Saudi Basic Industries Corporation (Sabic) is very much a new company, formed just 36 years ago compared with the 147 and 210 years of heritage of its two rivals Germany’s BASF and the US’ Dupont.
This means that Sabic is always going to be at a disadvantage when it comes to research and the development of its own technology against firms with long-established innovation units. Sabic is trying to catch up but developing technology takes lots of experience, which it lacks.
Acquisitions of companies with in-house technology, especially in the speciality plastics sector, makes a lot of sense for the chemicals giant and there are bargains right now in the market. The US’ Huntsman and Celanese are available for the right price and offer significant opportunities for growth. The US petrochemicals market is enjoying low feedstock prices at the moment due to the rise of shale gas output and both firms make many of the products Riyadh would like manufacture domestically.
France’s Arkema offers a chance for Sabic to buy into wholly owned technology patents and licenses
France’s Arkema offers a similar chance for Sabic to buy into wholly owned technology patents and licences and transfer them to the Middle East. The European chemicals market is not expected to grow significantly in the short-to-mid term, so buying Arkema would be seen as a move to get hold of coveted technology.
The main advantage Sabic has over its global rivals is the low cost of Saudi feedstock. The firm can produce intermediate chemicals extremely cheaply but until now, the kingdom’s underdeveloped conversion industries sector means most of the value chain is lost to exports.
Using in-house technology to manufacture products will ensure profits from lengthening the chemicals value chain stay in Saudi Arabia. In its quest to become the leading chemicals company Sabic has one weak link and that is technology. A strategic acquisition to fix that problem makes a lot of sense.