MEPCO likely to turn profitable in 2024 amid global demand recovery, price surge: CEO

Sami Al Safran, CEO, Middle East Paper Co.

Middle East Paper Co. (MEPCO) expects prices to continue rising during 2024, driven by a recovery in major global markets, CEO Sami Al Safran told Argaam in an interview.

He added that indicators reflect a renewed demand growth for cardboard paper, containerboard, and tissue products.

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Geopolitical factors and the rise in fuel prices contributed to an increase in prices in local markets, Al Safran stated.

Global demand in the containerboard market is witnessing a noticeable recovery, evident from price escalations between Q4 2023 and Q1 2024.

Commenting on the financial results, the CEO said that losses widened due to the operational costs associated with increasing production at Juthor Paper Manufacturing Co., which constituted about 12% of the total losses.

He noted that these costs are expected to decrease with the end of the production increase phase and the plant’s transition to natural gas at the end of H1 2024.

Al Safran pointed out that despite the strong demand for cardboard paper and containerboard products, profitability was affected by fluctuations in market prices, which fell by 15% year-on-year (YoY) during Q1 2024.

He anticipated an improvement in financial performance after Juthor factory reaches its full operational capacity and prices continue to rise despite the challenges faced in the first quarter.

The CEO stated that the company’s sales volume increased by 12% YoY in Q1 2024 after raising the production capacity of Juthor factory to 83% and selling 12,000 tons, as well as expanding in the waste management segment. The company diversified its sources of revenue through increased sales of other recyclable materials, which contributed to a growth in sales volume of 13,000 tons.

Al Safran explained that demand for cardboard paper and containerboard products grew at an average rate of 3.3%, while tissue paper products expanded at a rate of 2.5% in the Kingdom and the Middle East region during Q1 2024.

Commenting on the issue of production capacity, the CEO said that the cardboard paper and containerboard factory maintained an average production rate of more than 90% in Q1, compared to an average of 73% for similar companies in global markets, which reflects strong demand in local markets.

He added that the Juthor tissue paper factory reached 83% of its production capacity at the end of the first quarter, expecting to reach full capacity in the second quarter of 2024.

The factory represented over 24% of the total expenses of SAR 210 million incurred during the three-month period, while the increase in production at the factory contributed 12% of the group’s losses in the first quarter of 2024.

The group is expected to return to profitability in 2024 with renewed demand in the global containerboard market and the continued growth of local demand for containerboard and tissue paper products. This is in addition to the expected decline in the cost of fuel in Juthor factory with the switch to natural gas, as well as a 225% increase in sales of other recyclable products, the CEO emphasized.

He pointed out that the group was able to increase selling prices at an average rate of $20 per ton and $50 per ton for tissue paper products in Q1 2024, compared to Q4 023, which led to an increase in the profit margin to 13% during the first quarter of 2024 from its lowest level of 1% during the previous quarter.

Regarding demand estimates, Al Safran indicated that the group is maintaining a production level exceeding 90% and expects a continued increase in prices during 2024 due to the recovery in global demand for containerboard products, in addition to the local market maintaining current demand growth levels of 4.5%.

The CEO noted that, given the sustainable growth in the Kingdom and the region, as well as expectations of increased demand, the group is still continuing to implement its expansion policies and double its production capacity.

MEPCO has signed a contract with J.M. Voith Co. to design, supply and install the fifth containerboard production line, which will have a capacity of 450,000 tons annually and an investment of SAR 1.7 billion. Production is expected to start in 2027.

According to data available on Argaam, MEPCO’s losses widened to SAR 18.4 million in Q1 2024, compared to SAR 6.6 million a year earlier.