Restructuring Moves SABIC to Reclaim Ground in the Petrochemicals Race

22/08/2025 03:22 AST

The global petrochemicals industry is grappling with a wave of uncertainty. Sluggish economic growth in key markets, mounting geopolitical tensions, and trade barriers are weighing on demand. Adding to the pressure, Asian producers - particularly in China - are flooding the market with new capacity, intensifying competition and squeezing margins.

For industry giants, survival now depends on swift adaptation. Analysts expect the global petrochemicals market to grow by 3.5 percent this year, but only those companies agile enough to restructure will benefit.

For Saudi Basic Industries Corporation (SABIC), the world's largest diversified chemicals company, that has meant a bold reset. Earlier this year, SABIC unveiled a restructuring program designed to sharpen competitiveness, streamline operations, and improve financial resilience.

The plan involves reviewing its investment portfolio, exiting non-core activities, and shuttering underperforming assets. Already, SABIC has sold its stake in Bahrain's Alba, divested its steel arm Hadeed, and closed a plant in the UK. Though the company reported losses of nearly SAR5 billion ($1.33 billion) in the first half of 2025, executives frame these moves as laying the foundation for long-term recovery, innovation, and sustainability.

SABIC remains a heavyweight in the sector. In 2025, it was ranked the world's second most valuable chemical brand and crowned as the strongest brand in its category, with a valuation of $4.93 billion. At home, it contributes significantly to the Saudi economy, adding SAR4.4 billion ($1.2 billion) to the GDP in 2024.

From Gas Flares to Global Force
SABIC's journey mirrors Saudi Arabia's industrial transformation. Founded in 1976 by royal decree, the company was created to turn wasted associated gas into a driver of economic value. Its first major complexes in Jubail during the early 1980s, which produce methanol, polyethylene, and steel, laid the groundwork for an industrial base that fueled job creation and reshaped the national economy.

By 1983, SABIC had made its first international shipments, and a year later, 30 percent of its shares were floated on the Saudi stock market. Through the late 1980s and 1990s, joint ventures with global giants like Shell, ExxonMobil, and Mitsubishi expanded its reach. By 1996, SABIC was the Middle East's largest listed company, with revenues surpassing $5 billion and exports to more than 100 countries.

The new millennium marked its boldest expansion yet. In 2002, SABIC acquired DSM's petrochemicals division in the Netherlands, creating SABIC Europe. Five years later, it secured a foothold in North America and Asia by purchasing General Electric's plastics division. By 2008, SABIC was at its peak, posting net profits of SAR27 billion ($7.2 billion) and ranking among the world's most profitable petrochemicals firms, with a global presence spanning more than 50 countries.

The Aramco Era
A major shift came in 2019 when Saudi Aramco agreed to purchase a 70 percent stake in SABIC from the Public Investment Fund for $69.1 billion. The deal, closed in 2020, was part of a broader strategy to integrate crude oil with petrochemicals, positioning the Kingdom for the future as global energy demand evolves.

Yet the 2020s brought new headwinds: overcapacity, volatile feedstock prices, tighter environmental regulations, and fluctuating oil markets. These forces eroded profits and pushed SABIC to embark on its current restructuring. According to energy expert Dr. Mohammed Al-Sabban, former senior adviser to the Saudi oil minister, integration with Aramco has already allowed SABIC to cut costs and gain a pricing advantage.

"This period gives SABIC the chance to review its operational expenses, limit losses, and prepare for the next growth cycle," he told Asharq Al-Awsat.

Market Pressures and Share Performance
The strain is evident in SABIC's share price. Since 2020, the stock has dropped by nearly 40 percent. It plunged to 62 riyals during the pandemic, rebounded to 139 riyals in 2022, but has since slid to around 57 riyals. Analysts say this mirrors global petrochemical cycles, which oscillate with supply-demand shifts.

Iyad Ghulam, Head of Equity Research at AlAhli Capital, explained that oversupply from China is the main drag. Over the past three years, Chinese producers have ramped up output aggressively - often at thin margins or even losses - to secure self-sufficiency. While global demand is growing at roughly 3 percent annually, supply in some product lines is expanding at more than double that rate, creating a glut that depresses prices.

Plant utilization rates worldwide have already fallen from a healthy 80-85 percent to around 70 percent. Many companies, particularly in Europe, are divesting assets that can no longer compete. SABIC itself announced the sale of certain European operations last quarter.

Looking ahead, Ghulam predicts SABIC's profits will remain under pressure through 2025 and 2026. Historically, the company earned between 15 and 20 billion riyals annually, but losses in the first half of this year underscore the depth of the downturn. Still, he sees opportunity: "SABIC is trading at around book value, compared to a historical multiple of 1.4 to 1.5. For long-term investors, this could be attractive despite near-term pain."

Asharq Al Awsat