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Saudi chemicals maker SABIC posts profit as demand revives

Saudi chemicals maker SABIC posts profit as demand revives

Profit rose mainly due to the reversal of SAR690m of impairments associated with Clariant AG

Saudi Basic Industries Corp., the chemical maker in which Saudi Aramco holds a majority stake, returned to profit in the third quarter amid signs that demand is recovering from the impact of the coronavirus.

The company, known as SABIC, said third-quarter profit was SAR1.09bn ($290m) compared with SAR740m in the same period last year. Profit rose mainly due to the reversal of SAR690m of impairments associated with Clariant AG, in which SABIC holds a 31.5 per cent stake.

Revenue in the three months to the end of September fell 11 per cent to SAR29.3bn.

SABIC said it benefited from a rebounding world economy but remained cautious on the outlook. Petrochemicals prices have picked up due to higher crude prices and stronger demand after the initial wave of virus-related lockdowns in the second quarter, chief executive officer Yousef Al-Benyan said in an online briefing.

“Still, it’s not clear yet on the impact of the second wave, and we are assessing the impacts of this on the global economy,’ he said.

The results indicate that SABIC is turning a corner after reporting its biggest quarterly loss in at least a decade between April and June, as the pandemic hit sales of plastics, cosmetics and other petrochemical products. A writedown in the value of some assets also hurt second-quarter profit, and that followed the company’s decision in May to suspend new capital expenditure to protect its balance sheet.

Earlier this month, SABIC announced the scaling back of a planned $20bn facility to convert crude directly into chemicals, a sign that efforts to cut costs amid weaker demand for chemicals are affecting investment.

Read: Aramco, Sabic to reassess $20bn crude-to-chemicals project

SABIC is developing the Yanbu project on Saudi Arabia’s Red Sea coast together with Aramco.

“Even without Covid-19 impact, supply still exceeds demand for our key products, which will continue to pressure product prices and margins for the foreseeable future,” the company said in a statement.

Shares in the company fell as much as 1.4 per cent in Riyadh on Sunday, trimming gains this month to 9 per cent. SABIC was the biggest drag to the Tadawul All Share Index, which was down 0.6 per cent. The shares have lost about a quarter of their value since Aramco announced it planned to acquire a stake in SABIC in July 2018.

Aramco took control of SABIC earlier this year, buying a 70 per cent stake from the kingdom’s sovereign wealth fund for $69bn. The deal was part of the state energy firm’s plan to expand its downstream business and diversify from oil into higher-value chemicals.

Aramco and SABIC have yet to announce details of potential cost savings from working together. Al-Benyan, who heads a committee to identify such savings, said the companies would announce next year the “value of those synergies and the areas where we could see higher value creation between both organisations.”

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