Saudi SABIC cuts 2024 capex; higher-margin investments eyed

SINGAPORE (ICIS)–Saudi petrochemical giant SABIC has lowered its capital expenditure (capex) guidance for 2024 as it prioritizes investments in higher-margin opportunities to mitigate overcapacity in the face of poor global demand.

• Full-year capex cut to $3.3 billion to $3.9 billion
• Future capex to focus on China, low-carbon projects
• Margins to remain under pressure for rest of 2024

SABIC reduced its full-year capex by about 25% to between $3.3 billion and $3.9 billion, from $4 billion and $5 billion previously, it said in its third-quarter earnings report released on 4 November.

The new capex projection comes after SABIC swung to net profit of Saudi riyal (SR) 1 billion ($267 million) in Q3, from a loss of SR2.88 billion in the same period of last year.

This turnaround is primarily due to higher operating income, driven by improved gross profit margins and a divestment gain from the firm’s functional forms business.

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Q3 losses from discontinued operations, mainly related to the Saudi Iron and Steel Co (Hadeed), decreased significantly from the same period last year.

On a quarter-on-quarter basis, however, SABIC net profit fell by 54% mostly due to previous Q2 non-cash gains partly resulting from new regulations on Islamic tax.

The reversal of zakat provision, which is a mandatory Islamic tax on wealth, resulted in a non-cash benefit of SR545 million in Q2 2024. SABIC registered a Q3 zakat expense of SR397 million.

FOCUS ON CHINA
Ratings firm Fitch in a note said that it expects SABIC’s capex to grow to an average of SR17 billion ($4.5 billion) in 2024-2025 and around SR14 billion in 2026-2027.

“In our view, investments will be driven by expansion of its low carbon product portfolio and a pipeline of opportunities in China and the Middle East,” it said.

This includes the recently sanctioned $6.4 billion joint venture petrochemical complex in Fujian, China, as well as the construction of the largest on-purpose single train methyl tertiary butyl ethe (MTBE) plant in the world in Saudi Arabia,” Fitch said.

SABIC is exploring options for a petrochemical complex in Oman and an oil-to-chemicals project in Ras Al-Khair in its home country, according to the ratings firm.

Fitch also expects acceleration of “green capex” after 2025 as SABIC plans to earmark 10% of its annual expenditures on carbon-neutrality initiatives by 2030.

“The key projects will be focused on improved energy efficiencies, increased use of renewable energy in operations, and carbon capture of up to a potential 2 million tonnes, leveraging Saudi Aramco’s carbon capture and storage (CCS) hub in Jubail,” Fitch said.

SABIC, which is 70% owned by oil giant Aramco, had stated in August that its long-term focus would remain on optimizing its portfolio and restructuring underperforming assets.

PORTFOLIO OPTIMIZATION AMID MARKET CHALLENGES
SABIC CEO Abdulrahman Al-Fageeh said on 4 November that overcapacity continues to weigh on the petrochemicals market, with current utilization rates remaining below long-term averages.

“Furthermore, PMI [manufacturing purchasing managers’ index] data indicated a decline in global economic conditions,” he added.

The company has initiated several portfolio-optimization measures, including discontinuing its naphtha cracker in the Netherlands and disposals of non-core assets such as its steel unit Hadeed in 2023 and a recently announced divestments of 20% shareholding in Aluminium Bahrain (Alba).

SABIC’s margins are expected to remain under pressure this year before they gradually recover to mid-cycle levels of around 20% by 2026 on market improvement and portfolio-optimization measures, according to Fitch.

($1 = SR3.75)

Focus article by Nurluqman Suratman