Notwithstanding higher production, a higher sales turnover and stronger exports, Oman’s National Aluminium Products Company (Napco) saw net profits plunge during 2004 with raw material prices firming up during the year.

Stiff competition was also a factor in the downslide as the company could not utilise fully the additional capacity it created through a new extrusion plant just before the start of 2004.
Napco posted a net profit from operations of RO97,000 ($252,000) compared with the previous year’s figure of RO176,000.
“The board and management are duly concerned about various adverse factors such as fluctuating raw material costs, heightened regional competition and business cycle downturns which adversely affected margins during the year,” chairman Shabir bin Moosa bin Abdulla Al Yousef told shareholders.
But despite the daunting conditions, the company could achieve what could be termed “reasonable results, especially when compared to the general industry performance,” he said.
The company produced 11,043 tonnes of extrusions at its facilities in the Rusayl Industrial Estate, near Muscat city, while sales were 10,881 tonnes, a 23.80 per cent increase compared with the previous year’s figure of 8,789 tonnes. Sales revenues were RO11.5 million, up 31.69 per cent over the previous year, and market share in Oman continued to be strong at 60 per cent. Export sales were RO9.8 million with non-GCC markets constituting almost 35 per cent of the turnover compared to the previous year’s figure of 28 per cent and testifying to a widening of the export base. Destination markets now cover the GCC region, Africa, Europe, Southeast Asia and the US.
Al Yousef said the expanded production capacity would henceforth enable the company to progressively achieve better cost-competitiveness through economies of scale, acquire contemporary technologies in manufacturing and be in a position to offer a wider product range.
“The company is also simultaneously evaluating and implementing various options aimed at enhancing higher value addition to its product lines,” he said. “Adoption of appropriate aluminium hedging strategies has been initiated and these are expected to reduce the vulnerability to raw material cost fluctuations.”
The new extrusion plant was commissioned in December 2003, bringing total production capacity to 18,000 tonnes per year (tpy) against the earlier level of 8,500 tpy. The company’s two extrusion presses are from DMS Hansclever of Germany (2,000 tonnes) and Danieli Breda of Italy (2,800 tonnes). The company uses alloy series AA 6000 in its extrusions.
Complementing the extrusion presses are two anodising lines with a capacity of 5,000 tpy and a powder coating plant from Ercon, UK 6,000 tpy. It also has a wood/marble finish (Naturall) powder coating plant from Eurallaca, Italy.
Napco is the sole licencee for Wicona systems in the Gulf. Wicona has been a leading international brand for innovative aluminium architectural systems of Hydro Building Systems, whose technology centre is based in Germany. It has also tied up with Brital of the UK and has developed its own brands, for example Al Sadd for windows and kitchens.
Napco is accredited to ISO 9001:2000 by Ukas (UK), Ansi-Rab (USA) and RVA (Netherlands).
Al Yousef said the company was hopeful it would grow both in terms of size and profitability in the coming years with its diversified export markets and continued focus on value-added products.
“If oil prices remain healthy, the building and construction industry in the GCC will remain on a growth path too,” he said.    The chairman noted that the aluminium extrusions business in the GCC region was a mature industry and would remain extremely competitive.
“Existing capacities coupled with those under implementation will be well in excess of projected regional demand. The scenario is not new and has persisted for the past several years. Consequently margins will continue to remain under pressure.”
According to Napco estimates, the GCC region had until recently 12 extrusion companies with an estimated production capacity of approximately 190,000 tpy.  There are now 18 extruders and the total capacity is estimated at around 240,000 tpy with actual production estimated at 190,000 tpy. Capacity is expected to be augmented during 2005 and 2006 thanks to healthy demand from the construction boom in the region.
A management analysis report saw rising and fluctuating aluminium prices as a major threat to profitability.  London Metal Exchange (LME) prices rose to levels not witnessed in years, touching a high of $1,964 per tonne at the end of December and showing a monthly average of $1,850 per tonne, an increase of almost $250 per tonne.
The company could withstand the extreme conditions from higher metal prices and tougher competition to some degree in the short run through improvements in operational efficiencies and adopting effective aluminium hedging strategies.  Effective capacity utilisation during the year was around 61 per cent. The company expects this figure to pick up during 2005.