Technical failures weigh on Alujain’s Q3 2021 profit, expansion plans ‘on the table’: CEO

Alujain Holding Corp.’s CEO Khalid Al Dawood

Alujain Holding Corp.’s profit rise in the nine-month period ended Sept. 30, 2021 was primarily bolstered by higher product prices, especially in the second quarter of the year, Chief Executive Officer (CEO) Khaled Al Dawood told Argaam in a telephone interview.

Moreover, some mechanical failures reduced production, though they were fixed, which in turn relatively impacted the third-quarter profitability, Al Dawood said, affirming that Alujain conducted a study to realize reasons behind these failures and avoid breakdown going forward.

Alujain’s average selling prices of main propylene products exceeded $1,600 per ton in the second quarter of the year amid a relative decline then in feedstock costs, which contributed to generating record operating profit.

“With higher feedstock costs in the third quarter of 2021, average process dropped over $150 per ton impacting the company’s operating profit,” Al Dawood explained.

Replying to a question about the impact of Saudi Aramco’s increase in propane prices, Al Dawood added that the propane cost accounts for the majority of polypropylene production costs at nearly 50% of production cost per ton. Therefore, any rise in propane prices affects profit, unless product selling prices go higher as well.

Meanwhile, a relative rise in product prices is likely to significantly offset the impact of higher propane prices, amid a strong increase in the volume of sold products.

Speaking about supply chain bottlenecks, Al Dawood added that the COVID-19 closures unsurprisingly caused imbalances between supply and demand, as well as global supply chain bottlenecks. However, this had a positive impact on prices, in addition to a remarkable improvement in demand that followed.

Al Dawood forecast the supply chains crisis to subside in 2022, which would significantly reduce transport prices, despite the attempts of international carriers to prolong this imbalance in order to benefit from the huge surges in transport prices.

"What arouses our interest are the structural changes of supply and demand for propylene in different regions of the world and the increase in premium for high-quality items," the CEO said.

“This will give the companies located on the west coast of the Kingdom, especially National Petrochemical Industrial Co. (NATPET), an important competitive advantage to be added to low production costs and the ability to sell some of Alujain's products on the spot market at better prices,” he added.

Regarding the acquisition of an additional stake in NATPET, Al Dawood indicated that the deal was entirely financed by a commercial loan at very competitive rates and terms, adding that this acquisition will significantly boost the company's profitability and enable it to implement its strategic plans going forward.

Alujain is characterized by excellent financial solvency and an important industrial experience that will enable it to implement the most important objectives of the board and executive management. These objectives include doubling the company's industrial investments and diversify its sources of income, while ensuring acceptable cash dividends for shareholders.

Accordingly, the current dividend distribution policy was approved, provided that this policy is periodically revisited, including the timing and interim nature of these dividends, the CEO said.

Elsewhere, Al Dawood added that Alujain is currently studying various available options for expansion in the petrochemical industry.

Alujain reported a net profit after Zakat and tax of SAR 209 million for the first nine months of 2021, up 37% from SAR 152.5 million in the prior-year period.