Saudi Basic Industries Corporation (SABIC) History

Company Perspectives:

Our vision is to be a leading global manufacturer and marketer of hydrocarbon and metal products. Our mission is to provide distinctive, high-quality industrial products and services to our customers, meeting the expectations of our shareholders through optimum utilization of our available human and natural resources, together with the use of state of the art technology--maintaining safe and environmentally sound practices.

Key Dates:

1976:

Saudi Basic Industries Corporation (SABIC) is created as Saudi Arabia launches into petrochemical production in order to process petroleum gas byproducts.

1982:

The first of SABIC affiliate companies, HADEED (steel), begins production.

1983:

The company exports chemical-grade methanol for the first time.

1984:

SABIC is listed on the Saudi stock exchange, although the government maintains a 70 percent stake.

1985:

The Ladene plastics brand is launched; the first-generation phase is completed.

1988:

The company opens international marketing offices in New York, London, Tokyo, and Hong Kong.

1993:

The company opens a marketing office in New Delhi, India.

1994:

The company opens a marketing office in France.

1997:

The company opens its first foreign research and technology center in Houston, Texas; the company is restructured into five Strategic Business Units.

2001:

Production capacity tops 35 million metric tons.

2002:

The company acquires the petrochemicals business of DSM, based in The Netherlands, as its first overseas expansion.

2004:

A new $2 billion Jubail United Petrochemicals plant is slated to come on stream.

Company History:

Saudi Basic Industries Corporation, or SABIC, is one of the world's leading petrochemicals companies. Following its acquisition of the petrochemicals division of The Netherlands' DSM, which also represented the company's first expansion beyond its Saudi Arabia base, SABIC became the 11th largest petrochemicals company worldwide. It is also among the lowest-cost producers, with access to the natural gas byproduct of Saudi Arabia's vast petroleum reserves. SABIC operates in five core business sectors: Basic Chemicals (ethylene, methanol, propylene, styrene, etc.), Intermediates (industrial gases, ethylene glycol, ethylene dichloride, caustic soda, etc.), Polymers (polypropylene, polyvinyl chloride, polyesters, polystyrene, etc.), Fertilizers (ammonia, urea, phosphates, sulfuric acid), and Metals (long and flat steel products). SABIC oversees the operations of some 16 affiliated companies, many of which were originally formed as joint ventures with Dow Chemical, Exxon, Mitsubishi, and other major companies worldwide. The majority of the company's operations are located in the Jubail Industrial City, custom-built for the company in the mid-1970s; the company also has operations at Yanbu Industrial City, in Dammam, and joint venture partnerships in Bahrain. SABIC remains controlled by the Saudi government at more than 70 percent; the remaining 30 percent of the company's stock has long been reserved for citizens of Saudi Arabia and other Gulf Cooperation Council countries. The Saudi government has nonetheless reaffirmed its commitment to reduce its shareholding in SABIC to just 25 percent in the 2000s.

Creating Saudi Arabia's Petrochemicals Industry in the 1970s

Until the mid-1970s, Saudi Arabia remained relatively unindustrialized. The country's vast crude oil reserves were used almost exclusively for oil production and byproduct hydrocarbon gases were simply flared off at the well-head. The sudden rise in oil prices in the 1970s--when the price of oil shot up from just $2 per barrel to more than $30 per barrel--opened the potential for profitable investment in gas recovery and processing for the Saudi government.

The Saudi government decided to construct a Master Gas System to capture byproduct gases for use not only as an energy source--the country converted much of its electrical power fuel infrastructure to natural gas at this time--but also to establish its own petrochemicals industry. To this end, the government set aside the small fishing village of Jubail, on the country's Gulf coast, as the site of a new "industrial city." A similar city was to be constructed in Yanbu, on the country's Red Sea coast. In order to populate that city with industries, and specifically petrochemical firms, the government created Saudi Basic Industries Corporation (SABIC) in 1976.

