When Al-Waleed bin Talal (who Time magazine called the Arabian Warren Buffett) cofounded Savola in 1979, he said he wanted the group to become the ‘Nestlé of the Middle East. It is now one of the largest food companies in the region and has branded retail vegoils in Egypt, Saudi, Algeria, and Turkey. The group owns Panda, the largest grocery retailing chain in the Middle East. It has been investing in food businesses in the past couple of years, buying Bayara in spices and nuts and Al Kabeer in processed and frozen foods. Savola has a pasta business in Egypt and will soon go into snacks.
The company owns and operates two sugar refineries, one in Jeddah, Saudi Arabia, and the other in Sukna, Egypt, as well as a 160,000 mt sugar beet factory in Egypt with 20,000 hectares of sugar beet.
Sherif Abdeen is the company’s Chief Strategic Sourcing & Supply Officer. He studied Economics at the American University in Cairo and joined Cargill in 2001. His first job with them was selling sugar locally to industrial users. He told me it was the most challenging job he had ever had as there were five or six millers all selling the same product. Cargill then transferred him to Geneva, where he spent a year and a half on the futures desk, surrounded, in his words, by the best traders in the business. He called his eighteen months in Geneva “the foundation of his career.”
Cargill then sent him back to Cairo as a sugar trader before transferring him to their Dubai office, where he spent eight years. He joined Savola in 2018, returning to Cairo and becoming the general manager for their Egyptian operations.
“I had four roles there,” he told me. “One was to run the 850,000 mt refinery. The second was to run the company’s Egyptian 160,000 mt sugar beet mill. The third was to manage beet production on 20,000 hectares of sugar beet. My fourth role was to manage the company’s sugar risk for Saudi and Egypt.
“It was challenging in Egypt to compete with the state-owned and private mills, where everything is in local currency. Still, we were able to switch almost 100 per cent of our raw sugar imports into white sugar exports to manage the forex issue.”
In March 2024, Savola promoted Sherif to his current position, overseeing sugar, vegetable oils, and wheat procurement for all of Savola’s assets, including the two refineries. Savola buys about 2.1 million mt of raw sugar per year: 850,000 mt for Egypt and 1.3 million mt for Jeddah in Saudi Arabia.
“Have you ever run out of sugar?” I asked him.
“We have never had a forced shutdown,” he replied, “but we have had to reshuffle our maintenance programs. We have at least 21 days of maintenance each year. When the market inverses are significant, we can wash out (sell back) our prompt vessels and bring forward the maintenance period.
“Our warehouse capacity is about 350,000 mt between the two facilities,” he continued. “We’re not like other Middle Eastern refineries with massive warehousing, but we don’t need it in our business model because we have a local market to trade. It helps us manage the pipeline more efficiently. We have a high market share in Saudi and Egypt.
“Both refineries run 90 per cent of the time at full capacity. Because of our size, we manage a vast pipeline. We used to buy one year ahead regardless of the spreads, with one or two monthly vessels for each, but we now manage the pipeline according to how we see the spreads moving.
“In 2020 and 2021, we had decent carrying charges and increased our stocks to the maximum. We saw massive inverses in the past three years and significantly reduced our stocks. When we do this, we risk running out of raw sugar if anything goes wrong with the next vessel.
“Still, we deal with top-notch suppliers, and it has never happened even though port congestion at load can cause long delays. Sometimes, vessels wait two months or more to load. However, we buy arrival windows, leaving it to the traders to take care of. We don’t charter vessels.
“We have been lucky that the high white premiums paid off most of the inverses in the past two years.
“In addition, we always have the option to part ship with our other assets to manage the pipeline. It is more cost-efficient to buy separately for each refinery. However, we always maintain the option of a second-port discharge if something goes wrong with any shipment.
“We used to buy every shipment based on a two-port discharge, but it costs us more as Jeddah has a shallower draft, and we have to take a smaller vessel. In Egypt, the largest vessel we’ve taken was an 87,000 mt Panamax, although the draft can take up to 100,000 mts. The maximum we can take in Jeddah is 50,000 mt. The draft is shallow, but the authorities are currently dredging the port, and in the coming 18 months, we should be able to take larger-sized vessels.
“Do you buy exclusively from Brazil, or have you taken other origins?” I asked.
“Mercosur origins benefit from a reduced import duty into Egypt. However, as you get the import duty back when you export, we can buy from anywhere.
“Saudi Arabia has no import duty on sugar. When Indian raw sugar was at a discount to Brazilian raw sugar, we bought and imported four or five cargoes. The quality and the price drive us. These are the two factors that matter to us. So, whatever we find an opportunity, we go for it.”
The world price of raw sugar is volatile. I asked Sherif how he managed to keep a stable refined sugar price for Savola’s customers.
“The Egyptian local market is not completely correlated with the world market,” he told me. “The country produces two-thirds of its consumption locally. Many variables impact the local price, including governmental sales of subsidised sugar through ration cards.
“The Saudi market is almost 100 per cent correlated to the world market, and the impact of the volatility is high. Most of our B2B clients in Jeddah buy on a premium basis, and we price them on a BEO basis. The customers take the price risk.
“We use various risk management tools, such as futures, options, and OTCs, for our B2C flat-price sales. We hedge and manage the price risk ourselves, and we price forward to ensure the visibility of our costs. In Egypt, we manage 100 per cent of our price risk ourselves.
“We export more from our production in Egypt than from Saudi Arabia’s. We are talking about 7-800,000 mt of collective export program between both. We use all modes of shipment. We sell from Jeddah to Jordan, Egypt to Libya, and Sudan by truck. We also book containers and charter vessels.
“If you got bullish on the market,” I asked, “would you price more than one year in advance?”
“No,” he replied. “We have a rigid risk policy. We are not traders. We are a manufacturing company. Our risk policy restricts the risk we can take, led by the treasury and the board committees. It governs how far forward we can buy and limits us to a maximum of one year. We have a rigid approval process regarding how, when and who we buy from. The refineries are not in the business of speculation.
“It’s the difference between trading and procurement,” he continued. “Procurement is about the process. Trading is about position taking.”
“What keeps you awake at night?” I asked.
“What worries me the most right now is what is happening in the Red Sea. It is an issue that can dramatically disturb our pipeline and our shipping programs. So far, it has had little impact, but it could quickly escalate.”
“Last question,” I said. “Do you have any advice you can give someone starting in the business today?”
“Mike Gorrell, one of my mentors at Cargill, once told me about the carpet rule of trading. He said a good trader can smell a good trade under a carpet but never hides a bad one. It is good advice.”
© Commodity Conversations ® 2024
This is an excerpt from my new book, Commodity Professionals—The People Behind the Trade, now available on Amazon.
