Aluminium prices hit six-year highs on the London Metal Exchange on Monday, after the metal prices saw its strongest trading week on record last week.
Aluminium price rocketed by 13% after the Trump administration announced sanctions on more than a dozen Russian entities, including Rusal, the world's second-largest aluminium producer. Rusal produces 40% of the world’s aluminium.
This came shortly after it imposed tariffs of 50% on Chinese aluminium imports. In addition, the largest plant for a key aluminum ingredient in Brazil has been partially closed amid accusations that a rainstorm led to contamination of an Amazonian river.
The US market is now facing a shortage of aluminium, which is pushing up prices – and SA exporters are benefiting.
The KwaZulu-Natal based aluminium rolling operation, Hulamin, has seen its share price climb by more than 20% over the past two weeks.
Its CEO, Richard Jacob, says prices for its products are rising as demand starts to exceed supply in global markets.
“We have started off the second quarter of this year with strong sales, at higher prices, particularly in our foil packaging products.”
Hulamin supplies overseas companies with ultra high-end aluminium products, which include parts for the electric car manufacturer Tesla. It is also the only supplier in the world that can produce plates for a crucial fitting that enables WiFi connections on airplanes.
In the past financial year, North America represented a fifth of Hulamin’s sales.
Another JSE-listed company that has benefited is South32, which was spun out of BHP Billiton in 2015. Australia-based South32 owns the Hillside aluminium smelter in Richards Bay, the largest producer of primary aluminium in the southern hemisphere.
“South32 is definitely making a solid profit at the current prices,” says Cassie Treurnicht, portfolio manager at Gryphon Asset Management. “BHP Billiton unbundled this business at exactly the wrong time.”
South32 gained 14% from its lows at the end of March. South32 and Hulamin have been under some pressure after the US government imposed a 10% tariff on the imports of aluminium from a number of countries, including SA, at the end of March. Previously, SA could export aluminium duty-free.
The SA government has requested an exemption from the tariffs from the US, and expects US President Donald Trump to take a decision before the end of April. Jacob says the tariffs have not yet affected demand.
“We are waiting for the dust to settle,” says Jacob.
Treurnicht expects Hulamin’s sales volumes to grow in coming months, but warns that investors need to factor in two large risks: “Electricity and the rand.”
“Electricity is a major input for smelters and Hulamin’s production, and large tariff hikes could have a massive impact on their input costs.”
As the company is an exporter of its final goods, potential rand strength is also a risk. The rand is already some 10% stronger than a year ago, Treurnicht added.