WHILE much of the Saudi Arabian economy is still performing sluggishly, the Saudi Basic Industries Corporation (Sabic) is a rare source of unqualified good news. In 1995, the petrochemicals and industrial giant continued its upward trajectory, increasing its profits by 54 per cent to a record SR 6,280 million ($1,670 million). Now, the corporation is looking beyond its enormous domestic production base to set up ventures abroad for the first time.

Sabic's profit growth in 1995 was due in no small part to the buoyant market conditions seen in the early part of 1995. 'The corporation has managed to consistently increase product sales across all its major markets,' says Ibrahim Ibn Salamah, Sabic's vice president and managing director. Sales increased by more than 4 per cent to 17.3 million tonnes. Revenues rose by 34 per cent to SR 23,590 million ($6,290 million).

When Sabic's mid-year results were published in July, analysts predicted that the company's net profits would for the first time reach $2,000 million over a full year. As petrochemical prices subsequently imploded in the second half of 1995 those projections proved to be premature, but the target is certainly within reach.

The Sabic strategy has been built on some enviable fundamentals. 'The group enjoys several competitive advantages,' says Ibn Salamah. 'Among these are abundant supplies of natural feedstocks with ready access to them; an excellent geographic location between Europe and Asia; state-of-the-art plants with economies of scale and integrated production systems; a diversified production base; rapidly expanding output;

a well supported and well connected global marketing network; and a world scale research and development facility.' The key comparative advantage is the discount of 40 per cent below market prices on gas feedstocks provided by Saudi Aramco which places Sabic production costs far below world averages.

Output in 1995 increased by almost 5 per cent to 22 million tonnes. The increase was due mainly to the start-up of a number of new units. These were:

A 25,000-tonne-a-year (t/y) polyvinyl paste plant in Jubail for the National Plastics Company (Ibn Hayyan) A 50,000-t/y butene-1 plant in Jubail for the Arabian Petrochemical Company (Petrokemya) A 140,000-t/y polyester plant in Yanbu for the Arabian Industrial Fibers Company (Ibn Rushd) A 100,000-t/y methyl tertiary butyl ether (MTBE) plant in Jubail for the Saudi-European Petrochemical Company (Ibn Zahr) A 150,000-t/y diethyl hexanol plant for AlJubail Fertiliser Company (Samad) Further expansions are planned to increase output to 25 million tonnes by 2000. The aim is to continue to expand exports as well as catering for growing demand from the domestic market. 'The continuing process of industrialisation here in Saudi Arabia means that this region particularly will take a large share of Sabic's output,' Ibn Salamah says.

Export reduction

In particular, new derivative capacity will significantly reduce exports of ethylene. The 1995 export level of 200,000 t/y is likely to fall to around 30,000-40,000 t/y in 1996.

Petrokemya's butene-1 expansion will con-sume 55,000 t/y of ethylene. Ethylene glycol capacity is being expanded by 60,000 t/y at the Eastem Petrochemical Company (Sharq) and Ibn Rushd's 150,000 t/y polyester plant is set to consume up to 50,000 t/v of ethylene glycol.

Future expansions could see diversification into new products. 'We are very positive about the future in the commodity chemicals area,' says Ibn Salamah. 'But that won't prevent us from entering the speciality chemicals field, if we see opportunities.

The main expansions either under construction or in the pipeline are:

A world-scale aromatics complex and purified terephthalic acid (PTA) plant in Yanbu for Ibn Rushd. The aromatics complex is being built by Chiyoda Corporation of Japan. The facility will produce 350,000 t/y of benzene, 300,000 t/y of paraxylene, 45,000 t/y of orthoxylene and 35,000 t/y of metaxylene. It will use the Cyclar technology developed jointly by UOP of the US and The British Petroleum Company (BP). The 350.000 t/y PTA plant is being built by Tecnimont of Italy.

A world-scale aromatics complex in Jubail planned by Sadaf. The product slate is expected to be similar to the output of the new Ibn Rushd complex in Yanbu. This complex will also use Cyclar technology. The feasibility study was carried out by The MW Kellogg Company of the US.

New ethylene capacity planned by both Al-Jubail Petrochemical Company (Kemya) and Petrokemya. Kemya is proposing a plant which will produce 600,000 t/y of ethylene and 100,000 t/y of polypropylene. The furnace technology on the plant has yet to be selected.

A 1,500 tonne-a-day (t/d) ammonia plant and a 2,000-t/d urea plant planned for Jubail by Saudi Arabian Fertiliser Company (Safco).

The lump sum turnkey bid package was issued in early April.

An acid complex planned for Jubail by Ibn al-Baytar. Scheduled to come on stream in 1999, the complex will produce 260,000 t/y of phosphoric acid, 887,000 t/y of sulphuric acid and 16,400 t/y of aluminium fluoride.

New ethylene and MTBE capacity for Sadaf. A 280,000 t/y ethylene plant is under construction, together with a 700,000 t/y methyl tertiary butyl ether (MTBE) plant and extra ethylene dichloride and chloro alkali capacity.

Outside Saudi Arabia, Ibn Salamah lists Sabic's main markets in order of importance as Southeast Asia, the Far East, Europe, the Americas, the Middle East and Africa.

'Current trends in these markets indicate that Asia will continue to grow as an export market, not only for Sabic, but for all petrochemicals companies,' he says. In 1995, Asia accounted for 50 per of Sabic's global sales.

Recognising the importance of its Asian markets, Sabic is planning to establish its first capacity outside Saudi Arabia within the region. Ibn Salamah told the Singapore Business News on 10 April that Sabic was looking closely at possible investments in petrochemical plants in several countries including Singapore, Thailand and Indonesia. US companies Mobil Corporation and Exxon Corporation are both studying setting up petrochemical complexes in Singapore and Ibn Salamah told the newspaper that Sabic had held discussions with one of them. However, it is the home market which he identifies as Sabic's main growth prospect.

As the corporation grows, Sabic's management is considering the possibility of mergers among its affiliates in order to reduce duplication and cut administrative costs. The subsidiaries under consideration for merger are all in Jubail and include Saudi Methanol Company (Ar-Razi) and National Methanol Company (Ibn Sina). A merger is also being considered between Ibn Sina and Ibn Zahr, both of which produce MTBE.

Foreign holdings in the companies would have to be reduced before mergers could go ahead, however. Ar-Razi is 5 per cent owned by a Japanese consortium led by Mitsubishi Gas Chemical. Ibn Sina is 50 per cent owned by US companies Hoechst-Celanese and Panhandle Eastem.

In 1994, the then industry and electricity minister and chairman of Sabic, Abdulaziz alZamil, announced that the government was to sell 45 per cent of Sabic to the private sector, reducing the state's holding from the present 70 per cent to 25 per cent. The privatisation would take place in four or five stages, he said. However, nothing has happened so far, and the government is not expected to rush ahead. 'Sabic is a cash cow for the government,' says one analyst. 'I can't see it being sold to the private sector in a hurry.'

Sabic stands out as the prime example of what can be done in Saudi Arabia to diversify the economy away from oil dependency. 'The corporation has played a major role in fostenng industrialisation,' says Ibn Salamah. 'It provides raw materials and technical support for downstream industries, especially in the private sector. Sabic's products have been vital for the development of the kingdom's industrial, construction and agricultural sectors. It has already become a major factor in the domestic economy by serving the national goals of human resources development, import substitution and contributing to the growth of non-oil gross domestic product.' Quite a series of achievements for a youthful corporation which is already demonstrating signs of maturity.