Tasnee board responds to CEO remarks on feedstock price hike impact

Logo of National Industrialization Co. (Tasnee)

National Industrialization Co.'s (Tasnee) board of directors issued a statement in response to the recent statements made by CEO Mutlaq Al-Morished to Argaam during the Future Minerals Forum about the impact of the rise in feedstock prices.

The forum, which was held in Riyadh on Jan. 10, is not the proper place to discuss feedstock prices and their impact on petrochemical companies’ competition in the Kingdom, said the board.

The CEO remarks do not accurately reflect the board's vision and strategy, which are based on clear foundations aimed at promoting growth and expansion in the petrochemical sector to contribute to supporting the national economy and achieving the goals of Saudi Vision 2030, the statement added.

While feedstock prices are key for the feasibility and profitability of the petrochemical industry, the analysis referred to in the CEO’s remarks with regards to comparing local feedstock prices with their counterparts in the US market, does not at all reflect the situation in the global petrochemical market. This is because these markets are linked to several factors and variables such as taxes, direct fees, supply chain costs, and the pricing criteria between producing and consuming entities, all of which must be factored in such comparisons, to form a clear picture on current price levels, whether in the US market or elsewhere.

The board also believes that it is necessary to look at the markets more broadly to understand the complete picture, for all stages of production, supply chains, and other relevant factors, especially since the marketing and sales of most of volumes of petrochemicals produced in the Kingdom take place in all global markets, the most important of which are Asia, Europe and Africa. This is in addition to the Middle Eastern markets, which are all witnessing growth in demand levels and goods prices, reinforcing the continued competitiveness of the Kingdom’s products there.

In addition, the CEO’s statement was based on the feedstock price figures in the US for one day only. These figures indeed do not reflect the annual average of ethane prices in the US, which amounted to $7.47 per million Btu in 2022, and 3. $84 per million Btu in 2023, while price expectations for 2024 indicate that they will reach $4.06 per million Btu. These prices do not include the costs of delivering ethane to consuming facilities, which amount to $1.72 per million Btu.

In contrast, ethane prices in the Kingdom reflect the final price paid by the consumer, including the transportation costs. Furthermore, feedstock prices in other markets such as Europe and Asia are much higher than in the Kingdom, because these markets depend mainly on liquid feedstock such as naphtha.

Therefore, the company’s board confirms that what was approved about feedstock prices by the relevant authorities in the Kingdom was carefully studied professionally, taking into account current and future economic interests. It also said that what was mentioned in the CEO’s remarks required accuracy and depth, the lack of which led to inaccurate conclusions.

The average expected financial impact on the company will be at levels on par with peers operating in the same sector in the Kingdom. The approximate financial impact will be 2.5% of the sales costs of subsidiaries and joint ventures, according to the latest audited financial statements.

This financial impact will appear starting from the first quarter of 2024. The company is always seeking to improve operational and marketing performance and boost productivity in all its equipment and factories. This increase in costs shall be offset by improving production efficiency and increasing sales, it added.