Alujain CEO says focus on current markets for best returns, Asian ones avoided

Khalid Al Dawood, CEO of Alujain Corp.

Alujain Corp. will focus on its current markets, leveraging LyondellBasell Industries N.V.’s (LYB) marketing capabilities for the best returns, and will avoid Asian markets for now, CEO Khalid Al Dawood told Argaam.

He observed price stability after a slight improvement and noted that propylene producers using propane feedstock might benefit from any further potential decline in propane prices.

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He emphasized the importance of major regional and global producers balancing supply and demand. This is besides addressing structural changes in core petrochemical markets, as the supply-demand gap will depend on future global growth rates.

The global growth slowdown will impact Chinese and high-cost petrochemical producers, enhancing the competitiveness of local and Gulf producers. China's high production costs and carbon footprint from coal usage will prevent it from competing globally, making it a likely marginal producer, the CEO said.

Commenting on the financial results, Al Dawood noted the executive management and board's satisfaction with achievements so far. The company's operating profit for the first half of the year improved significantly, which in turn boosted the six-month net profit, despite bearing large loan balance exceeding SAR 70 million annually, which were fully repaid this quarter. The relevant positive impact will start next quarter.

Alujain, according to the top executive, faces quarterly accounting losses affecting net earnings due to the amortization of intangible assets from asset revaluation treatments conducted at the end of 2021, in compliance with accounting standards and financial statement consolidation requirements.

He said these accounting procedures are causing distortions in the company’s financial statements, given the negative impact on quarterly amortization and annual impairment loss assessments of approximately SAR 60 million annually. The executive management will work with specialized accountants and the external auditor to soften this accounting impact.

Regarding the sale of a 35% equity stake in subsidiary, National Petrochemical Industrial Co. (NATPET), to LyondellBasell, valued at SAR 1.87 billion, Al Dawood said the move enabled the company to repay all its loans and avoid over SAR 70 million annually in borrowing costs. He emphasized the strategic importance of this partnership for Alujain's future and expansion plans.

He pointed to the previous announcement about the NATPET deal, valued at nearly $500 million (SAR 50 per share), noting that the book value per share is about SAR 22 (excluding intangible value). This difference was due to the consolidation of financial statements as a profit added to the equity in the balance sheet.

Al Dawood confirmed that the new project, with completed detailed engineering designs, is expected to start in the second half of this year after final approvals. It will improve the company's performance, most notably through economies of scale, reducing production costs for the integrated production complex.

He explained that, with LyondellBasell's support, Alujain will focus on producing high-quality products, enabling expansion in specialized products with better profitability and high added value, in line with the Kingdom's industrial strategy and Vision 2030.

Regarding the plans to use the SAR 702 million cash balance at the end of the second quarter of 2024, the CEO said that this financial surplus will enable the company to diversify income sources and invest in low-risk investments, enhancing financial stability and developing the new project effectively. Other options may be considered and approved by the board, he added.

Alujain achieved profits of SAR 20.3 million by the end of the first half of 2024, compared to losses of SAR 17.7 million during the same period in 2023, with Q2 earnings amounting to SAR 14.6 million, according to Argaam’s data.