Sipchem CEO says Europe’s petchem demand ‘very strong’ in Q2 2022, prices to remain at robust level

Abdullah Alsaadoon CEO of Sipchem

Abdullah Al-Saadoon, CEO of Sahara International Petrochemical Co. (Sipchem), said that demand for all products across all sectors was stable during the second quarter of 2022, but was very strong in Europe during the same period after the European crisis.

The crisis aggravated when some European plants faced production difficulties, which, in turn, pushed Sipchem’s sales 4% higher year-on-year (YoY) in Europe during H1 2022, Al-Saadoon told Argaam in a phone interview.

Elsewhere, the CEO said Sipchem’s second-quarter earnings were driven by several factors, including sales growth by 5% YoY and 16% quarter-on-quarter (QoQ) in Q2 2022. Moreover, sales revenue leapt 35% YoY and 32% QoQ.

Earnings in the second quarter of every year are usually backed by improved operating efficiency of plants, which ramped up productivity by 13% YoY and 12% QoQ. Sipchem’s early loan repayments also led to a decline in financing costs and improved profitability.

Commenting on the results of affiliates, Al-Saadoon noted that Sipchem recorded a higher profit share from three joint ventures and associates. Tasnee & Sahara Olefins Co. (TSOC), Sahara and Ma'aden Petrochemicals Co. (SAMAPCO) and Khair Inorganic Chemical Industries Co., which together contributed nearly 12% to total profit. Khair Inorganic Chemical Industries is still under construction.

Al-Saadoon pointed out that Sipchem cut its total debt to SAR 4.34 billion by the end of the second quarter of 2022, which reduced the debt-to-equity ratio.

The Tadawul-listed company took several initiatives to maintain its fiscal balance and achieve an optimal capital structure. It renegotiated some credit facilities and launched risk management initiatives, such as hedging to mitigate the impact of higher interest rates.

Commenting on the average selling prices in Q2 2022, the CEO said the increase in raw material prices such as butane, ethanol, ethylene and propane led to a rise in the prices of some products. Sipchem’s results reflected a remarkable increase in average prices by 10% QoQ and 23% YoY.

Further, Al-Saadoon added that the second quarter witnessed an increase in demand for butanediol and its derivatives, as well as acetyl products.

He expected that product prices will decline in the third quarter to a level close to the first quarter, due to weak seasonal demand during the summer season, amid expectations for consumer caution in the second half of 2022.

In light of these expectations, Sipchem is well positioned to face such challenges and mitigate any risks, thanks to its diversified product portfolio, customer base and wide geographical reach, the CEO said.

He indicated that there are factors that support prices to remain at robust levels, such as the growing Chinese demand for products due to eased restrictions and lockdowns.

The cost pressures resulting from higher gas prices are expected to support Sipchem’s product prices in Q4 2022, Al-Saadoon said, noting that the opportunities that may contribute to improving these expectations are high energy prices in Europe and low feedstock quantities. This may lower the production of some factories or suspend their operations.

Al-Saadoon said that the company has not received any official notice regarding high feedstock prices.

Sipchem reported a net profit after Zakat and tax of SAR 2.342 billion in H1 2022, a rise of 89% from SAR 1.241 billion in the prior-year period. In Q2 2022, net profit after Zakat and tax jumped 52% to SAR 1.263 billion, Argaam earlier reported.