| ARAMCO’S SABIC PURCHASE CREATES PETCHEM BEHEMOTH |
The Saudi petrochemicals sector saw a major announcement in March with Saudi Aramco taking a majority stake in Saudi Arabian Basic Industries Corp (SABIC).
Aramco said it is buying 70% of the Public Investment Fund’s stake in SABIC, which is the Gulf region’s largest company by market cap, for SAR 259.125 billion (or SAR 123.39 per share), which is equivalent to USD 69.1 billion.
SABIC’s remaining 30% publicly traded shares are not part of the transaction, and Saudi Aramco said it has no plans to acquire them.
“This is a win-win-win transaction and a transformational deal for three of Saudi Arabia’s most important economic entities,” said Yasir Othman Al-Rumayyan, managing director, Public Investment Fund. “It will unlock significant capital for PIF’s continued long-term investment strategy, underpinning sectoral and revenue diversification for Saudi Arabia."
The PIF managing director said the deal will introduce a strategic owner that can add considerable value to SABIC and all its shareholders, while capitalising on the company’s strong capabilities to unlock growth opportunities for Saudi Aramco.
Amin Nasser, president and CEO of Saudi Aramco, believes the transaction will boost the oil company’s downstream growth strategy.
“As part of the Saudi Aramco family of companies, together we will create a stronger, more robust business to enhance competitiveness and help meet rising demand for energy and chemicals products needed by our customers around the world,” he said.
The combined entity will have petrochemicals production capacity of 79 million tonnes per annum, with SABIC producing 62 million tonnes per year. The acquisition enables Aramco to increase its global participated refining capacity from 4.9 million barrels per day (bpd) to 8-10 million bpd by 2030, of which 2-3 million bpd will be converted into petrochemical products.
SABIC’s revenues last year stood at SAR 21.54 billion, on the back of rising production and 6% increase in sales volumes, compared with 2017. Net profit for the year reached SAR 21.54 billion, a 16.87% year-over-year increase.
The positive results are due to an improvement in average selling prices for products in line with the higher oil price environment. The results reflect success of the company’s transformation initiatives, which was designed to make SABIC even more competitive globally.
CHEMICALS OUTLOOK
The American Chemistry Council , which tracks 98% of global production across 65 countries, believes worldwide chemicals output rose 0.1% in February, following 0.2% gains in January and December. In February, Middle East chemical production gained 0.5%.
“Among chemical industry segments, February results were mixed on a product basis, with gains in inorganic chemicals, bulk petrochemicals and organics plastic resins, manufactured fibres, and other specialties offset by weakness in agricultural chemicals, consumer products synthetic rubber, and coatings,” the ACC said in its report.
“Considering year-earlier comparisons, growth was strongest in bulk petrochemicals and organics and plastic resins, followed by manufactured fibres and coatings.”
ICIS, an energy consultancy, expects new production to come on stream, which would keep prices of most petrochemical products in check.
Polymethyl methacrylate (PMMA) spot prices in the Middle East’s key market of southeast Asia and China has fallen around 20% in the past six months due to soft demand and rising production. Spot supply is expected to be fairly abundant in early 2019, considering high inventories and restricted run rates among producers.
“New Middle East suppliers are also projected to aggressively push cargoes further in order to gain market share,” ICIS said.
A 40,000-tonne-per-year integrated facility operated by Saudi Methacrylates Company (SAMAC) had started commercial operations in April 2018. It is a joint venture between Mitsubishi Chemical and SABIC.
Separately, a 50,000-tonne-per-year unit in Saudi Arabia, operated by Petro Rabigh, also commenced PMMA production in early 2018. The project is a joint venture between Sumitomo Chemical and Saudi Aramco.
The overcapacity meant that petrochemical and polymer producers saw muted gains in prices in the first quarter of 2019.
ICIS, which also tracks commodity prices, said that its benchmark ICIS Petrochemical Index was down 2% in the first quarter on year-on-year basis, while the northwest Europe IPEX was up 3% and the US IPEX was 2% higher at the time.
“The much tougher business environment – a persistent hangover from a surprisingly poor fourth-quarter 2018 – will be reflected in upcoming quarterly earnings reports across much of the sector,” ICIS said.
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