Benefiting from higher metal prices, company reported operational record in 2Q

08/12/2022

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Ricardo Carvalho — Foto: Ana Paula Paiva/Valor

Benefiting from higher prices, Companhia Brasileira de Alumínio (CBA) exceeded analysts’ expectations and reported a record operating result in the second quarter, despite the lower sales volume. One of the major producers of primary aluminum in the country, the company continues to expand capacity and is working on the development of a new alloy, to be used in the coating of electric vehicle batteries.

“Aluminum is in every application in the low-carbon world. It is one of the three metals that are most present in the applications of a greener, more sustainable world,” CBA CEO Ricardo Carvalho said. The name of the client for whom the alloy is being developed and the project schedule were not revealed. But the executive indicated that the challenge is to reach an aluminum sheet with mechanical characteristics suitable for use as a casing for lithium-ion batteries, for electric buses in this case.

For analysts, the convergence of the aluminum business with the low carbon economy is one of the company’s trump cards in the long term. BTG Pactual says that the recent hike in the metal prices will continue to pressure CBA in the stock market, but in the long term, the company still benefits from the energy transition, which will stimulate aluminum consumption.

From April to June, the company reported EBITDA of R$641 million, the highest ever and 73% stronger than a year earlier, and a net income of R$ 511 million, the second-highest ever.

The unprecedented result was sustained mainly by the increase in prices and premiums practiced by the company, which offset by far the advance in costs in the period. “Despite the volatility of aluminum, prices were 20% higher in the year-over-year comparison,” said Mr. Carvalho.

In a report, analysts with Itaú BBA pointed out that EBITDA was 12% above the bank’s estimate and the market consensus, in the wake of the better performance in the cost line and the stronger EBITDA in the energy unit.

As prices advanced to an average of $2,875 per tonne on the LME and premiums were higher in face of higher logistics costs and a tighter market, CBA’s net revenue grew 22% in the quarter, to R$2.33 billion.

According to Mr. Carvalho, the primary aluminum import quota in 2023, established by the government after calculations by the Brazilian industry, is expected to undergo a significant reduction with the resumption of production at Alumar and the increase in the company’s capacity.

“The quota reduction will certainly take place. The number is still to be determined in a work coordinated by Abal [which represents the industry], but the prospect is that there will be a relevant cut,” he said.

Brazil imports about 300,000 tonnes per year of primary aluminum and the resumption of production at Alumar alone practically covers this volume, Mr. Carvalho said, indicating that the quota could even be eliminated next year.

In this scenario, supply and demand are expected to balance in the domestic market. “There may be a need for small imports or exports, but the market will be more balanced,” he added.

According to CBA’s chief financial officer, Luciano Alves, the demand for aluminum in the Brazilian market continues to be affected by the reduction in purchases by the self-build and consumer goods industries, which last year benefited the most from the emergency aid paid by the government. “Home construction activity and consumer goods are still below expectations and, in our view, there will be no significant change,” he said.

As CBA’s production resumption was carried out earlier than expected in all the furnaces of line 3, which may reach full capacity at the beginning of 2023, the aluminum production will reach 380,000 tonnes per year, 30,000 tonnes more than the current volume.

More 50,000 tonnes of primary aluminum will be added in 2025, with the recently approved restart of the furnaces of line 1. This way, the company will reach an annual production capacity of 430,000 tonnes of aluminum, in addition to the more than 120,000 tonnes of recycled material used to obtain final products.

*By Stella Fontes — São Paulo

Source: Valor International https://valorinternational.globo.com/