Sabic, Sinopec Enter $1.7 Billion China Plant Venture
Saudi Basic Industries Co., the
worlds biggest chemicals maker by market value, signed an
initial agreement on a $1.7 billion joint venture with China
Petroleum and Chemical Corp. to build a petrochemicals complex.
Saudi Basic, or Sabic, will own half of the ethylene
derivatives plant in Tianjin which is expected to have an
annual capacity of 1 million metric tons a year, the Riyadh-
based company said in a statement today.
“China is a huge market for petrochemicals and this first
grassroots investment for us in China will be a valuable
supplement to our marketing network there, Chief Executive
Officer Mohamed al-Mady said in a telephone interview from
Beijing today.
Sabic plans to expand in China to tap the nations rising
demand for products used to make auto-parts, packaging and
plastics. The Asian country will account for 25 percent of
global chemical demand by 2015, according Exxon MobilCorp., the
worlds biggest publicly traded oil company. Sabic added U.S.
assets with the purchase of GEs plastics unit for $11.6
billion last year and expanded in Europe through the 2002
purchase of Royal DSM NVs petrochemicals division.
`Missing Piece
Sinopec, as the Chinese company is also known, has already
started construction of the plant, al-Mady said, adding that he
expects a final agreement to be signed within 6 months.
“Its the missing piece of the jigsaw, said Darren
Smith, a Dubai-based analyst with Chemical Market Associates.
“They are already big in Europe and North America through
their DSM and GE Plastics acquisitions. Now this gives them
access to the worlds biggest market.
The state-controlled Saudi companys access at fixed
prices to the worlds biggest reserves of oil, used to make
chemicals and plastics, has helped Sabic expand while rivals
such as Dow Chemical Co. struggle with record crude prices.
“Were going in with Chinas number one petrochemicals
company, and Im sure well find future opportunities to work
together, al-Mady said.
Some of the $1.7 billion will come from commercial
finance, al-Mady said. Typically the company pays for projects
with 70 percent finance and 30 percent equity. Sabic will
decide on the financial arrangement after a final agreement is
reached on the joint venture, he said.
Sabic has been talking with Sinopec about the Tianjin
project for more than 3 years, al-Mady said.
Sinopec is the countrys largest refiner, supplying two-
thirds of its auto fuels.
`Reasonable Costs
Construction costs in China are “reasonable whereas in
developed markets such as Europe they are “prohibitive for
new plants, al-Mady said.
Chinese production will be competitive even without access
to cheap gulf feedstock, he said. “If a petrochemicals plant
cant be profitable in China, where can it be?
China plans to more than double production capacity of
ethylene, used in the making of plastics, to 18.13 million tons
by 2010 from 7.55 million tons in 2005, the National
Development and Reform Commission, the nations top economic
planning agency, said in 2006.
Of the capacity to be added, 6.2 million tons will be
newly built and 4.38 million tons will be from the expansion of
existing plants, the commission said then.
Sabic fell 0.6 percent to close at 164.5 riyals in Riyadh
yesterday, and the shares have lost 14 percent this year.
