SABIC plans job cuts, restructuring on low oil prices

A new restructuring plan by Saudi Basic Industries Corp. (SABIC)— the Middle East’s petrochemicals giant— could result in considerably improved profitability as the company moves to cost-saving amid oil price fluctuations, industry analysts told Argaam on Monday.

“The restructuring plan is significant, especially in era of lower oil prices,” Nitin Garg, research manager at the Bahrain-based Securities & Investment Co. (SICO) told Argaam. “A successful restructuring plan should improve profitability by cost savings when lower oil limits the upside in petrochemical prices.”

The petrochemical producer’s Innovative Plastics strategic business unit (SBU), which houses its polycarbonate business, will in effect be shut down and its commodity polycarbonate products will be managed from the company’s Chemicals and Polymers SBU. The move could result in the loss of 140 jobs in Europe through 2017. It also comes as demand growth for polycarbonate has declined in Asia, triggered by a slowdown in China’s economy. 

Experts say the decision stems from the industry’s strong focus on commodity chemicals compared to specialty chemicals. According to chemical news website ICIS, an 80:20 split on these sub-sectors currently exists in the marketplace.

“The business model now [for polycarbonate] is more commodity-like,” Neil Checker, a partner with consulting firm Roland Berger told ICIS. “It feels more like you are managing a polypropylene (PP) business.”

This imbalance of resources, analysts said, has kept industry players from tapping into other technologies and market opportunities, which SABIC is now looking to do.

Just a day after revealing its restructuring plans, SABIC announced the launch of a new agri-nutrients strategic business unit (SBU). The product will introduce a single-use fertilizer that improves the date palm’s crop quality as the company looks to become more customer-focused.

Technology remains to be one of the biggest challenges currently facing the global petrochemical industry, as the needs of end-users have changed rapidly in recent years.

“Technology and innovation in the petrochemical sector involves moving down the value chain and producing higher-value-added downstream chemicals, “Garg explained. “The manufacture and sale of downstream chemicals is quite different from that of commodity chemicals and requires a different skill set, processes and feedstock,” he pointed out.

In Saudi Arabia, the Saudi Stock Exchange’s (Tadawul) petrochemical industries index is currently down by over seven percent for the year, while a recent Riyad Capital report forecast a 38 percent plunge in the sector’s combined Q3-2015 profit.

Write to Joumana Saad at joumana.saad@argaamplus.com