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Sabic swings to net loss on lower prices, volumes, impairment charge

August 07/2020

MOSCOW (MRC) -- Sabic swung to a second-quarter net loss of 2.22 billion Saudi riyals (USD587 million) from a net profit of SR2.03 billion in the prior-year period, according to Chemweek.

The loss for the three-month period to end-June is mainly attributed to lower average product prices, lower sales volumes, and an impairment charge of SR1.18 billion related primarily to "certain petrochemical assets in the European region," Sabic says. The company, acquired by Saudi Aramco for USD69.1 billion in a deal completed in June, says the lower prices and volumes were mainly due to the impact of the COVID-19 pandemic. The adjusted net loss figure of SR1.04 billion, excluding the asset write-down, missed analysts consensus estimate for a profit of SR900 million. Sabic reported a net loss of SR1.05 billion in the first quarter of this year.

Second-quarter sales declined 29% year on year (YOY) to SR24.62 billion and were 18% lower than in the first quarter. Lower earnings contributions from the company's Saudi affiliates such as Yansab, Kayan, and Safco also negatively impacted earnings, it says. Gross margins declined to 14% from 22% in the prior-year quarter.

Average petrochemical prices fell 27% YOY in the second quarter and were down 18% from the previous quarter, with the company maintaining production levels over the period, it says.

Signs of recovery are already being seen at the start of the second half of the year, according to Sabic CEO Yousef al-Benyan. We expect the third- and fourth quarters to see slight improvements in demand, he said in a conference call. There will be positive results as we have already seen in July and August with the slight demand improvement, in addition to a slight improvement in prices, he said. Hopefully this is something positive, but other challenges still persist. The future of demand is driven by uncertainties in the energy market. Market conditions are going to put pressure on the chemical industry for the remainder of this year.

Earlier this year, Sabic suspended all capital expenditure (capex) except nondiscretionary capex for safe and reliable operations and late-stage projects.

We remind that in mid-June, 2020, state-owned Saudi Aramco bought 2.1 billion shares of Saudi Basic Industries (SABIC) on the stock market on Sunday as it completed its deal agreed last year to buy 70% of the petrochemical giant.

Aramco is scheduled to report its second-quarter earnings on 9 August.

As MRC reported earlier, Sinopec SABIC Tianjin Petrochemical Co. (SSTPC), a 50-50 joint venture of Sinopec and SABIC, completed the debottlenecking of its ethylene cracker on 11 July 2020, adding another 30,000 tons/year output to its current capacity. Followed the expansion, the Tianjin based plant become the country's largest compressor unit, producing 1.3 million tons of ethylene annually.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's DataScope report, PE imports to Russia dropped in January-June 2020 by 7% year on year to 328,000 tonnes. High density polyethylene (HDPE) accounted for the main decrease in imports. At the same time, PP imports into Russia rose in the first six months of 2020 by 21% year on year to 105,300 tonnes. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.

Saudi Basic Industries Corporation (Sabic) ranks among the world"s top petrochemical companies. The company is among the world"s market leaders in the production of polyethylene, polypropylene and other advanced thermoplastics, glycols, methanol and fertilizers.
Author:Margaret Volkova
Tags:PP, PE, crude and gaz condensate, homopolymer PP, propylene, HDPE, ethylene, petrochemistry, Sabic, Saudi Aramco, Sinopec, China, Russia, Saudi Arabia.
Category:General News
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