Hulamin blames strong rand, LME price for results
But decline reversed by US-Russia sanctions
JSE-LISTED aluminium supplier Hulamin yesterday blamed the strengthening of the rand and the decline of the London Metal Exchange (LME) aluminium price for the negative results during the six months to June.
The group said the LME eased consistently during the period to a low point of about $1 950 (R25 628) a ton in early April, a fall of about $300 a ton, while the rand strengthened to R12.30 to the dollar.
It said the net impact of this volatility was a metal price lag (MPL) of a R25 million loss during the period compared with a R78m gain last year.
However, the group said the decline was 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 approximately $650 a ton within two weeks,” Hulamin said. “The price has since retreated to levels of around $2 100 a ton.”
The group said the improvement in aluminium price had given it confidence that the second half result could improve. However, it flagged the rand’s strength, which has picked up steam from last week’s investments from China as reason for concern.
The rand gained 0.0201 percent against the dollar and was at R13.1441 at 5pm yesterday.
Analysts said yesterday that foreigners bought R6.2 billion worth of South African bonds in the past week.
Investec’s Annabel Bishop said while concerns remained on the country’s economic growth, a subsidence in global risk aversion saw foreigners take up debt on still favourable rate differentials, despite South Africa’s benchmark gilt differential with the US treasury dropping to 5.82 percent from 6.18 percent in the third quarter.
“While rand volatility is likely in Q3.18, particularly if US led trade, and geopolitical, tensions flare up again, the domestic currency could prove less volatile than in Q2.18 as significant portfolio rebalancing has already occurred,” Bishop said. “However, if global trade tensions advance into an actual trade war, the rand is likely to move into the down case, with R15/dollar in Q3.18, versus the expected case of closer to R13/dollar.”
Hulamin said sales volumes declined 4 percent, driven by lower extrusions volumes and a soft quarter one in Hulamin rolled products.
It said this drove its headline earnings a share down 77 percent to 13 cents, from 56c last year.
Revenue was up by 3 percent R5.3bn, up from R5.1bn, while earnings before interest and taxation declined by 66 percent to R98.5m, down from R286.4m.
The group said the decline was driven by a sharply stronger rand and MPL reversal of R103m.
Ebit before MPL decreased by 41 percent to R124m while the rand was 7 percent stronger as compared to the dollar at R12.30, compared to last year’s R13.22.
The group did not declare dividends in line with its policy to declare on the annual results.
Chief executive Richard Jacob said Hulamin remained on course to rebound, despite difficult trading locally and internationally.
“Market conditions, including both currency and the LME aluminium price proved particularly volatile during this period under review. Uncertainty around vacillating US trade actions affected our products directly,” Jacob said.
The group said its markets were driven by socio-political changes in South Africa and US interventions.
“The imposition of US tariffs on aluminium in March 2018 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,” the group said.
Hulamin shares closed 8.48 percent higher at R4.99 on the JSE yesterday.