Sabic 'on course and confident' as it swings to profit on higher prices

Sabic, the Middle East's largest petrochemicals company, swung to profit in the second quarter earning 7.64 billion Saudi riyals ($2bn) after posting a 2.22bn Saudi riyals loss in the same period last year, amid higher selling prices and is on course and confident about its future performance, its vice chairman and chief executive said.

Second-quarter profit beat the average 6.1bn riyals forecast of six analysts, according to Refinitiv data. Revenue for the three months ending in June rose 72.2 per cent to reach 42.42bn Saudi riyals, compared with the same period last year, Sabic said in a regulatory filing to the Tadawul stock exchange, where its shares trade.

“Sabic’s financial performance in the second quarter was strong – continuing the margin improvement seen during the first quarter of 2021," said Yousef Abdullah Al Benyan, vice chairman and chief executive of Sabic.

"This was driven by higher sales volumes and prices, supported by a rise in oil prices and a healthy supply and demand balance for most of our key products as the global economy continued its path to recovery.”

Brent crude oil prices increased about 13 per cent in the second quarter from the previous three months. Oil prices are nearly 40 per cent higher year-to-date as economies open up and industrial demand for chemicals and feedstocks increases.

Sabic, which is majority owned by Saudi Aramco, benefited from higher prices for naphtha in North Eastern and European markets, which helped boost its profitability.

The chemicals producer posted a first-half net profit of 12.51bn Saudi riyals compared with a 3.27bn loss in the same period last year. Revenue in the first six months of the year increased about 80 per cent, around 46 per cent more than the same period in 2020.

Looking ahead, Mr Al Benyan said 2021 is "on course to be a stronger year" than 2020 and demand is expected to continue to be strong in the second half of this year as the global economy rebounds.

"In the second half of 2021, we expect margins to [be] moderate but to remain healthy as oil prices and feedstock costs remain elevated, while existing supply constraints ease and new supply capacity comes on line," he said.

"We remain confident about our path forward and we are making good progress towards achieving our value creation objectives with Saudi Aramco."

The company remains focused on generating maximum value from synergies with Saudi Aramco, Mr Al Benyan said.

Saudi Aramco, the world's largest oil-exporting company holds a 70 per cent stake in Sabic. The company acquired the share worth $69.1bn from the kingdom's sovereign wealth fund, the Public Investment Fund, in 2019.

"Between the deal close [June 2020] and the end of Q2 2021, Sabic has achieved a synergy value of $230 million. Procurement was a major contributor in the value creation recorded in the second quarter of 2021. This was achieved by leveraging Sabic and Saudi Aramco purchasing power and applying warehouse and logistics optimisation methods."

The company's earnings before interest, tax, depreciation, and amortisation (Ebitda) rose 31 per cent quarter-over-quarter to reach 13.63bn Saudi riyals in the second quarter.

The company credited the increased margins to "higher average sales prices and sales volumes".

Increasing feedstock prices and higher selling and distribution expenses due to a rise in freight costs during the second quarter of 2021 partially offset the higher sales volumes compared with the previous quarter, Sabic said.