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