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.

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