Sabic Sees Profit Hit by Costs

Sabic Sees Profit Hit by Costs
The company is controlled by oil giant Saudi Aramco.

Saudi Basic Industries Corp., the world’s largest chemical maker by market value, posted a 33% jump in quarterly profit but expects rising feedstock prices to pressure earnings over the rest of the year.

The Riyadh-based company, known as Sabic, made net income of 6.47 billion riyals ($1.73 billion). The figure was above analysts’ average estimate of just over 5 billion riyals.

The company, controlled by oil giant Saudi Aramco, said in a statement that pre-tax earnings would “remain flat” this year, with rising sales being offset by higher costs for inputs.

First quarter results were “driven by continued healthy demand for our products, higher oil prices and our diverse global portfolio,” Chief Executive Officer Yousef Al-Benyan said. However, chemicals demand in the second half “will be pressured by a global economic slowdown, inflation and also the rise in interest rates,” he told reporters.

Sabic stock trimmed gains as the company warned about the outlook for chemicals demand. The shares rose to a high of 125.4 riyals before falling back to 122.4 riyals at 11.19 a.m. in Riyadh. The stock has risen 6.72% this year, below the 16% gain for the Saudi index, giving the company a market capitalization of $99 billion.

Demand for products from plastics to paint has soared in the past year with economies recovering from the coronavirus pandemic. Yet a global supply-chain squeeze has pushed up costs for chemical producers, lowering their margins.

Sabic’s competitors such as BASF SE and Dow Inc. have raised their prices recently amid constraints in procuring raw materials.

The Saudi chemicals maker has no plans to exit its stake in Clariant AG, Al-Benyan said. Sabic holds a 32% stake in the Swiss company, which it sees as having a “major role” in helping it buidling its own specialty chemicals business, he said. The commitment to the Swiss firm follows Clariant saying last month that Chief Financial Officer Stephan Lynen will step down after concluding a preliminary investigation of its accounting that will cause the company to restate 2020 results.

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