As one of the region’s oldest petrochemicals producers, Safco has established itself as one of Sabic’s steadiest performers over the last few decades. The company is one of the world’s largest producers of fertilisers and this looks set to continue despite increased competition.

What has disappointed some analysts is that Safco seems intent on dispensing large dividends to shareholders as opposed to investing that money back into the company. However, even its most aggressive period of growth was rolled out over 13 years. This kind of steady investment is not going to be abandoned. The new urea production train being constructed by Italy’s Saipem is due to come onstream in 2013-14.

Safco has considered expanding its operations into other markets such as steel, but now the company seems to have decided to stick to its core products and develop those further.

Relying on one or two products is a riskier strategy than diversification and leaves Safco open to any price shocks in the fertiliser sector. Being majority-owned by Sabic would cushion any price shock, but with more than 57 per cent of stock being traded on the Tadawul, the Saudi Stock Exchange, any such move would have a negative impact on the share price.

It is a definite benefit for Safco that it sources extremely cheap gas feedstock from Saudi Aramco. This has let it keep its operating margins low and has given the company a definite advantage over some global competitors. However, cheap shale gas flooding the US market may mean that North American players will enjoy similar benefits.

The good news is that strong demand in the agriculture sector is driving an equally robust demand for fertilisers. This is not expected to change significantly in the short term and Safco is expected to directly benefit from this trend.

The first six months of 2012 witnessed a small tail-off of operating profits for Safco, but the company has said that this is due to smaller production volumes rather than lower prices. The firm posted net income of about $419m, which represented a 3.2 per cent decrease compared with 2011.

There are some very encouraging signs that Safco could continue to enjoy profitable annual results in the next few years, but there are some apparent challenges as well.

It will be interesting to see if the Saudi producer decides to concentrate on slow growth and large dividends for its shareholders or whether it will move towards another period of strong growth. At the moment, there is every indication that the next two to three years will prove a further period of consolidation.

Saudi Arabian Fertiliser Company (Safco)