A global leader in diversified chemicals headquartered in Riyadh, Saudi Arabia, Saudi Basic Industries Corporation (Sabic) manufactures on a global scale in the Americas, Europe, Middle East and Asia Pacific, making distinctly different kinds of products:  chemicals, commodity and high performance plastics, agri-nutrients and metals. It has more than 35,000 employees worldwide and operates in more than 50 countries.

The company manufactures a wide range of products including ethylene, propylene, paraxylene, PVC and polyester, and long and flat steel used in a wide range of industries. Its market leading operations, along with strong research and development (R&D) capabilities, provide it a competitive advantage.

Sabic’s growth initiatives and increasing demand for petrochemicals could provide growth opportunities. However, increasing competition may hamper its performance if it fails to maintain product quality and consumer loyalty, said a report by GlobalData, which analysed its strengths, weaknesses, opportunities and threats (SWOT).

STRENGTHS

Market leading operations: Sabic has a wide range of businesses, which helps the company cater to the diverse needs of its consumer base and generate higher revenue. It is one of the world’s market leaders in the production of polyethylene, polypropylene and advanced thermoplastics, glycols, methanol, and fertilisers. It is also one of the largest producers of steel in the Middle East and Africa. Rated as the third largest global diversified chemical company, Sabic conducts its operations through a global network of 64 manufacturing plants; and 19 technology centres in 50 countries across the world. The company is the world leader in glycol production.

Research and development (R&D): The company’s Technology and Innovation (T&I) division works with strategic business units to improve the manufacturing processes and develop new technologies. The company has T&I facilities across the world. Sabic focuses on the development of new patents and certifications. As of December 2016, the company operated technology centres in China, India, the Netherlands, Saudi Arabia, and the US. Sabic develops new and highly innovative products through advanced application and process development. The company’s R&D facilities develop 150 new products annually. As of December 2016, the company had 12,191 global patents.

Sabic operates in a competitive petrochemical industry

Sabic currently has research relationships with some of the leading universities such as Cambridge University in the UK, the Dalian Institute of Chemical Physics in China, ETH Zurich in Switzerland, the National Research Council in Italy and the Fraunhofer-Gesellschaft in Germany. In FY2016, Sabic introduced two new grades of NPK and NPK 18-18-5-SOP materials; submitted 80 patents; and applied for 500 new patents. As of December 2016, the company was working on over 640 research projects.

Global supply chain: Sabic has a strong base of global supply chain which has enabled it to strengthen its operations. The company operates through a global network of 64 manufacturing plants in Argentina, Austria, Bahrain, Belgium, Brazil, Canada, China, Germany, India, Italy, Japan, Mexico, The Netherlands, Saudi Arabia, Singapore, South Korea, Spain, Thailand, the UK, and the US. It has approximately 20,000 delivery locations spanning 140 countries. Geographically, the company classifies its operations into six segments namely the Middle East, Africa, Europe, Asia, America, and Others. In FY2016, the company generated 29 per cent of its total revenue from Asia, 26 per cent from Europe, 24 per cent from Middle East, 9 per cent from America, 5 per cent from Africa, and 7 per cent from others.

WEAKNESSES

Accidents: Sabic’s operations could be affected by fire incidents at its facilities. In April 2016, the company’s subsidiary, Jubail United Petrochemical Company, reported a fire incident at its facility in Saudi Arabia. The fire was in area that was under construction and during routine maintenance in Jubail United Petrochemical complex. According to state news agency, 13 people were killed and 10 others were injured during the incident. The incident also created thick black smoke, which resulted in various smoke inhalation injuries. Such incidents could affect its operations.

Declining net working capital: Sabic reported decline in its net working capital during the financial year (FY) 2016 which could affect its short term operations, the report said. In FY2016, the company’s net working capital declined 11 per cent to SR66245.5 million ($17,658 million) from SR74457.2 million ($19,847 million) in 2015. The decline was due to 8 per cent decline in its total current assets to SR107625.8 million in 2016 from SR117062 million in 2015. In FY2016, the company reported 12 per cent decline in its cash and short term investments to SR60353.1 million from SR68559.1 million in 2015. The decline in cash and short term investments was due to 26.2 per cent decline in its cash from operating activities. Its cash component accounted for 56.1 per cent of its total current assets in 2016 as compared to 58.6 per cent in 2015. In FY2016, the company non cash component accounted for 43.9 per cent of its total current assets as compared to 41.4 per cent in 2015. Its current and cash ratios stood at 2.6 and 1.4 in 2016 as compared to 2.7 and 1.6 respectively in 2015, it said.

