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Sabic marches on unchallenged despite profit fall.



(Category: Sabic Review )

(Image: ceo_al-mady-2.jpg )

SAUDI Basic Industries Corp (Sabic) must keep costs at a minimum given the current global turmoil, its top executive says after it posted its first decline in quarterly net profit in more than two years.

The world's largest chemicals company by market value, which competes with Dow Chemicals, made 7.24 billion riyals ($1.93 billion) in the three months to September down from 7.4 billion riyals a year earlier. Mohammed Al-Mady says the firm posted a slight decline in sales volume in the third quarter but he declines to say from which part of the world this decline originated. "This decline is normal under the current global economic conditions," Mady says. "China and India continue to be strong drivers of growth ... But I don't think a country will be safe from a potential decline in the US or Europe." Annual sales volume growth was 3 per cent for the nine months to September 30, half its level for the six months to June 30. Sabic says the expected global recession might lead to a decline in demand for products in most of the international markets, in an apparent reference to its own products. Asked how the firm planned to deal with a potential slowdown, Mady says: "The most important thing for us is to safeguard the operations process and to maintain costs at a strict minimum ... The company is strong". He declines to elaborate. The firm's operating profit Operating profit (or loss)

Revenue from a firm's regular activities less costs and expenses and before income deductions.


operating profit

See operating income.
 in the nine months to September 30 rose 20 per cent while its net profit rose only 8 per cent during the same period. Mady says the gap was a result of extra financial costs from the decline in the euro's exchange rate against the US dollar after the firm changed some unspecified US dollar-denominated assets for euro-denominated ones. "When you have assets that were valued in a specific currency and then you change from the US dollar to the euro, there is an impact," Mady says. He declines to say what sort of steps the company had taken or planned to take to readjust re·ad·just  
tr.v. re·ad·just·ed, re·ad·just·ing, re·ad·justs
To adjust or arrange again.



re
 to this situation. Sabic is also bearing the financing cost of its $11.6 billion acquisition of GE Plastics. Sabic included a full quarter of GE Plastics earnings in its financials for first time in the three months to December 31. The global financial crisis did not have an impact on the firm's financial operations, Sabic says, noting that loans necessary to finance projects and expansions had been completed before the current crisis started. Al Mady says the firm's decisions to cut the prices of domestic steel by an accumulated 43 per cent since September was motivated by a global trend affecting the price of the commodity. "The Saudi economy is an open market and we had to cut prices to match the global price trends so we can stay competitive ... It was not because the Saudi economy is entering a recession phase," he says. Meanwhile, while the private sector is becoming more prominent in petrochemicals production in the region, the dominance of Sabic is set to continue for at least the next decade. It is not surprising to find that Sabic remains the region's largest petrochemicals producer. But what is unexpected is the scale of the gap between the company and the next largest regional producer. An analysis of total operational regional capacity of the GCC's petrochemicals producers shows Sabic has a total production capacity of nearly eight times its nearest rival, Qatar Fertiliser Company (Qafco). It is even higher if Sabic's European base chemical production facilities are taken into account. More still if its newly acquired subsidiary, Sabic Innovative Plastics, formerly known as US company GE Plastics, is included. Sabic undeniably has a supreme advantage, thanks to the availability of cheap feedstock feed·stock  
n.
Raw material required for an industrial process.

Noun 1. feedstock - the raw material that is required for some industrial process
raw material, staple - material suitable for manufacture or use or finishing
 in Saudi Arabia Saudi Arabia (sä`dē ərā`bēə, sou`–, sô–), officially Kingdom of Saudi Arabia, kingdom (2005 est. pop. . However, it is also a testament to its ambitious growth strategy and the strong government support given to the company since it was established in 1976. By the end of 2006, the company had became the world's 11th largest chemical company in terms of sales Terms of sale

Conditions under which a firm proposes to sell its goods or services for cash or credit.
, and first in terms of profitability and stock market value. By the end of this year, it will enter the global top 10 following its acquisition in August of GE Plastics. And by the end of 2009, when two petrochemicals complexes -- the Yanbu National Petro-chemical Company (Yansab), in which Sabic owns a 55 per cent stake, and Eastern Petrochemical Company (Sharq), in which it owns 50 per cent -- come on stream, it may well enter the top five. Some analysts predict Sabic will become the world's largest petrochemicals company by 2015, if this growth rate continues. Much has also been made of the company's robust and experienced management structure, which has rewarded performance rather than patronage, as is the case with so many other state-owned companies in the region. Being listed on the Tadawul is a key factor, ensuring that Sabic strives to maximise shareholder returns and improve competitiveness. These factors will be tested in the next decade as the market slows, cheap feedstock allocations dry up and competition in Saudi Arabia increases. One of Sabic's key challenges is managing the integration of GE Plastics into the group. It is too early to tell what will happen, but the signs so far have been encouraging. The new workforce, located primarily in the US, has appreciated the end of the uncertainty over the sale and the fact that Sabic will be looking to invest in the business. "The first thing the Sabic executive did was tour the facilities, meeting each and every one of the GE employees, white and blue-collar workers alike," says a source. "It went down really well as people were not used to such familiarity. Al-Mady is spending as much time in the US now as he does in Riyadh." Nonetheless, the acquisition will not be without its challenges. Speciality products are still a relatively new area for Sabic, and it will have to adapt to an aspect of the industry that is far more market-facing and customer-focused than the base chemical and polymer commodities it currently produces. There are also question marks about the $11.6 billion Sabic paid for GE's plastics division, with some analysts saying it was far more than the business was worth. Value for money or not, the acquisition clearly has advantages for Sabic. "Although it was a high price, it is difficult to say if Sabic overpaid o·ver·pay  
v. o·ver·paid , o·ver·pay·ing, o·ver·pays