Work began on the Jubail and Yanbu in 1977. In the meantime, SABIC prepared to launch its operations. As part of that effort, the company began sending staff to the United States for training. At the same time, the company began signing a variety of joint venture partners, which agreed to help the company establish its industrial operations, providing technology, training, and marketing support, in exchange for access to the company's plentiful and low-cost feedstock. By the end of that year, the company had signed agreements with Dow Chemical, Exxon, Mitsubishi, and Korf-Stahl.

By 1979, the company had created its first manufacturing affiliates: AR-RAZI, also known as the Saudi Methanol Company, in partnership with Mitsubishi Gas Chemical Company, formed for the production of methanol; SAMAD, or the Al-Jubail Fertilizer Company, a 50/50 partnership with the Taiwan Fertilizer Company for the production of urea, ammonia, and other products; and SAFCO, the Saudi Arabian Fertilizer Company, which was formed to produce ammonia, urea, sulfuric acid, and melamine. While many of the company's partnerships were formed with the giants of the global petrochemicals market, it also entered partnerships with three Bahrainian groups, creating ALBA, GARMCO, and GPIC. At the same time, the company formed HADEED, the Saudi Iron and Steel Company. Construction on that company, as well as the SADAF site, began in 1980.

New partnerships were created that year, including Saudi Petrochemical Company (SADAF), in partnership with Pecten Arabian, a subsidiary of Shell; and, with Exxon, Saudi Yanbu Petrochemical Company (YANPET). Both of these ventures became diversified petrochemicals producers, with SADAF's range including ethylene, crude industrial ethanol, and styrene, while YANPET began operating further downstream, producing polyethylene and ethylene glycol. Another partnership formed that year, KEMYA, or the Al-Jubail Petrochemical Company, in partnership with Exxon Mobil, brought the company polyethylene and ethylene capacity.

These companies were followed with the creation of SHARQ and IBN SINA in 1981. The first, Eastern Petrochemical Company, of these was created in conjunction with a consortium led by Mitsubishi, and was formed to produce ethylene glycol. The second, National Methanol Company, added partners Hoechst-Celanese and Poan Energy-USA, as well as the production of chemical-grade methanol.

By 1982, most of SABIC's group of companies had been formed and were under construction, as the cities themselves, as well as their ports and airports, neared completion. That year marked another important moment in Saudi industrial history, when the country's ambitious Master Gas System was brought online.

The first of SABIC's businesses to begin actual production was HADEED, which began producing steel products in 1982. By 1983, SAMAD and AR-RAZI had launched production as well. In that year, SABIC opened its new headquarters in Riyadh, and also launched two new subsidiaries, SABIC Marketing and SABIC Services. The company booked its first export shipment that year, sending 33,000 metric tons of chemical-grade methanol from its AR-RAZI affiliate to Japan.

Work continued on the company's growing list of affiliates--boosted by the addition of the National Chemical Fertilizer Company (IBN AL-BAYTAR); GAS, formed to produce oxygen, nitrogen, argon, and krypton-xenon; and IBN ZAHR, the Saudi European Petrochemical Company, formed with Neste Oy of Finland and Enichem of Italy for production of MTBE (methyl tertiary butyl ether, a key lead-free gasoline additive) and polypropylene. By 1984, production had started at IBN SINA, SADAF, KEMYA, YANPET, and GAS. The company also built its SABIC Technical Services Laboratory in Riyadh that year.

SABIC went public in 1984, although the Saudi government maintained a 70 percent stake in the company, and its shareholder base was restricted to Saudi and other citizens in the Gulf Cooperation Council countries. The newly public company began its first marketing efforts, launching the Ladene brand of linear low-density polyethylene products. When its first shipments began, in 1985, the company already boasted some 5 percent of total world production.

