RIYADH: Saudi petrochemicals producers are looking for mergers and acquisitions to secure scale and raw materials as part of an efficiency drive to adjust their businesses to lower oil prices.
The industry has developed substantially since the 1970s, fuelled by cheap gas feedstock provided by the Saudi government. Saudi Basic Industries Corp (SABIC), the kingdom’s biggest petchems firm, is the world’s fourth-largest by sales behind German BASF and Bayer and U.S. Dow Chemical. But a government decision in December to raise feedstock prices, has forced petchem firms to reconsider their business models, already hit by lower product prices due to cheap crude.
Saudi companies have already invested abroad with SABIC signing a coal to chemicals project in China. Another reaction has been consideration of potential mergers and acquisitions. “We made a commitment at SABIC to improve our efficiency to absorb the additional cost for the feedstock and we will do that, but we still look for any other options that can position SABIC competitively for investment through acquisitions,” the company’s acting CEO Yousef al-Benyan, told Reuters.
The acquisitions route could create a number of benefits, including increased scale for businesses to drive efficiencies, sourcing raw materials, and expanding into new product ranges. Petrochemicals are the second-largest contributor to Saudi’s economy at 7-10 percent of GDP and has the potential to be a significant part of the kingdom’s Vision 2030 economic plan.
“The way forward is to crack naphtha or to grow outside, and me and everybody are looking outside. By increasing gas prices, the opposite will happen, it is definitely not going to encourage investors to go further downstream,” Mutlaq al-Morished, chief executive of National Industrialization Co (Tasnee) said.
