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Regional behemoth breezes towards ambitious targets.

(Category: Sabic Review )

(Image: SAB_HEAD08_HR.jpg )

SAUDI Basic Industries Corporation (Sabic) has met all the targets set out at its inception in the mid-1970s. In the past five years, it has emerged as one of the world's top 10 petrochemicals producers, and significantly grown its foreign presence with intelligent acquisitions in high-growth markets.

By the end of 2009, when two petrochemicals complexes -- Yanbu National Petrochemical Company (Yansab) and Eastern Petrochemical Company (Sharq), of which it owns 50 per cent -- come on stream, it will enter the top five. Though numerous domestic private players are competing for feedstock, these are unlikely to dent Sabic's regional dominance. Indeed, Sabic is widening the gap between itself and its nearest Gulf competitor. According to a recent analysis, Sabic enjoys a total production capacity of nearly eight times its nearest rival, Qatar Fertiliser Company (Qafco). Sabic will press ahead with plans to secure new markets and access new technology, but its plans may be undermined by international financial markets. Ratings agency Moody's Investors Service weighed in with a potential ratings downgrade for Sabic Innovative Plastics in December 2007, out of concern that Sabic had used a highly leveraged funding structure, which put added pressure on the business. These concerns may prove well-founded, given that Sabic has to deal with rising costs, For example, the Sabic-Maaden phosphate project costs have risen by 62 per cent to $5.6 billion. But it has sufficient financial reserves to support all its overseas businesses. Still, there will be some concern at Sabic over the impact of the anticipated tailing off of petrochemicals prices in the second half of 2009, which may put further production increases in doubt. Sabic's origins go back 32 years, to when the government embarked on a strategic push to use associated gas from its oil production as the key feedstock for the production of chemicals, polymers and fertilisers. With a $80 billion market cap, Sabic is now the largest public company in the Middle East, though the government still owns 70 per cent of its shares. As one of the world's top 10 petrochemicals manufacturers, Sabic produces a large and expanding range of products, and is among the world's market leaders in the production of polyethylene, polypropylene, glycols, methanol and fertilisers. Overall production capacity has grown from 27 million tonnes in 2001 to 49.1 million tonnes in 2006. In the first nine months of 2007, Sabic reported a 13 per cent increase in output to 40.9 million tonnes. From its Riyadh headquarters, Sabic controls 18 manufacturing affiliates inside the kingdom. Eight are joint ventures with foreign partners, while seven are joint-venture deals with local/regional partners. Three are wholly owned. Most of its affiliates are based in Jubail Industrial City and Dammam. Others are based in Yanbu. The company has in the past 10 years undergone a major organisational restructure, shifting from a functional, site-based structure to a strategic business unit (SBU) structure. Sabic operates six interlinked SBUs: basic chemicals, intermediates, speciality products, polymers, fertilisers and metals. The company operates a series of dedicated research and technology centres, and has a dedicated engineering and procurement function that will manage Sabic's increasingly diverse contractor base. Sabic has two large production sites in Saudi Arabia, at Jubail and Yanbu, comprising 19 world-scale complexes. Some of these complexes are partnerships with international joint venture partners such as the US' ExxonMobil Corporation, the UK/Dutch Shell Group and Japan's Mitsubishi Chemicals. Increased production has come from an ethylene glycol plant at Jubail, a reinforced steel plant through the Saudi Iron & Steel Company (Hadeed) and urea and ammonia plants through Saudi Arabian Fertiliser Company (Safco). In Europe, Sabic employs about 3,300 staff at three petrochemical manufacturing sites at Geleen in the Netherlands, Teesside in the UK and Gelsenkirchen in Germany. Sabic Europe produces 2.5 million tonnes per year (tpy) of polyolefins and 3.3 million tpy of basic chemicals. Since its mid-2007 acquisition of GE Plastics -- to be known as Sabic Innovative Plastics -- Sabic has also massively increased its US footprint. Sabic's is expected to do well this year as three world-scale petrochemicals projects -- Yansab, Sharq and Kayan -- are due to come on stream in 2008 and 2009, augmented by a series of smaller plants up to 2010. Having established its credentials as the first genuine Saudi multinational, Sabic is not content to stop at a top-five placing. By 2015, the company wants to become the world's largest petrochemicals producer. The industrial giant is prepared to use its strong financial position to consolidate its recent growth spurt with a far wider footprint, both in terms of its product portfolio and its geographical positioning. The move downstream is a necessity. With ethane in such short supply in the Gulf, polymer and base chemical production are likely to peak in 2010, leaving the strongest growth in the plastics sector, though it also means Sabic must market directly to the consumer. Sabic will have to adopt a whole new skills set, and fast, if it is to meet its ambitious targets.

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Publication:Oil & Gas News
Date:Nov 30, 2008
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