That year marked the end of SABIC's first-generation, ramp-up phase and its launch onto the worldwide market. The company's arrival during a global slump in the petrochemicals market proved an advantage--with access to Saudi Arabia's huge gas reserves, SABIC was able to enter the market with some of the lowest feedstock costs in the industry. Indeed, SABIC's arrival forced a shift among the industry's previous major players, many of which moved farther downstream in petrochemicals production, while others exited a number of markets entirely. At the same time, the company's Gulf region location placed it close to both the European and, especially, the fast-growing Asian markets.

Entering the Global Ranks in the 1990s

In just ten years, SABIC built a diversified base of some 21 separate affiliate companies--13 of which were already operational--manufacturing some 20 different product groups, with export operations reaching more than 60 countries. The company also had a strong and growing brand name, Ladene, which was extended to all of the group's plastics products in 1986. By the end of that year, the company's total production had topped nine million metric tons. It also had become one of the country's major employers, with more than 8,000 people on payroll.

Two more SABIC companies came on stream before the end of the 1980s, boosting total production past ten million metric tons. SABIC also began asserting itself on the worldwide market, opening offices in London, New York, Tokyo, and Hong Kong by 1988. The company also began construction on its Industrial Research and Technology complex, which opened in 1991, underscoring SABIC's commitment to developing its own technological expertise as it matured into a full-fledged global petrochemicals player.

In the early 1990s, SABIC began expanding production capacity at its existing operations, while at the same time broadening its product range. Among the company's new projects was a doubling of the HADEED steel plant's capacity, which reached two million tons per year at the start of the new decade; the doubling of production output at the AR-RAZI site, which became the world's largest producer of chemical-grade methanol in 1992; a new 1.3 million-ton phosphate fertilizer plant at IBN AL-BAYTAR, which came online in 1991; and the doubling of urea production at SAFCO. The company also began making plans to build two feedstock crackers for the production of propylene, a forerunner product for polypropylene.

By 1994, SABIC's production had jumped to more than 20 million metric tons. The company's sales had topped SRls 10 billion (more than $2.8 billion), and it enjoyed strong profit growth. The Saudi government, which announced its intention to privatize many of the country's state-owned operations, also began plans to reduce its stake in SABIC, with an ultimate goal of trimming its shareholding to just 25 percent. These plans, however, were put on hold.

International Heavyweight in the 2000s

In the meantime, SABIC's growth continued strongly into the 1990s with the creation of a number of new affiliate operations, including IBN RUSHD, the Arabian Industrial Fiberts Company, in conjunction with a consortium of Saudi fiber producers. Construction on the IBN RUSHD site at Yanbu began in 1993 and production came on stream in 1995. The following year, SABIC's IBN HAYYAN subsidiary created TAYF, the IBN Hayyan Plastic Products Company, producing such products as wall coverings, artificial leather, and book-binding products. That company launched production in 1999.

SABIC had continued to build up its international presence during the 1990s, opening a marketing subsidiary in India in 1993, and an office in France in 1994. Houston, Texas, became the site of its first international technology center in 1997, followed by New Delhi, India, in 1998. By then, the company had restructured its operations into five primary Strategic Business Units: Basic Chemicals, Intermediates, Fertilizers, Polymers, and Metals. The company also adopted the "wordmark" SABIC across all of its diversified operations, which were all accorded ISO 9002 quality certification that year as well.

SABIC stepped up its production at the beginning of the 21st century, boosting total capacity from 25 million metric tons in 1999 to more than 35 million in 2001--with plans to achieve nearly 50 million metric tons by 2010. As it entered the new century, SABIC began eyeing further expansion, in particular by developing an international production base. In the meantime, the company had come into its own among the world's international petrochemicals heavyweights, joining the global top five in a number of key product categories. SABIC's technological development now enabled it to launch its own, independent projects, such as the new $2 billion Jubail United Petrochemicals, started in 2001 and expected to come on stream in 2004.

SABIC had not turned its back on future joint ventures, yet the company now expected to participate in future ventures as an equal partner. As managing director Mohamed Al-Mady told Chemical Week: "We welcome joint venture partners, but we want more in exchange. Now that we have the market and training expertise, we must get something else in return, such as the right to use technology in other plants, or entry into a new market."

