SABIC's profit collapsed 74% and it posted a first loss in a decade — the upcycle's bill

SABIC — Saudi Basic Industries Corporation, one of the world's largest petrochemical makers and majority-owned by Saudi Aramco — had ridden the petrochemical boom to a net profit of SAR 21.5 billion in 2018. In 2019 that profit fell 74 percent to SAR 5.6 billion, and revenue fell 17 percent to SAR 139.7 billion.

The fall turned into a loss. In the fourth quarter of 2019 SABIC posted a net loss of SAR 0.72 billion ($192 million) — its first quarterly loss in a decade, since early 2009. The company blamed a further decline in petrochemical prices, driven by oversupply in its key products and slowing global growth.

Then came the writedowns. The fourth quarter carried SAR 1.3 billion of non-recurring charges, including an impairment of SABIC's share of its affiliate Ibn Rushd, tied to a restructuring that would close certain assets in 2020. The year's results also absorbed a roughly SAR 1.5 billion loss on its stake in the Swiss specialty-chemicals group Clariant, and in 2020 SABIC impaired about SAR 1.18 billion of European petrochemical assets.

The impairments were the point. SABIC had valued its plants and its stakes while petrochemicals were booming; when oversupply pushed prices down, those assets no longer earned what they had cost, and the company wrote them down and began closing them. The first loss in a decade was less a single bad quarter than the bill for capacity and acquisitions made at the top of the cycle.