SABIC’s Q1 Loss Signals Persistent Headwinds in Global Chemicals Sector

The Saudi chemical giant Saudi Basic Industries Corporation (SABIC) has once again disappointed investors, reporting a net loss of 1.21 billion riyals (US$320 million) for the first quarter of 2025. This marks its second consecutive quarterly loss, contrasting sharply with a 250 million riyals profit in Q1 2024 and falling well below analysts’ expectations of a 698.9 million riyals profit. The result underscores deepening challenges in the global chemicals sector, driven by overcapacity, weak demand, and rising costs.

Key Drivers of the Loss

1. Structural Industry Challenges:
   SABIC’s struggles reflect broader sector-wide pressures. A 45% year-on-year drop in EBITDA to 2.50 billion riyals was largely due to one-time restructuring costs of 1.07 billion riyals, but also highlighted chronic issues. CEO Abdulrahman Al-Fageeh emphasized overcapacity in polymers, particularly polyethylene and ethylene, as a critical constraint. Capacity growth has outpaced demand, squeezing margins and utilization rates.

2. Demand Drought:
   Sales volumes fell in key segments like agri-nutrients and polymers, despite a 5.8% revenue rise to 34.59 billion riyals. Weak global demand—exacerbated by China’s slowing chemical consumption and U.S.-China trade tensions—has left SABIC and peers like Dow Inc. and LyondellBasell scrambling to adapt.

3. Cost Pressures:
   Elevated feedstock costs, including petrochemical raw materials, further compressed margins. SABIC’s operating loss of 770 million riyals versus a 1.21 billion riyals profit in Q1 2024 underscores the scale of these challenges.

The Bigger Picture: A Sector in Flux

Analysts warn that SABIC’s struggles are part of a larger industry downturn. Bloomberg Intelligence’s Salih Yilmaz notes that 2025 profitability for chemicals firms may remain strained, with weak demand and pricing power likely to persist. Moody’s, however, recently upgraded SABIC’s credit rating, citing its competitive cost structure and strong liquidity—a rare silver lining in an otherwise bleak outlook.

Strategic Moves and Uncertain Outlook

Despite the losses, SABIC is doubling down on long-term investments. Plans include a $6.4 billion petrochemical complex in China’s Fujian province and collaborations on cutting-edge projects, such as the world’s first large-scale electrically heated steam cracking furnace with BASF and Linde. These initiatives aim to future-proof the company against overcapacity, but near-term recovery hinges on demand rebound and cost discipline.

Ask Aime: Why Did Saudi Basic Industries Corporation (SABIC) Report a Second Consecutive Quarterly Loss?

What Investors Need to Watch

• Free Cash Flow: SABIC’s negative free cash flow of 1.35 billion riyals (vs. -350 million riyals in Q1 2024) signals liquidity risks if losses persist.
• Dividend Reliability: Despite the downturn, SABIC’s Smartkarma Value Score of 5/5 and Dividend Score of 5/5 suggest a commitment to payouts, though this could come under pressure.
• Global Demand Recovery: A pickup in China’s chemical consumption or easing U.S.-China trade tensions could alleviate overcapacity pressures.

Conclusion: A Rocky Road Ahead

SABIC’s Q1 loss paints a grim picture for the first half of 2025 and beyond. With analyst ratings split (8 buys, 8 holds, 2 sells) and a Smart Score of 3.6/5, the company faces a balancing act between innovation and survival. While its $4–5 billion capital expenditure plan signals strategic confidence, the path to profitability remains littered with headwinds.

The data is clear: 45% EBITDA declines, one-time costs exceeding 1 billion riyals, and a Smart Score dragged down by weak growth and momentum metrics all point to a sector in crisis. Investors should brace for continued volatility, as SABIC and peers navigate overcapacity, geopolitical risks, and a sluggish global economy. For now, the chemicals giant’s journey from profit to loss serves as a cautionary tale for industries reliant on cyclical demand.