OPPORTUNITIES

Increasing demand for fertilisers: Sabic could benefit from the increasing worldwide demand for fertilisers and capitalise on the opportunity to expand its business and revenue. According to International Fertilizer Industry Association (IFA)’s Fertiliser Outlook report 2016-2020, the global demand for fertilisers is expected to increase by 2.9 per cent per annum, reaching 186 million tonnes (Mt) by 2020. Improving market conditions, favourable weather and better political and economic situation are expected to increase fertiliser use. The increase will be seen more in Africa which is expected to grow at 3.6 per cent per annum, followed by Latin America with 2.9 per cent per annum, South Asia with 2.9 per cent per annum, Eastern Europe & Central Asia (EECA) with 2.8 per cent per annum.

Sabic Home of Innovation: the company has technology and innovation facilities across the world

Latin America would benefit from the competitive advantage of Brazil and Argentina on the global soybean, maize and sugar markets. South Asian demand is strongly influenced by fertiliser subsidy regimes. In terms of volume, South Asia, East Asia and Latin America would account for 33 per cent, 22 per cent and 22 per cent, respectively, of the global increase in total fertiliser demand anticipated in the forecasted period. The fertiliser industry will invest close to $130 billion in more than 150 new production units, increasing global capacity by over 150 million tonnes products by 2020.

Growth Initiatives: Sabic focuses on strengthening its operations through selective investments. In May 2017, the company signed an agreement with ExxonMobil Corporation to conduct a detailed study of a potential jointly-owned petrochemical complex in San Patricio County, Texas, the US. The new agreement could further strengthen its reach. In the same month, the company through its venturing arm invested growth capital in composites specialist Airborne International BV in The Hague. The investment is focused on development of fully automated and digitised composites production processes.

In March 2017, the company signed a contract with Bangladesh Chemical Industries Corporation to supply 305,000 metric tonnes of urea. In January 2017, Sabic and Shell Chemicals Arabia (Shell), Sabic’s partner in the Saudi Petrochemical Company (Sadaf), entered into an agreement pursuant to which Sabic agreed to purchase the entire stake of Shell in Sadaf for $820 million. The company also has various projects including its oil-to-chemicals joint venture with Saudi Aramco; coal-to-chemicals joint venture with Shenhua Ningxia Coal Industry Group Co Ltd.; and strategic cooperation agreement with Sinopec in China. Such initiatives could further strengthen its operations.

Positive outlook of petrochemical industry:  Strong outlook in the petrochemical industry could help Sabic to expand its geographical operations and explore untapped markets to bolster revenue. The company could benefit from the potential global petrochemicals market. According to in-house research reports, the global petrochemical industry was valued at $1,120 billion, and is expected to grow 5.5 per cent to reach $1,717 billion by 2020. The global market for polyethylene is expected to reach $137 billion in 2020. The total world market for polypropylene is expected to grow 5.5 per cent during to reach $103 billion by 2020. Such growth in the petrochemical sector is expected to be driven by Asia Pacific, and Middle East and Africa regions. The demand for petrochemicals in the Middle East and Africa is expected to grow CAGR of 6.1 per cent until 2020. Asia Pacific’s petrochemicals market is expected to register CAGR of 6.4 per cent to reach $1,007 billion by 2020.

THREATS

Growing competition: Sabic operates in a competitive petrochemical industry. The company is exposed to severe competition in all the product segments from both national and international players. Its major competitors include Sinopec Shanghai Petrochemical Company Limited, Shell Chemicals Limited, Methanol Chemicals Company Ltd, and Nama Chemicals Co. The company competes in this evolving marketplace on the basis of many factors including price, quality, innovation, service, reputation, distribution and promotion. Such intense competition makes the marketing and sales environment very challenging for the company. A company can thrive in such a competitive environment if only it is able to distinguish its product and service offerings through a unique value proposition, the report said.

Growing carbon emissions and tightening regulation: Growing carbon emissions and tightening regulations restrict the growth of the chemical industry in general and Sabic, in particular. The global petrochemical industry is one of the major contributors to air pollution. Petrochemical plants are responsible for environmental issues such as greenhouse gas emissions, disposal of wastes, health hazards and the risk of catastrophic accidents.

The major air pollutants produced by the petrochemical companies are particulate matter, smoke, hydrocarbons, carbon monoxide, oxides of sulfur and nitrogen, malodorous emissions and others. They may arise from individual processes, storage areas, leakage, operations and the use of fuel for the production and the refinery’s own heat and power. Growth in petrochemicals could result in an increase in greenhouse gas emissions produced by the industry. Carbon dioxide gas emissions have a very high correlation of 99.7 per cent with the global petrochemical production.