SABIC says Q2 hit by non-recurring charges, challenging supply and demand

Saudi Basic Industries Corp.’s (SABIC) financial results were impacted in the second quarter by certain non-recurring charges, as well as challenging supply and demand conditions, the company said in a statement on Thursday.

In addition, lower oil prices, which were negatively impacted by COVID-19, resulted in lower product prices and margins.

A decline in Brent prices of over 40% in Q2 2020 compared with the previous quarter drove a decrease in feedstock prices. Both Japanese and European naphtha prices dropped by about 40% in Q2 2020, quarter-over-quarter (QoQ). Japanese propane and butane prices also decreased by more than 20% QoQ in Q2 2020. Cost of sales of SAR 21.15 billion in the second quarter of 2020 was 17% lower than Q1 2020, due to the aforementioned reduction in feedstock prices.

SABIC added that it expects the global GDP growth rate to contract this year, primarily due to the negative impacts of COVID-19, ahead of improvement next year.

“Weak economic activity in the second quarter has been partially mitigated by policy responses and fiscal stimulus from both developed and emerging markets and a gradual reopening of economies globally. Nevertheless, we expect economic activity will continue to be subdued impacting demand and that ample supply will keep product prices and margins under pressure for the foreseeable future,” the statement added.

Meanwhile, Vice Chairman and CEO Yousef Al-Benyan, said: “The second quarter saw strong headwinds as global growth declined significantly. This was due to COVID-19 impacting the supply and demand balance for our critical products and the resultant effect on prices and margins.”

Despite the challenging environment, SABIC has shown resilience in its operations, he added.

The giant petrochemical producer will host an earnings call to discuss the results of the Q2 2020 results with investors and financial analysts on Sunday, Aug. 9.

SABIC executive management will discuss the highlights of the company’s performance for this quarter and the outlook. In Q2 2020, SABIC swung to a net loss after Zakat and tax of SAR 2.22 billion, against a net profit of SAR 2.03 billion a year earlier, Argaam reported.