Base oils demand in China to significantly impact short-term spreads: Luberef CFO

Mohammed Alnafea, Chief Financial Officer of Luberef

An impact from the economic recovery in China is anticipated, Mohammed Alnafea, Chief Financial Officer of Saudi Aramco Base Oil Co. (Luberef), told Argaam in an interview.

The demand for base oils in China would significantly affect crack spreads in the short term, he added, noting that crack spreads of base oils are high and more stable than of oil prices and the refining sector.

Crack spreads of base oils are expected to decline in Q1 2023 compared to Q4 2022. However, the spreads are strong and higher than the average of the past 10 years and Q1 2021.

Alnafea added that sales of base oils grew by 6% year-on-year (YoY) in 2022, supported by strong operational reliability, safety, and the positive impact of the transformation programs for Saudi Aramco's refining sector.

He indicated that crack spreads of base oils grew by approximately 10% to SAR 2,484 per ton in 2022, compared with SAR 2,248 a year before.

Further, the official said the most profitable markets are the ones closest to it, noting that sales in the Saudi market, for example, soared around 7% in 2022, driven by the growth in the GDP and mega projects in the Kingdom.

Cash flows amounted to nearly SAR 2 billion, and the return on invested capital leapt 39%, Alnafea said.

He indicated that the company's debts at the end of 2022 was 3% less than the target range of 25-35% during the economic cycle; hence the interest-rate hike did not impact the firm significantly.

Touching on dividend payout, Alnafea said Luberef seeks to maximize returns to shareholders. Thus, the board recommended a cash dividend at SAR 5 per share for H2 2022. When calculating the annual average, this amount represents an annual dividend yield of more than 10% compared with the subscription price.

On its projects, Alnafea said, with regard to growth in the short-term, its efforts focused on more transformation initiatives and the second growth project in Yanbu.

He added that, according to market studies, global demand for Group II and Group III base oils will likely increase by nearly five million metric tons from 2022 to 2030.

The official said the company owns all these potentials, noting that it plans to benefit from this growth through future projects in the medium term.

The company posted a 32% leap in net profit after Zakat and tax to SAR 1.97 billion for 2022, compared to SAR 1.50 billion in 2021.