Sabic Looks at U.S. Investments as Europe Slowdown Hurts SalesDeema Almashabi
Saudi Basic Industries Corp., the world’s biggest petrochemicals maker by market value, is studying investment opportunities in the U.S. as the economic slowdown in Europe and China hurt its second-quarter sales.
“It is very important that Sabic is not left out from investments in the U.S. as it is a huge market in terms of the presence of shale gas and also proximity to other markets,” Chief Executive Officer Mohamed Al-Mady told reporters in Riyadh yesterday. “We are studying opportunities in the U.S. to expand Sabic’s presence in the chemical and polymer businesses.”
Saudi Basic Industries, also known as Sabic, would be joining companies including Dow Chemical Co. and Exxon Mobil Corp. in seeking to take advantage of the U.S. shale boom that has helped drive down natural-gas prices. Cheap gas is doubly advantageous to chemical makers because it’s used as a raw material and to power factories.
U.S. producers would be more competitive in commodity chemical exports to Asia if wet shale costs remained below $6.5 per million British thermal units and Brent stayed above $100 a barrel, said Digvijay Singh, a Dubai-based analyst at VTB Capital. “Sabic is just trying to capture export market share that way -- to try and become a lower-cost producer,” he said.
Sabic Americas, the company’s unit, provides chemicals and fertilizer products to industries in the U.S., Canada, Mexico, Central America, South America and the Caribbean, according to the company’s website. It also operates a research and technology center in Houston, Texas.
Sabic’s plan for U.S. investments comes as the economic slowdown in Europe and China ebbed demand from clients and affected earnings at the company and its affiliates. Second-quarter profit at the Riyadh-based company climbed 14 percent, missing analysts estimates. Sales declined to 45 billion riyals from 46.5 billion riyals.
The euro-area economy is forecast to have stagnated in the second quarter after a contraction in the first three months of the year that extended its recession into a sixth quarter. China’s economy grew 7.5 percent in the second quarter from a year earlier, down from 7.7 percent in the first three months, and is at risk of the weakest expansion in 23 years.
“Glycol production was the most affected by the economic slowdown as it is the number one product we export to China and East Asia,” Al-Mady said. He said China, where it has an ethylene and polycarbonate venture with China Petroleum and Chemical Corp., will continue to be Sabic’s biggest market.
Sabic shares rose 1.4 percent to close at 93.50 riyals in Riyadh. Fourteen analysts have a buy rating on the stock, while three recommend holding it, according to data compiled by Bloomberg.