v.tr.
1. To pay (a party) too much.

2. To pay an amount in excess of (a sum due).

v.intr.
To pay too much.
," says Sanjay Sharma, project manager at the Dubai office of consultant CMAI CMAI Chemical Market Associates, Inc.
CMAI Cohen Mansfield Agitation Inventory
CMAI Clothing Manufacturers Association of India
. "It clearly sees a lot of synergies in gaining a foothold in the US market. It also has a lot of polycarbonate A category of plastic materials used to make a myriad of products, including CDs and CD-ROMs.  production coming out of the Saudi Kayan project, almost 10 per cent of global production, and this is an area GE was strong in." On the down side, Sharma says Sabic will have to spend more cash on GE's infrastructure. GE has a lot of ageing assets that will need a substantial amount of investment. While Sabic's position as the number one regional player will not come under threat any time soon, positions lower down the table will undoubtedly change over the coming five years, as a host of projects come on stream. Saudi Aramco Saudi Aramco, the state-owned national oil company of Saudi Arabia, is the largest oil corporation in the world and the world's largest in terms of proven crude oil reserves and production.  will enter high on the list when its giant PetroRabigh and Ras Tanura Ras Tanura (more accurately Ra's Tannūrah, Arabic: رأس تنورة meaning "top/head of the barbecue spit") is a city in the Eastern Province of Saudi Arabia located on a peninsula extending into the Persian Gulf.  integrated refining and petrochemical complexes are completed. The two $20 billion-plus projects will add millions of tonnes of capacity and new product ranges. The introduction of speciality products, such as polycarbonates polycarbonates, group of clear, thermoplastic polymers used mainly as molding compounds (see plastic). Polycarbonates are prepared by the reaction of an aromatic difunctional phenol with either phosgene or an aromatic or aliphatic carbonate.  and phenols phenols (fēˑ·nlz),
n.
, will constitute a major element of all future regional capacity as producers seek to go down the value chain. As it stands, with unallocated ethane ethane (ĕth`ān), CH3CH3, gaseous hydrocarbon. It is a continuous-chain alkane. As a constituent of natural gas, it is used for fuel. It can be prepared by cracking and fractional distillation of petroleum.  feedstock in such short supply, polymer and base chemical production will not increase substantially beyond 2010. Instead, over the next decade the region's plastics sector will come of age. Saudi International Petrochemical Company (Sipchem) is an example of this new generation of complex. The private sector company's $8 billion third-phase olefins and derivatives complex and associated ammonia plant will substantially improve its position in the table, with the addition of a range of speciality products, such as polyacrylonitrile. The private sector in general will become more prominent in terms of production capacity. Saudi Arabia's Sahara Petrochemical Company and Tasnee both have large polymer projects set to come on stream by the end of 2009. Saudi Arabian Mining Company (Maaden), which is expected to list early next year, will enter the fertiliser sector in a major way when its Ras Al-Zour fertiliser complex starts operations in 2011. It will be producing almost a quarter of the world's output of 12.3 million tonnes per year (tpy) of diammonium phosphate Diammonium phosphate (DAP) (chemical formula (NH4)2HPO4 ) is one of a series of water-soluble ammonium phosphate salts which can be produced when ammonia reacts with phosphoric acid. DAP is used as a fertilizer and a fire retardant.  (DAP) fertiliser. Maaden and Sahara together, through their Arabian Chlor Vinyl Company joint venture, are building an ethylene ethylene (ĕth`əlēn') or ethene (ĕth`ēn), H2C=CH2, a gaseous unsaturated hydrocarbon. It is the simplest alkene.  dichloride di·chlo·ride  
n.
A chemical compound containing two chlorine atoms bound to another element or radical. Also called bichloride.