SABIC found a new market of a different sort in 2002, however. In that year, the company announced an agreement to buy the petrochemicals business of The Netherlands' DSM for EUR 2.25 billion. The move not only gave SABIC its first production operations outside of the Middle East, it also propelled the company into the number 11 spot (from number 22) in the ranks of the world's largest petrochemicals producers. The company also gained the number three and four positions in the worldwide polyethylene and polypropylene markets.

The addition of the DSM businesses, renamed as SABIC EuroPetrochemicals, boosted SABIC's total production past 40 million metric tons. By 2003, however, the company had laid plans to add an additional two million metric tons of capacity--notably through the addition of a new monoethylene glycol plant in Al Jubail, as well as a new 800,000-metric-ton polyethylene plant, both of which were scheduled to come on stream in 2004. By the beginning of 2003, SABIC had grown into a diversified international operation with revenues of more than $9 billion. Already Saudi Arabia's largest industrial company, SABIC prepared to continue its expansion, including additional international acquisitions, in its bid to become a truly global petrochemicals player in the new century.

Principal Subsidiaries: ALBA (Bahrain); AR-RAZI (Saudi Methanol Company); GARMCO (Gulf Aluminum Rolling Mill Company) (Bahrain); GAS; GPIC (Gulf Petrochemical Industries Company) (Bahrain); HADEED (Saudi Iron and Steel Company); IBN AL-BAYTAR (Safco National Chemical Fertilizer Co.); IBN HAYYAN (Arabian Plastic Manufacturing Co. Ltd.); IBN RUSHD (Arabian Industrial Fibers Company); IBN SINA (National Methanol Company); IBN ZAHR (Saudi European Petrochemical Company); KEMYA (Al-Jubail Petrochemical Company); PETROKEMYA (Arabian Petrochemical Company); SABIC Americas, Inc.; SABIC Asia Pacific Pte. Ltd. (PRC); SABIC Deutschland GmbH; SABIC EuroPetrochemicals (Netherlands); SABIC France; SABIC Global Ltd. (U.K.); SABIC Italia Spa; SABIC Marketing Iberica S.A. (Spain); SABIC MARKETING LTD.; SABIC SERVICES LTD.; SADAF (Saudi Petrochemical Company); SAFCO (Saudi Arabian Fertilizer Company); SAMAD (Al-Jubail Chemical Fertilizer Company); Saudi-European Petrochemical Co.; SHARQ (Eastern Petrochemical Company); TAYF (Ibn Hayyan Plastic Products Company); YANPET (Saudi-Yanbu Petrochemical Company).

Principal Competitors: Sumitomo Chemical Company, Limited; Shell Chemicals Limited; BASF AG; Bayer AG; Dow Chemical Co.; Chevron Phillips Chemical Company LLC; E.I. du Pont de Nemours & Company; ExxonMobil Chemical Company; Mitsubishi Chemical Corporation.

Further Reading:

• Alperowicz, Natasha, "Sabic Reaches Maturity," Chemical Week, January 10, 2001, p. 21.
• Holloway, Robert, "Saudis Ready for Petrochemical Marketing Challenge," Oil Daily, January 29, 1985, p. 4.
• "Sabic Developing Key Role in Petrochemical Markets," Oil and Gas Journal, January 7, 1991, p. 19.
• "Sabic Eyes the Future," Middle East, October 1994, p. 22.
• "Sabic Looks to the Future," Chemical Market Reporter, March 24, 2003, p. 3.
• "Sabic to Purchase DSM Petrochemicals Business," Chemical Market Reporter, April 8, 2002, p. 1.
• Smith, Pamela Ann, "Saudi May Sell Control of Giant SABIC," Privatisation International, October 1994, p. 13.
• "Unstoppable Sabic," Fertilizer International, November-December 1997, p. 47.

Source: International Directory of Company Histories, Vol. 58. St. James Press, 2004.

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