Saudi Arabia's SABIC slashes capex due to coronavirus, expects to struggle in Q2

Dubai — Saudi state-run SABIC, the Middle East's biggest petrochemical producer, has suspended almost all of its capital expenditure plans, CEO Yousef al-Benyan said Monday, warning that the COVID-19 economic crisis will further pressure its product prices and margins.

"SABIC is committed to capital discipline and maintaining a strong balance sheet and has suspended all capex but non-discretionary capex for safe and reliable operations and late-stage projects," Benyan said in the company's first quarter earnings announcement. "We are confident in the resilience and strength of our operations and supply chain, and on opportunities which exist for long term growth."

SABIC, which is in the process of being acquired by state oil giant Saudi Aramco, posted revenues of Riyal 30.83 billion ($8.22 billion) for Q1, which is a 18% decrease year-on-year. Profits were 92% lower than Q1 2019.

Certain non-recurring charges, a challenging product-pricing environment and lower demand underpinned by the COVID-19 pandemic negatively affected the results of the first quarter of 2020, the company said.

The company has gained business activity in China but a deterioration in other parts of the world, influenced by lockdowns, will impact demand and market sentiment in the second quarter and potentially later in the year, it added. This along with an oversupply of its key products will put further pressure on product prices and margins, the company said.

Petrochemicals accounts for the bulk of SABIC's business. It also produces metals and agri-nutrients and has facilities in the Americas, Europe, Asia and Africa.

Saudi Aramco is close to finalizing its acquisition of 70% of SABIC from the kingdom's sovereign wealth fund for $69 billion as part of plans to expand its petrochemicals portfolio.

The deal received its final regulatory sign-off, in accordance with antitrust rules, in March. Both Saudi Aramco and SABIC are boosting their petrochemical footprint and inking agreements within and outside the Gulf state to gain access to feedstock and get closer to their customers.