Noun 1.
 complex in Jubail. Sahara is also set to enter the acrylic sector with its Jubail-based Arabian Acrylate Noun 1. acrylate - a salt or ester of propenoic acid
propenoate

salt - a compound formed by replacing hydrogen in an acid by a metal (or a radical that acts like a metal)
 Company acrylate ester complex. Other upcoming private ventures in the kingdom include the Osos Petrochemicals Company polybutyleneterepthalate (PBT PBT Provider Backbone Transport (networking technology adding determinism to ethernet)
PBT Polybutylene Terephthalate
PBT Profit Before Tax
PBT Paper Based Test (education) 
) facility and the Arabian Amines amines (mēnz´),
n.pl organic compounds that contain nitrogen.
 Company amines complexes. The action is not just confined to Saudi Arabia. Qatar, with its plentiful gas reserves, also has ambitious plans for its petrochemical sector, although it is still focusing mainly on upstream chemical production. The most advanced grassroots scheme is the Korean/local Honam Petrochemical Corporation/Qatar Intermediate Holdings Company polymers complex in Mesaieed, which is due to come on stream by 2011. Shortly after will come the similar-sized local/US Qatar Petroleum/ExxonMobil Chemical Company project at Ras Laffan. France's Total and the UK/Dutch Shell Group are both looking at cracker complexes in Ras Laffan. For existing producers, Qafco is set to reinforce its high ranking See Google bomb.  following the signing of a letter of intent for the engineering, procurement and construction The introduction to this article is vague. To comply with Wikipedia's guidelines, it should be improved.  contracts on its fifth production train, which will add more than 2 million tpy of urea and ammonia production Because of its many uses, ammonia is one of the most highly-produced inorganic chemicals. There are literally dozens of large-scale ammonia production plants worldwide. The worldwide production in 2004 was 109,000,000 metric tons.[1] China produced 28.  capacity. It is also building a melamine melamine (mĕl`əmēn'), common name for 2,4,6-triamino-1,3,5-triazine. Melamine is a trimer (see polymer) of cyanamide, H2NC≡N, and is synthesized from calcium carbide.  complex. Qatar Fuel Additives Company (Qafac) is trying to overcome feedstock issues to expand its production capacity, while Qatar Chemical Company (Q-Chem) and Qatar Petrochemical Company (Qapco) both have expansion projects under construction. In the UAE (Uninterruptible Application Error) The name given to a crash in Windows 3.0. In subsequent versions of Windows, a crash was called a "General Protection Fault," "Application Error" or "Illegal Operation." See crash in Windows and abend. , the main focus is on Abu Dhabi Abu Dhabi (ä`b thä`bē, zä–, dä–), Arab. Abu Zabi, sheikhdom (1995 pop. 928,360), c.  Polymers Company (Borouge), which is in its second-phase expansion to increase olefins production. It also plans to build polycarbonate and phenols production capacity. Staying downstream, it is in the process of building a new melamine plant using urea sourced from Ruwais Fertiliser Company (Fertil), which itself is undergoing a debottlenecking of existing facilities. Fertil is additionally planning a new urea and ammonia line at its Ruwais plant. Elsewhere, opportunities are more limited. Kuwait, Oman and Bahrain all suffer from a lack of available gas feedstock, making capacity hikes difficult. Oman has the Sohar aromatics and Salalah methanol methanol, methyl alcohol, or wood alcohol, CH3OH, a colorless, flammable liquid that is miscible with water in all proportions. Methanol is a monohydric alcohol. It melts at −97.  complexes under construction, while Kuwait's Equate is expanding capacity through its Olefins II scheme. But beyond that there is little on the horizon. Oman Petrochemical Industries Company (Opic) has put its planned Sohar complex on hold because of rising construction costs. A decision has yet to be made on whether to proceed with the Duqm integrated refinery and petrochemicals complex in the south of the sultanate. Over the next 10 years, there will be radical changes in the producers' table. Sabic should remain top but, lower down, competition will increase. Qatari and Saudi Arabian companies This is a list of Saudi Arabian companies. A considerable proportion of Saudi companies are owned by families, including the royal family. Top companies
  • Saudi Arabian Oil Company (Saudi Aramco) and its subsidiaries: Largest Saudi company, and largest oil company
 will climb up the list, and there will be a far greater and more influential private sector presence. Product slates, currently dominated by upstream base chemicals and polymers, will change to reflect the trend of growing downstream chemical production. The only constant will be the region's growing dominance of the industry as a whole. Sabic is engaged in the manufacture of chemicals, plastics, fertilisers and metals. The company has 17 manufacturing affiliates (joint ventures) in Saudi Arabia. These are joint ventures with foreign partners or with local and regional private sector investors or wholly owned by Sabic. Most of the affiliates are based in the Al-Jubail Industrial City and in Dammam on the Arabian Gulf Arabian Gulf: see Persian Gulf. ; others are located in Yanbu on the Red Sea. The 18th affiliate, Saudi Kayan, is currently under construction.

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Publication:Oil & Gas News
Article Type:Company overview
Date:Nov 30, 2008
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