Aramco refining unit Luberef's Q1 net profit surges 47% on higher margins

Feedstock prices nearly halved in the first quarter, the company says

Aramco unit Luberef makes base oils used in lubricants for motor vehicles, ships and industrial machinery. Reuters

Saudi Aramco Base Oil Company, or Luberef, posted a more than 47 per cent rise in first-quarter net profit, helped by lower feedstock prices that resulted in higher margins.

The company’s net income in the three-month period ending in March rose to 445.6 million Saudi riyals ($118.8 million) from 302.6 million riyals a year earlier, Luberef said on Thursday in a statement to Saudi Arabia's Tadawul stock exchange, where its shares are traded.

The higher profit was mainly driven by a 6 per cent increase in base oil prices and a 46 per cent reduction in feedstock prices from the same period last year, Luberef said.

This helped to offset a 14 per cent fall in sales volumes from the year-ago quarter, the company said.

Net income was also boosted by a decrease in zakat and income tax expenses due to Luberef being subjected to zakat only after its listing, it said.

Luberef's revenue fell more than 34 per cent annually to 1.79 billion riyals in the quarter.

Earnings before interest, taxes, depreciation and amortisation rose 10 per cent to 555 million riyals in the first quarter from 507 million riyals last year.

The company began trading on the Arab world's largest stock market in December after raising $1.32 billion in its initial public offering.

The refining unit of oil major Saudi Aramco sold more than 50 million shares, or about 29.7 per cent of the company's issued share capital, with the IPO drawing strong demand from investors in the kingdom and internationally.

Established in 1976, Luberef operates two production plants on the west coast of the kingdom — in Yanbu and Jeddah — with a combined annual production capacity of 1.3 million tonnes of base oils, according to its website.

The Aramco unit makes base oils used in lubricants for motor vehicles, ships and industrial machinery.

Base oils are used across various sectors where hydraulic, turbine and transmission fluids are required in production and manufacturing machinery, such as in the steel industry, food production, textiles and clothing.

The global base oil market is projected to reach $41.7 billion by 2030 from $34.9 billion in 2020, Allied Market Research said.

Luberef’s products are sold mainly in the company’s key end markets, including Saudi Arabia and other countries in the Mena region, Asia, the Americas and Europe.

The company posted a 32 per cent rise in full-year net profit last year, driven by an increase in sales volumes and improved base oil crack margins.