Talent Shortage Biggest Risk to Future Profitability: SABIC CEO
The gravest challenge to future profitability is not slowing economic growth in China or Europe, but overcoming a shortage of talent, the chief executive of Saudi Basic Industries Corporation (SABIC), the largest petrochemical group in the world by market value, told CNBC.
"Having good people in the organization. I think if you solve that problem and put the best talent in the company, you will not have to worry about risk. Market risk is not a big deal," Mohamed Al-Mady pointed out in an interview on CNBC's "Access: Middle East".
(Read More: Access Middle East)
Over the past year, global demand for petrochemical products remained sluggish and had not increased "that much". On April 20, SABIC reported a net income of $1.75 billion for the three months to March 31, compared to $1.94 billion in the same period last year.
Although Saudi Arabia and India featured prominently on the agenda, SABIC would particularly focus on China and the United States in years to come.
"The market is in China so we are going to put some projects in China. The raw materials in the U.S, we are going to look for opportunity. These two countries are more advanced in really giving a good proposition for the investors," he explained.
Al-Mady classified the U.S. shale boom as both a "threat and opportunity". The firm is not new to major acquisitions to satisfy its global ambitions following its purchase of a unit of GE plastics for $11.6 billion in 2007.
(Read More: US Gas Boom Is a Threat: Sabic CEO)
JPMorgan remained cautious on how SABIC would approach the U.S. market, and noted in an equity report last month that the company already had a roughly 17 percent stake in a cracker majority-owned by Williams in Louisiana.
"M&A remains an option, but having seen mixed results with previous acquisitions we would be surprised if SABIC made a significant acquisition in the near-term," it added.
Europe was a different story, where SABIC recently joined peers such as Germany's BASF in scaling down selected operations in light of deteriorating demand. Al-Mady rejected suggestions it was part of a broader retreat from the continent.
"We came to Europe from the beginning especially for technology. And you know Europe is 400 million people, it's a big market. They are going to come back and they will ask for more sophisticated products," Al-Mady said.
Questions Over Competition and Cheap Feedstock
But SABIC also faces stiffer competition and uncertainty over cheap access to feedstock at home. There have been growing calls for alterations to the industry's subsidy structure to alleviate the fiscal burden on the state.
"It was not a subsidy, it was a price that was accepted by WTO as a price that is not a subsidy and that's a fair price at that time," Al-Mady said, admitting that some changes in price would be inevitable. "Saudi Arabia changed, WTO conditions changed, and there could be, you know, a room for discussions for a win-win situation".
Currently, SABIC only pays 75 US cents per million British thermal units (MMBtu) for its gas. To put that in perspective, NYMEX natural gas front month futures closed at $3.81 on Friday. At the moment, Al-Mady emphasized, there were no talks taking place, and equally no reason for him to worry.
Analysts remain divided on the possible ramifications. Standard & Poor's maintained in a review late last year that even a doubling of gas prices would have "a modest impact" due to "high margins on the product in the global market".
Despite the challenges, many experts remain bullish on the prospects of the largest-listed company in the Middle East. The government owns 70 percent of the firm, while the remainder is traded on the Saudi Stock Exchange.
"We believe SABIC remains the best long-term growth story within the Middle Eastern chemicals space, with access to the resources and capabilities to move from being a collection of JV assets to being a truly global, integrated chemical major," HSBC outlined in an updated equity research piece in May.
This week on "Access: Middle East": An exclusive interview with Mohamed Al-Mady, CEO of Saudi Basic Industries Corporation (SABIC) from the sidelines of the World Economic Forum in Jordan. Find out how he plans to keep the competition in check and what potential he sees in an evolving global energy mix driven by innovations in technology.