A sharp decline in demand in the US common alloy market following overstocking, as well as a reduction in demand for heat-treated plate, has had a severe impact on the financial performance of Hulamin’s rolled products division in the first half of the current financial year.
The JSE-listed aluminium producer, which on Friday announced that it expected to report lower earnings for the interim period to June 30, noted that it had become apparent that the imposition of duties on Chinese common alloy in 2018 had prompted unusually strong buying in the US market which resulted in extensive import overstocking, exacerbated by increased availability from US rolling mills.
Destocking in this market, with attendant lower prices, was expected to continue through the second half of the current financial year.
Further negatively impacting on Hulamin’s performance in the interim period was a global slowdown in automotive production, resulting in a 30% reduction in Hulamin’s sales volumes to automotive component customers.
In addition, the slowdown in European manufacturing, which had also seen an increase in the influx of Chinese aluminium imports, and tough economic conditions in the domestic economy, constrained Hulamin from selling additional production into these markets.
In contrast, demand for can stock, which represents around 45% of the sales volumes of Hulamin’s rolled products division, remained robust in the local and international markets.
However, the rapid reduction in non-can stock demand, as well as the associated impact on rolling margins, has had a large negative effect on operating profit in the first half, as well as on working capital, with inventory (in tons) having increased by more than 30% since the beginning of the year owing to fixed metal procurement commitments.
In response to these conditions, Hulamin is aggressively pursuing alternative market
opportunities and taking cost reduction actions. It is also reducing its working capital.
These actions are expected to positively impact Hulamin’s financial performance during the 2020 financial year.
Meanwhile, Hulamin Extrusions recorded a large operating loss in the first half of this financial year, following the disruption to the business arising from the failure of a major component of its largest extrusion press.
A restructuring programme is under way and a replacement component has been ordered.
Given the difficulties it had faced during the first half of the current financial year, Hulamin expects to report a 200% year-on-year decrease in earnings a share and headline earnings a share.
Normalised earnings a share are expected to be 25% lower year-on-year.