JSE-listed aluminium supplier and exporter Hulamin has declared a 77% decrease in headline earnings a share to 13c for the six months ended June 30, partly owing to the 7% strengthening of the rand against the dollar to an average of R12.30 in the period, compared with an average of R13.22 in the first half of 2017.
The company’s turnover, however, increased by 3% to R5.3-billion, compared with R5.1-billion in the first half of 2017, despite the stronger rand.
Earnings before interest and taxation (EBIT), at R99-million, decreased by 66%. This decline was driven by a sharply stronger rand and metal price lag (MPL) reversal of R103-million, compared with the prior period. EBIT before MPL decreased by 41% to R124-million.
Attributable earnings amounted to R42-million for the six months under review.
Hulamin CEO Richard Jacob said Hulamin remained on course during a challenging period, experiencing difficult trading conditions locally and internationally. Market conditions, including both currency and the London Metal Exchange (LME) aluminium price, proved particularly volatile during the period.
“We have maintained a flexible strategy that allows us to move between markets and products as one market tightens.”
He said that, while the situation in the US is volatile, owing to the imposed import tariffs on aluminium, and uncertain, owing to the tightening trade sanctions with China, Hulamin has other options.
“The South African economy, at the moment, is soft, but a lot of the trade actions in the US have been against China, taking Chinese supply out of the US market, which has created some niche opportunities for us and [an] ability to raise prices, despite the imposed aluminium tariffs,” he explained.
On the local front, Jacob told Engineering News Online that he does not see any green shoots at the moment for the aluminium industry, but he believes the local and regional markets will grow again and create more opportunity within the next year or two.
Total Hulamin sales volumes were down 4% in the six months to June 30, driven by lower extrusion volumes and a soft first quarter for Hulamin’s rolled products.
Volatility in Hulamin's markets was largely driven by sociopolitical changes in South Africa and by US government intervention in global metal markets globally. While Hulamin is not a producer of primary aluminium, short-term movements in the price of aluminium affect profits through a flow-through effect known as the MPL.
Following a period of tightening global aluminium supply through 2016 and early 2017, driving the LME aluminium price higher, this trend reversed through the first four months of this year.
The LME declined consistently through this period to a low point of around $1 950/t in early April, a fall of some $300/t.
This decline was suddenly reversed on the announcement of US sanctions
targeted at Russia, which placed pressure on primary aluminium supply from Rusal.
As a result, the aluminium price rose quickly and suddenly by about $650/t within two weeks. The price has since retreated to levels of around $2 100/t.
The net impact of this volatility was an MPL loss for Hulamin of R25-million for the six months under review, compared with a R78-million gain in the comparative period.
The imposition of US tariffs on aluminium in March had a major disruptive effect on imports into the US, which eventually turned net-positive for the pricing of Hulamin's general rolled products as supply out of China contracted, while demand remained stable.
In the majority of cases, Hulamin delivers its product to the port of entry into the US,
and its customers are paying the newly imposed import duties. Hulamin supplies foil, heat-treated plate, as well as standard coils and flat sheet into the US market, representing about 22% of Hulamin’s sales.