INDUSTRY INSIGHTThought Leadership

Sustaining growth

GPCA Insight Express speaks exclusively with Abdullah Al-Saadoon, CEO, SIPCHEM, about the company’s plans for expansion into new markets, pursuing new mergers and acquisitions and leveraging the current growth momentum

Over the last year, Sipchem reported a net profit increase of 1,942% in 2021. Can you give us some insight into the reasons behind this growth and how it has helped you recover from the negative implications of the COVID-19 pandemic?

Sipchem’s exceptional performance throughout the pandemic period reflects the company’s deeply rooted culture of safety, reliability, and continuous improvement, which enabled us to achieve record production and sales levels. Our agile business approach allowed us to adapt to rapidly evolving circumstances, overcome challenges, and meet the needs of the customers and the expectations of the shareholders. Following the merger of legacy Sipchem and Sahara in 2019, we made a strategic and purposeful effort to diversify our output and create a balanced product portfolio mix, which enabled Sipchem to capitalize on the cyclical upturn during 2021.

In addition, our strong marketing and physical presence in key markets across Europe and Asia played a key role in ensuring we were well placed to take advantage of prevailing market demand and seamlessly leverage our operational capabilities.

Sipchem also benefited from bold decision making and active JV portfolio management through the acquisition of additional stakes in International Acetyl Company, International Vinyl Acetate Company, and International Diol Company, coupled with the mothballing of economically unviable plants. Our robust sales and operations planning practices allowed us to adjust the feedstock mix to maximize contribution margin, while Sipchem’s robust synergy realization strategy also enabled us to realize a synergy value of SAR 298 million in 2021.

What is your forecast for the rest of 2022 and 2023 and how do you expect it to impact Sipchem and petrochemical players in the GCC region?

While we believe 2022 is going to be another strong year for the petrochemical industry, it is also a year that brings with it different sets of challenges that have the potential to either dampen the robust demand we have seen in 2021 and Q1 2022 or push the markets even higher.

During Q1 2022, we have seen continued demand and hence strong prices of most of our basics, intermediates, and polymers products. Despite the challenges in the supply chain and geopolitical pressure, Sipchem and other GCC players, thanks to our geographical location, are well placed to service the key growth markets globally, including India, Africa, the Far East and Europe. In addition, we expect to further expand into Latin America and Oceania as demand continues to grow for several of our products.

The current energy prices, where crude oil prices surpassed USD 100 per barrel, supported the petrochemical prices from dropping significantly compared to Q4 of 2021 and in fact, some of the products have seen increased prices.

For the rest of 2022 and into 2023, we are optimistic that demand for Sipchem’s products will continue to be strong across all the regions in which we service our customers. We also expect to grow our geographical reach even further with some of our products.

With hopes for high profitability and growth this year, are you planning any new investments – be that in Saudi Arabia or elsewhere globally? If so, which industry segments or products can we expect to see Sipchem focus on?

Sustainable, long-term growth is naturally a key strategic pillar for Sipchem. Our history of growth since the company establishment in 1999 has been impressive and we are committed to continue growing. With the launching of Shareek by H.R.H. Crown Prince Mohammed Bin Salman bin Abdulaziz and aims to increase domestic investments of private sector companies to reach SAR 5 trillion by 2030 through the support and unlocking of government-approved incentives, Sipchem expediated its growth agenda to match the kingdom’s ambitions of growth. Therefore, we are aggressively exploring various major green field projects growth opportunities. We are also looking to expand the scope of our current product portfolio through assessing various organic and inorganic growth opportunities. Any new endeavors and initiatives will be announced in due time.

According to some analysts, the current market environment is ripe for new investments, mergers and acquisitions. Are you eyeing any new M&A deals this year or in the short term?

2022 marks the third year of the merger between Sipchem International Petrochemical Company (Sipchem) and Sahara Petrochemical Company (Sahara). The merged company Sahara International Petrochemical Company (Sipchem) was a success story in the kingdom of Saudi Arabia where it paved the road for various other M&A deals within the kingdom in different sectors. Through this experience, we are proud to share that we have built the necessary toolkit within our organization to execute such M&A deals smoothly and efficiently and will use this to our advantage in the future. In addition, the synergy realized, and the exceptional results achieved during year 2022 boosted the confidence of the shareholders and encouraged the company to place M&A as one of the main drivers of the company’s growth strategy. With this in mind, we are now considering potential M&A opportunities and will make our intentions public once decisions have been reached.

Despite projected industry growth in 2022 off the back of strong demand and margins, the petrochemical industry is still facing some formidable supply chain challenges in the form of container shortages, continuously high freight rates, etc. How is Sipchem being affected and how do you plan to address these to stay competitive and meet customer expectations?

Certainly, the current supply chain crisis has had a major impact on our global customers. However, we have been successful in navigating the crisis with fewer dents by taking more targeted strategies and making sure our customers are aware of the situation ahead of time. The key is to have transparent and clear communication with customers so that they can plan accordingly at their end. We should be aware that supply chain challenges will continue to be with us for the rest of the year and potentially beyond. Keeping that in mind, we as a company have tailored our strategy to tackle the unique challenges of each region such as port congestion, the shortage of truck drivers and ports manpower, freight rate increases, and high consumer demand, so that we can effectively navigate supply chain crises.

We have taken several risk management measures that include access to shipping from the west side of Saudi Arabia, in specific, at King Abdullah Port, which enabled us to cut transit times to certain regions by 20-30%; exploring multi-year freight contracts to mitigate container shipping risk so as to capitalize on the long-term partnerships we have with shipping lines and secure volumes with reliable parties to ship our product, and continually serve our markets. In addition, we are increasing the number of chemical tanks on lease that are closer to our customers so that we can continue to service their evolving requirements.

In the view of the recent announcement of the kingdom’s commitment to net-zero by 2060, what is Sipchem’s strategy towards sustainability and, in specific, carbon neutrality targets?

In line with HRH the Crown Prince’s aspirational targets unveiled in the Saudi Green Initiative and 2060 net-zero target, we have recently enshrined sustainability as one of our strategic pillars and redefined our sustainability strategy with greater ambition. With the full support of the board of directors and executive management, we are finalizing our sustainability strategy and GHG reduction target in view of the kingdom’s ambitions. The intention is to announce Sipchem’s sustainability targets to meet the Net Zero agenda later this year.  Within our ESG sustainability strategy, and as a first wave, we will be addressing six key sustainability topics. In the Environment, the focus will be in (a) Scope 1 and 2 emission reduction, (b) circular products, and (c) waste management. In the Social, the focus will be in (d) safety, and (e) diversity. In Governance, the focus will be in (f) responsible procurement.

It is important to mention that Sipchem continues to be a responsible company with several success stories and efforts in reducing GHG emissions. One such success is the recent partnership with a neighboring company to re-use significant CO2 volumes for existing process units. In addition, we have been utilizing ethanol as a bio feedstock for our ethyl acetate plant and have targets to expand our efforts in this field. We have also received a recognition from the Saudi Energy Efficiency Center (SEEC) for our excellent compliance record during the SEEC first cycle, with commitment to sustain such improvement in energy efficiency during the second cycle.