Supply Crunch Hits Aramco’s Giant Chemicals Unit as Profit Drops
(Bloomberg) -- Saudi Basic Industries Corp., the world’s biggest chemicals maker by market value, saw profit fall as rising feedstock costs lowered its margins.
The stock dropped as much as 3.3%, the most since April, before paring losses to 1.5% by 11:50 a.m. in Riyadh.
The company, controlled by Saudi Aramco, made net income of 5.6 billion riyals ($1.5 billion) between July and September, less than analysts had expected. That was up more than five-fold from a year earlier, but down 27% on a quarterly basis.
“The third quarter marked a continuation of our recovery from the impact of Covid-19, albeit at a lower level than our exceptionally strong performance during the second quarter,” Chief Executive Officer Yousef Al-Benyan said in a statement.
Rivals such as BASF SE have faced similar supply strains.
Sabic said demand will be “healthy” in the last quarter of 2021, but it expects feedstock prices “to remain elevated with higher oil prices.”
Margins will probably fall further, it said.
Revenue reached $11.7 billion in the third quarter, up 3% from the previous three-month period. Free cash flow rose 57% to $2.2 billion.
The company announced this week plans to become carbon neutral by 2050. That will probably cost $3 billion to $4 billion, Al-Benyan said later to reporters.
Sabic said it will continue to invest in Clariant AG, a Swiss chemicals maker it owns 32% of. It didn’t give more details.
It will also expand in the U.S., China and South Africa, Al-Benyan said.
“The projects will be focused on petrochemicals and agricultural feeds,” he said.
The company will not re-brand after Aramco bought 70% of its shares for $69 billion last year.
“Now we have become an international brand,” the CEO said. “It will remain an international brand. Sabic made an agreement with Aramco that all Sabic’s unit will still fall under Sabic’s brand.”
Saudi Arabia wants chemical makers like Sabic, valued at $105 billion, to form the basis of new manufacturing and consumer-goods industries as the kingdom diversifies from oil.
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