Chemanol logs lifetime high profit in H1 2022, no official notice on feedstock price hikes: Chairman

Methanol Chemicals Co. (Chemanol) Chairman Ali Al-Turki

Methanol Chemicals Co. (Chemanol) recorded exceptional earnings in H1 2022 — the highest since its inception, Chairman Ali Al-Turki told Argaam.

He expects the chemical producer to maintain its balanced performance in 2022 despite the foreseen volatile global conditions.

Al-Turki confirmed that the company has not received any official notification regarding the in-crease in feedstock prices, indicating that the ratio of feedstock (gas) cost to the company’s final total cost is deemed low.

The feedstock cost amounted to about 7% of the firm’s total cost in H1 2022, the Chairman said, indicating that Chemanol’s feedstock production costs will amount to nearly SAR 64 million annu-ally when the company reaches its maximum production capacity.

Feedstock production costs currently represent around 5% of Chemanol’s total sales. When increas-ing the feedstock price by 25%, production value will rise by SAR 16 million only.

The Tadawul-listed firm is currently working close to its maximum production capacity, and is studying new projects for the production of specialized methanol derivatives.

The Chairman also highlighted forecasts for product prices, how the new loans will help reduce finance charges, as well as project developments.

Here’s the full interview with Al-Turki:

Q: What is your comment on Q2 2022 results? What are also your expectations for the third quarter?

A: Chemanol, thanks to the efforts of management and employees, managed to achieve exceptional profits in H1 2022 — the highest in its history. In addition, the firm recorded a 53% year-on-year (YoY) rise in the second-quarter earnings. Despite the supply chain challenges and high raw mate-rial prices of some products, the company maintained its earnings close to the first-quarter figures.

After years of accumulated losses, the chemical producer managed to achieve a net profit of SAR 244 million in 2021 and SAR 195 million in H1 2022. Earnings of the first six months of 2022 rep-resent about 30% of the company's capital.

Chemanol will likely continue its balanced performance this year despite the projected volatile global conditions. The company is now operating with almost its maximum production capacity.

Q: What are your expectations for methanol prices in Q3 and Q4 2022?

A: The company relies mainly on methanol derivatives, and these materials are subject to supply, demand, and global economic conditions. We have noticed an increase in demand for some prod-ucts in new markets where the company operates, such as Canada and Africa after the Ukrainian crisis. These customers require long-term contracts to guarantee their supply. As for raw materials, the average natural gas price this year is still higher than 2021, which keeps methanol prices at a good level globally.

Q: Did you receive any official notification about an increase in feedstock prices in the coming period?

A: We have not received any official notification yet.

Q: If the prices of methanol and other feedstocks increased and linked to the Global Parity Price Index, how will this impact the company?

Before answering this question, I would like to clarify the following:

First: Chemanol’s business model depends on the production of specialized petrochemical materials such as amine, formaldehyde and methanol derivatives, rather than the production and sale of basic material (methanol). Therefore, the gap between the price of basic products and the cost of produc-ing feedstock (methanol) may exceed $2,000, similar to what happened with Dimethylformamide (DMF) in 2021 and early 2022.

Second: The total feedstock (gas) cost incurred by the company is low. For example, feedstock prices during the first half of the year stood at nearly 7% of the total cost incurred by the company. If Chemanol reaches its maximum production capacity, the feedstock cost will likely hit almost SAR 64 million annually. It currently accounts for nearly 5% of total sales. In case feedstock pro-duction costs rise by 25%, production value will rise by only SAR 16 million.

Third: Upon the completion of the current expansion project and the renovation of the company’s plants within two years, production efficiency is expected to improve, with the feedstock cost drop-ping by 19% per ton. Accordingly, an increase in this cost, if any, will not exceed SAR 4 million based on the current capacity.

Q: A few days ago, Chemanol signed a SAR 695 million Murabaha agreement. How will this funding be used and what is the impact on the cost of finance?

A: Chemanol will use SAR 455 million to settle all outstanding loans and the remaining SAR 240 million to finance the methanol plant expansion projects. Moreover, part of this funding is consid-ered a bridge loan, as Chemanol is waiting for the approval of the Saudi Industrial Development Fund (SIDF) to partly finance the project.

Based on the cost of the new SAR 455 million loan, finance charges will decrease by nearly SAR 8.5 million annually, and its impact is likely to show in the third quarter of 2022. The new loans will be repaid over eight and a half years.

Q: Any update about Chemanol’s projects?

A: Our previously-announced projects are proceeding as scheduled. The company is studying new investments to produce specialty methanol derivatives. Chemanol follows a clear strategy in this regard, namely production of value-added specialty chemicals.