Sipchem: MEED Assessment

19 October 2009

Ongoing economic slowdown has softened demand in key markets, and resulted in lower profits for Saudi petrochemical producers

Ethane feedstock supplies have become increasingly tight in Saudi Arabia in recent years as petrochemical production has soared. Sipchem was the last company to receive an ethane allocation from the Oil & Mineral Resources Ministry in 2006. 

The company has had to find ways around potential feedstock shortages. In May 2009, Sipchem signed a memorandum of understanding with Saudi Basic Industries Company (Sabic), under which Sabic will provide ethylene to Sipchem in return for carbon monoxide for the production of methyl methacylate.

Saudi petrochemicals producers remain on track to see through the major projects that are planned up to 2014, despite the global financial crisis. In Sabic and Sipchem, the country now boasts two of the 10 largest petrochemicals producers in the world by sales.

But the petrochemicals industry had a difficult time in 2008 and the first half of 2009, and Sipchem was no exception. Major reversals in profits occurred across the board, led by sharp declines in demand for petrochemical products and falling prices.

The ongoing economic slowdown has softened demand in key markets, and resulted in lower profits for Saudi petrochemical producers, although to a lesser degree than their European and Asian counterparts.

Sipchem’s net profits declined by 86.5 per cent, year on year, in the fourth quarter of 2008. Profits fell to SR29.7m in the first half of 2009, a 92 per cent drop compared with the first half of 2008.

Sipchem’s ambitions in the research field add to the recent trend of petrochemicals producers in Saudi Arabia setting up their own dedicated research centres. The US’ Dow Chemical and state energy giant Saudi Aramco have signed similar schemes at the King Abdullah University of Science & Technology.

Despite the decline in profits over the past 12 months, Sipchem appears to have turned a corner in one respect at least – its share price is up a third so far this year at SR23.70. The real test of how it is weathering the storm, however, will come with its full year results for 2010.

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