The world’s biggest chemicals maker said profit margins would remain tight with the Chinese market yet to recover and the global economic downturn weakening demand for plastics and building materials.
(Bloomberg) —
The world’s biggest chemicals maker said profit margins would remain tight with the Chinese market yet to recover and the global economic downturn weakening demand for plastics and building materials.
Saudi Basic Industries Corp.’s net income dropped to 290 million riyals ($78 million) in the fourth quarter, down 94% year-on-year and the worst figure since the height of the coronavirus pandemic in mid-2020.
The stock fell 2.7% by 1 p.m. in Saudi Arabia to 89.40 riyals, the biggest decline on a closing basis this year.
The ending of Covid lockdowns in China hasn’t led to rapid rebound in consumption in the world’s second-biggest economy, according to Abdulrahman Al-Fageeh, Sabic’s acting chief executive officer.
“Things in China are still roughly the same as they were in 2021,” he said to reporters. “So far we have not seen the high demand that was expected. It seems to me that the second quarter or the second half may witness the return of the Chinese market.”
The company’s results were similar to those of rivals such as BASF SE, which last week said it would cut 2,600 jobs, and Dow Inc. The firms have been hit by lower sales as central banks raise interest rates to combat inflation. Their margins were also squeezed when Russia’s invasion of Ukraine a year ago triggered a surge in prices for natural gas, a crucial feedstock.
While gas prices have decreased significantly this year, they remain well above historical averages.
“Margins will continue being under pressure in the first half of 2023,” Sabic said.
The firm, based in Riyadh and majority owned by state oil company Saudi Aramco, said average sale prices between October and December dropped 9% from the previous quarter.
Its full-year net profit was $4.4 billion, down 28% from 2021. The company announced a $3.4 billion annual dividend, up 6.25%.
‘Relentless Growth Ambitions’
Sabic has a market valuation of $73 billion, more than that of any other listed chemicals firm.
It said it will continue with its “relentless growth ambitions” in the kingdom and abroad. Last year, it signed a deal with Aramco and China’s Sinopec to build an oil-to-petrochemicals plant in western Saudi Arabia. It’s also looking at projects in Poland and elsewhere in eastern Europe.
The company will increase capital spending this year, Al-Fageeh said. That’s in part due to the development of the Ras Al-Khair plant in eastern Saudi Arabia, which is being designed to convert 400,000 barrels of crude oil each day into chemicals.
(Updates with comments on China.)
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