Luberef delayed planned maintenance at its Yanbu plant from August to October as record base oils margins lifted second-quarter profit sharply higher.

Operating profit rose 191% year on year to 748.5 million Saudi Riyals ($200 million) in the three months to end-June.

Operating margin widened to 21.9%, the highest since the first quarter of 2023 as higher sales volumes and wider base oils margins drove a 52% jump in revenue that outpaced the rise in costs.

Global base oils margins remained unusually high entering the third quarter, even if down from their second-quarter peak, encouraging Luberef to maximise production before taking the unit offline.

The company rescheduled maintenance to benefit from “the current healthy crack margin environment” before completing integration work linked to the expansion of its Yanbu plant, Chief Executive Samer Abdulaziz Al-Hokail said in a statement.

The maintenance delay also pushed completion of the expansion into the first half of 2027. The project will add capacity with flexibility to produce either Group II or Group III base oils, with the delay pushing back the availability of additional Group III supply.

Key Highlights

·         Sales volumes of 313,000 tonnes reached their highest level since the fourth quarter of 2024.

·         Record base oil crack margins of SAR 2,732/tonne helped deliver Luberef's highest first-half net income on record.

·         The delayed turnaround keeps additional Group II supply available through August, before maintenance shifts into the fourth quarter.

·         The expansion had been one of the planned additions of flexible Group II/Group III capacity expected to start up in the coming months.

Market Repercussions

Luberef's results showed that high margins extended beyond Group III producers, with its Group I and Group II output also benefiting from tighter supply.

The postponement provided additional supply through August, when maintenance would have coincided with recovering seasonal demand and followed unusually low exports from Singapore.

Instead, the supply effect shifts into the fourth quarter, when it would coincide with scheduled maintenance work in other markets including Taiwan.

The timing could still reduce the market impact. Demand typically slows toward year-end, while Middle East exports would have more opportunity to recover by then.

Even so, the delay also extended Luberef's exposure to supply disruptions in the Red Sea region. The location of its plants in Yanbu and Jeddah had largely insulated exports during the second quarter from the disruption affecting producers shipping through the Strait of Hormuz.

Houthi attacks and threats against Red Sea shipping in recent weeks brought that risk closer to Luberef’s own export routes.