Sipchem CEO says sector faces challenges, optimistic on product prices in Q4 2022

Abdullah Alsaadoon, CEO of Sipchem

The global petrochemical industry is facing challenges as geopolitics, high inflation and interest rates impact consumer demand, Abdullah Alsaadoon, CEO of Sahara International Petrochemical Co. (Sipchem), told Argaam.

He added that Sipchem, like many of its peers, is not immune to these challenges.

The shipping rates declined slightly in Q3 2022 compared with the previous quarter, which reflected positively on the company's results. This indicates that the global shipping rates are stabilizing, with a potential return to "normal" levels.

Logistics challenges while still apparent in some ports are easing at some others, the top executive said. In addition, new containers have been brought into service and this has helped ease the container-shortage issues prevalent in 2021.

According to data from some shipping reports, long-term contracted rates for containers fell by 1.1% in September, the first drop since January. Analyst expect that this will not be the last as the market is shifting back in favor of shipping customers, like Sipchem.

"We expect the fall in container rates will have a positive impact to our sales in Q4 2022," Alsaadoon said.

"While net profits are lower, Sipchem demonstrated the ability to increase production and sales volumes during these challenging times," he noted.

The company's plant reliability and global sales enable it to overcome any challenges with respect to weak demand or sudden price drop.

Sipchem has a sophisticated sales and operation planning system that enables it to take fast decisions when facing changes in the market supply and demand, with the aim to maximize the firm's value.

Average product prices rose slightly in 9M 2022 year-on-year (YoY), but declined quarter-on-quarter (QoQ) as consumers were battling high inflation rates.

In addition, lower Q3 2022 prices QoQ were quite typical due to seasonal effects, namely monsoon season in India and summer holiday season in Europe, which impacted the demand for Sipchem’s products.

"Nevertheless, Sipchem managed to increase its sales volume for all products. We continue to service our contractual customers in all the key geographies that Sipchem is present in," the CEO said.

He added that the petrochemical sector witnessed a weaker demand in the third quarter. However, this did not affect the company's sales, as it operates in more than 100 countries and has more than 500 active consumers.

Sipchem is in a strong position to absorb any fluctuations in the market supply and demand, Alsaadoon said.

He added that the scheduled maintenance activities of the IAC plant were executed safely, within the specified time and budget, and, by maintaining contractual commitments to customers. Therefore, the financial impact on Q2 2022 results was not material.

The CEO said the demand is expected to rise in Q4 2022, due to seasonal factors. In addition, Sipchem's reliable plants react to the extra market demand.

"In October 2022, prices stabilized, which is a positive indication after the sharp fall of prices during Q3 2022," the top executive said.

He added that the factors that pressure demand, such as high energy prices in Europe and China's zero COVID policy, are temporary. "Therefore, we are optimistic that the prices will remain healthy for most products during the remaining period of 2022," he concluded.

Sipchem posted a 37% jump in net profit after Zakat and tax to SAR 3.116 billion in the first nine months of 2022, compared to SAR 2.270 billion in the prior-year period.

In Q3 2022, the petrochemical producer posted a 25% drop in net profit after Zakat and tax to SAR 774.4 million from SAR 1.029 billion in Q3 2021, according to data available with Argaam.