Saudi Basic Industries Corp. is suspending new capital expenditure after an oil-price slump and coronavirus-related lockdowns pushed the company into a 950 million-riyals loss ($253 million) in the first quarter. Sabic, as the Middle East’s biggest chemicals producer is known, warned that the pandemic’s impact on chemical demand would stretch into the second quarter and potentially the rest of the year. First-quarter sales dropped 18% to 30.83 billion riyals.
“The effect on demand and the reduction in prices will be clear in the second quarter,” Chief Executive Officer Yousef Al Benyan told reporters on a conference call. “Sabic is committed to capital discipline and maintaining a strong balance sheet and has suspended all capex but non-discretionary capex for safe and reliable operations and late-stage projects,” he said earlier in a statement.
Sabic had already warned in January that weak demand would weigh on its earnings throughout 2020. That was before governments shut down much of the global economy in response to the coronavirus, further weakening the market for chemicals. The Riyadh-based company reported a profit of 3.41 billion riyals in the same quarter of 2019.
Aramco Stake
Saudi Aramco is set to complete the purchase of a 70% stake in Sabic from the kingdom’s sovereign wealth fund as the oil producer seeks to expand in chemicals. The deal is expected to close before the end of June, Aramco has previously said. “I personally see there is nothing at this point that can really change this timeline,” Al Benyan told reporters.
He also expressed confidence that Aramco would continue to supply feedstock, or raw materials, for petrochemicals even as the kingdom’s oil production declines. Saudi Arabia has pledged to reduce output starting this month as part of a global effort by oil producers to drain excess supply and halt the rout in prices. Sabic aims to reach a decision with Aramco in the second quarter about how to proceed with a planned project to produce chemicals directly from crude, Al Benyan said.
His company has no interest in a full takeover of Switzerland-based Clariant AG, after increasing its stake in March to 31.5% as part of a plan to expand in specialty chemicals, the CEO said.