Sector News

(Reuters) – Saudi Basic Industries Corp (SABIC) can adapt to any new petrochemicals supply entering the market from outside the kingdom, its acting chief executive said on Monday, as Iran’s release from sanctions promises increased global oil supply.

Petrochemical companies in the kingdom have been struggling with falling oil prices, both as product prices are closely linked to crude and cheaper oil erodes the competitive advantage which Saudi manufacturers accrue over non-oil producing nations due to subsidised energy and feedstock.

SABIC, one of the world’s largest petrochemicals companies, announced a 29.4 percent drop in fourth-quarter net profit on Sunday, its sixth straight quarterly profit decline – results which sent its shares 5.4 percent lower as of 0935 GMT.

The pressures could be amplified further with Iranian oil being reintroduced to global markets: the prospect has already driven crude prices to a 12-year low.

Yousef Abdullah al-Benyan told a news conference in Riyadh that he wasn’t sure about the state of Iran’s petrochemicals industry but, in general, it takes between three and five years to come to market, start producing and then ramp up production.

“A competitive environment is always healthy and this is the way we love to play, so we have no concerns at all,” Benyan said when asked if Iran’s re-entry threatened market oversupply.

Supply questions are coming as concerns about a global economic slowdown, especially in China, are threatening demand.

Benyan said SABIC’s sales in China had not been impacted so far, although diminished growth in emerging Asian and mature European economies had stunted demand – the value of sales in the fourth quarter of 2015 dropped 21.9 percent year on year to 34.16 billion riyals.

Going forward, it was looking to expand its business in Africa as well as South East Asian markets including Vietnam, Indonesia and Malaysia, where it was looking to switch from being a seller of petrochemicals in the region to a manufacturer.

To weather the difficult market conditions, SABIC has been implementing a cost-cutting strategy and Benyan said the company hoped to see the benefits in the coming year.

This programme would also help SABIC to absorb a rise in feedstock prices announced by the government at the end of last year, Benyan said.

The company is still committed to a feasibility study related to a $30 billion oil-to-chemicals plant, Benyan said, adding it remained purely a SABIC project when asked if it could bring in a joint-venture partner. (Reporting by Marwa Rashad, Reem Shamseddine and Katie Paul; Writing by David French and Hadeel Al Sayegh; Editing by David Goodman and Mark Potter)