METALS (Hadeed)

The pandemic’s impacts compounded pre-existing pressures coming from raw material costs and weak demand, but none was allowed to interfere with our commitments to the building and construction sector and in maintaining our market-leading position in the region. We upheld our reputation as a reliable supplier of consistently high-quality steel products to the Saudi market and met customer needs as closely as possible despite the mobility constraints brought about by the pandemic.

Our strategy, targeting a turnaround to achieve sustainable first quartile competitive performance and profitability, remains on course. We are currently looking into prospects for backward integration into mining, positioning Hadeed in upstream bulk production, and assessing new differentiated product facilities. Long-term strategic projects under evaluation include:

• Investment in mining in search of raw material cost optimization through the Takumal project – currently indicating good potential, with research continuing.
• Investigation into potential synergies with government and investment agencies, and opportunities for increasing local content in line with Vision 2030.
• Working with SABIC Manufacturing on a program to explore potential for synergies, and gains from digitalization and cost optimization initiatives.
• Assessment of new differentiated products for their alignment with customer needs and SABIC sustainability ambitions.

FINANCIAL HIGHLIGHTS

Metals Revenues amounted to SAR 8.99 billion in 2020, a decrease of SAR 1.80 billion or -17%, compared to SAR 10.79 billion in 2019. This was attributable to the decrease in average selling prices and sales volume by -5%.

Loss from operations for 2020 was SAR -1.57 billion, a decrease of SAR 0.57 billion or -57%, compared to SAR -1 in 2019. This was attributable to the decrease in the average selling prices and sales volumes by -5%.

OPERATING HIGHLIGHTS

MAINTAINING MOMENTUM

In production, our team developed and evaluated a new catalyst for use in direct reduction processes, and progressed another initiative aimed at recycling various by-products and waste materials.

Sustainability KPIs came under pressure this year due to a challenging market, but a major CAPEX program designed to improve natural gas metering capability, commissioned toward the end of 2019, promises improved control with a view to Saudi Energy Efficiency Center (SEEC) second cycle targets. A further plan is in hand to address gaps and achieve 2025 SEEC targets, along with programs to reduce and reuse waste materials, water, and heat, in line with our commitment to the circular carbon economy.

Despite an exceptionally difficult operating environment in 2020, morale remained high, as our people continued working on multiple fronts to improve operations and maintain momentum in our ongoing transformation:

• Targeted working capital efficiency, a new inventory aging management system was introduced to accelerate turnover and improve our cash position, helping achieve a 45% reduction in overage inventory over the year
• A new business continuity team was set up to address issues including upstream feedstock availability, engaging all stakeholders in decisions that helped limit production losses, boost exports to offset weak local markets, and synchronize plant shutdowns to bring semifinished product inventory in line with final product plants’ requirements
• New land transportation contracts were negotiated, saving 10% over the old contract prices and bringing a 5% overall reduction in conveyance costs as against 2019

Despite the impact of the pandemic, around 3 million metric tons of long product were supplied to over 80 cities locally and 19 regional and international destinations. Strenuous efforts to expand exports to offset weak regional demand paid off handsomely, exceeding the initiative target by around 70%, including record single quarter exports of 118,000 metric tons – three times the normal volume.

We set a significant record in wire rod sales with 1,091,000 metric tons sold, 18% higher than last year’s figure, and 7% higher than the previous record achieved in 2014. We also achieved the first successful processing of high carbon steel wire rods from coils at customer sites; and developed a variety of new wire rod grades and sizes.

In flat products, meanwhile, September 2020 saw the highest monthly sales since August 2015, with a total of 184,000 metric tons, with first-time sales to the key markets of Vietnam and China, and penetration of a new market, gas cylinders. 47,000 metric tons of aged slab inventory was successfully depleted, while effective utilization of free intermediate and finished inventory generated multi-million US$ free cash.

SAFETY AND SKILLS

Throughout the year of the pandemic, we continued to invest in our people and their safe wellbeing, maintaining the highest standards of safety, with our regular annual analysis helping identify improvement opportunities. A new program was introduced to help eliminate incidents, with four critical success factors identified: leadership and culture, people and organization, system and process, and workforce competency.

We introduced a new digital system to enable leaders to track individual employees’ development; saw 11 engineers graduate from the SEeD (SABIC Engineers early Development) program; conducted Antecedent Behavior Consequence Model training for leaders; and successfully completed the second phase of Hadeed SHEM (Safety, Health & Environment Management) Center.

LOOKING AHEAD

We are well prepared and in good shape for 2021 and beyond as we anticipate recovery in local demand as the world recovers from the impacts of the pandemic.

We will continue to improve the skills of our people, the efficiency of our production and the range of our products, with the aim of making considerable progress in export markets.