Aluminium group Hulamin says a full order book and a more than tripling of its profits in 2021 have given it reasons for optimism, but it has decided to hold onto its dividend for 2021 due to the threat posed by surging commodity prices on its cash flows.
Russia’s war with Ukraine has prompted a crisis in energy markets and surging metal prices, CEO Richard Jacob told Business Day, providing reasons for caution, even though no physical disruption to the flow of inputs or products is expected.
While Hulamin is feeling more confident than it did a year ago, the availability of working capital is a concern, he said, with metal prices rising in 2022 in the wake of Russia’s invasion of Ukraine to new records, having already more than doubled in rand terms in 2021.
“We really have to be extremely vigilant in terms of our liquidity. Our focus is on moving inventory through the business quickly, our ability to secure optimum payment terms from our suppliers, and the shortest possible payment terms from our customers,” he said.
Hulamin had significantly benefited from rising metal prices in 2021, and headline earnings surged to R560m in its year to end-December from a R220m loss in the prior year.
The group benefited from growing beverage can demand amid a glass shortage in SA, which accounts for almost half of its revenue, and a global trend away from single-use plastic containers towards recyclable options.
Group sales volumes grew more than a third to 220,000 tonnes to end-December, and normalised core profit, which excludes the lag effect of metal prices on its inventory, jumped 254% to R154m.
The lag effect refers to the timing difference between acquiring aluminium and then selling value-added products weeks later when metal prices may have changed. This effect positively contributed R425.9m to headline earnings in the group’s 2021 year.
Hulamin buys primary aluminium and supplies a range of high-value, niche rolled products and complex extrusions, with aluminium rolling — the uses of which includes cans — accounting for more than three-quarters of revenue.
Hulamin has been benefiting from growing global can demand over the past two to three years, while in SA, demand has been given another bump from a local glass shortage. This has been blamed on factors including the series of alcohol bans, while manufacturers have also cited a trend of consumers switching to premium products, which often come in non-returnable bottles.
Local demand remains buoyant, Jacob said with Hulamin now focusing on optimising factory throughput and closely managing working capital.
“The order book is full for 2022 and we are already contracting business for 2023 and beyond at measurably higher prices,” he said.
Aluminium production is particularly energy intensive, with Russia accounting for about 6% of global supply before it invaded Ukraine, along with being a major exporter of oil, coal and natural gas.
London Metal Exchange aluminium had ranged from between $2,000 a ton to $3,200 in 2021, but prices jumped in the wake of the Russian invasion, briefly rising above $4,000 earlier in March.
Aluminium was trading at about $3,600 on Monday afternoon, and in 2020, it had ranged from between $1,700 to $2,000 a ton.
Hulamin’s share price rose 2.81% to R4.47 on the JSE on Monday, giving it a market capitalisation of R1.541bn. The share price has gained nearly 90% in the past year.
Update: March 28 2022
This article has been updated with additional information throughout.
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