SABIC to continue with expansion

09-Feb-10

Backed by abundant feedstocks at economic rates, higher profits and increased market share, Saudi Basic Industries Corporation (SABIC) continues to expand even as rivals such as BASF and Dow Chemical struggled with rising raw material costs last year. As a 70% state-owned company, along with subsidized rates for propane and butane, SABIC procures its feedstock gas at 75 cents/million British thermal units, compared with a global average of US$6.50. This makes it possible for the company's ethane-based crackers to produce ethylene at about US$110/ton while actual production costs can be at least 8 times more. As sales volumes rose by 5% to 46 mln tons, Q4-09 net profits rose to SR4.58 bln (US$1.22 bln) from SR310 mln in Q4-08. However, annual profit plummeted by 59% in 2009 to SR9.1 bln, compared with SR22 bln in 2008, as demand deteriorated during the economic slowdown and falling oil prices compelled the company to reduce prices and production. Last month, SABIC secured US$2.68 bln in loans from Chinese banks for its joint venture petrochemical project with Sinopec in Tianjin. While the company does not enjoy cheap feedstock costs in China, costs will be offset by direct access to a growing customer base, and cheaper production, construction and labour costs.