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Aluminium Bahrain: Q1 22 preview – Aluminium outlook weakens but expect robust results

  • Aluminium Bahrain (Alba) will report its Q1 22 results on 12 May. We expect adjusted net profit of BHD210mn

  • Alumnium prices are cooling off their record highs – the outlook has been hit by China lockdowns, rate hikes and the war

  • Alba is up 59% ytd to BHD1.27, after an all-time high of BHD1.64 in March. We have a target price of BHD1.5 on the stock

Aluminium Bahrain: Q1 22 preview – Aluminium outlook weakens but expect robust results
Janet Ogabi
Janet Ogabi

Senior Research Analyst

Tellimer Research
11 May 2022
Published byTellimer Research

Aluminium Bahrain (Alba) will report its Q1 results on 12 May. We expect another strong performance, buoyed by high aluminium prices. LME aluminium spot prices hit record-high levels in March, with a closing price of US$3,877/mt on 4 March. Alumina prices over the period were c12% of aluminium prices, printing at an average of US$365/ton.

We expect the company to post net profit (adjusted) of BHD210mn for the quarter, compared with BHD181mn in Q4 21 and BHD52mn in Q1 21.

Aluminium Bahrain (ALBH or Alba) shares have gained 59% ytd, hitting an all-time high of BHD1.64 in March. The gain this year is already higher than the total 56% recorded in 2021, which we described as a good year for shareholders.

However, similar to the trend in global LME aluminium spot prices, gains in the stock pared after the spike in Covid cases in China raised bearish concerns around demand. We have a target price of BHD1.50 on the stock, up from BHD0.91 in our previous report.

Alba, aluminium and alumina price returns (%)

China Covid lockdowns, rate hikes and Russia-Ukraine war mean gloomy outlook for aluminium prices

Aluminium prices have dropped since hitting record levels in March, as bearish global events offset the positives on which the industry has been riding:

  1. The spike in Covid cases in China led to regional lockdowns and soured the narrative on the demand outlook from the region;

  2. The US Fed hiked rates by 50bps, the biggest rate increase since 2000, with more to come. This led to a stronger dollar, making commodities priced in dollars more expensive to purchase; and

  3. The ongoing Rusia-Ukraine war has also dampened the economic outlook globally, particularly in Europe.

These continuing factors are likely to increase downward pressure on aluminium prices in the near term.

China remains the centrepiece of the global aluminium market, being both the world's largest producer and consumer of the metal. As my colleague, James Huckle, mentioned in his recent report, the regional Covid lockdowns in China could seriously impact local demand for aluminium, forcing China to start exporting it more heavily and likely putting a dent in the price.

Aluminium market is back in net surplus

According to the latest reports from the World Bureau of Metals Statistics, market fundamentals also soured over the first two months of 2022. The market recorded a net surplus of 342kt in January and February, after recording a 11,677kt deficit in FY 21. Global demand for primary aluminium was 10.69mn tonnes, 440kt less than in the comparable period in 2021, while global production also declined 0.4% over the same period. Total global aluminium inventory was 1,032.2 kt at the end of February, lower than 1,213.4kt at the end of 2021.

Alba Q1 2022 results projection: Sturdy profits

We project Alba's sales in the quarter will print at BHD477mn, largely driven by the increase in LME prices, while volumes were stable, with plants producing at near-full capacity. For comparison, sales were BHD295mn in Q1 21 and BHD531mn in Q4 21.

Regarding costs, alumina prices relative to aluminium printed lower, at 12%, in Q1 22, compared with 15% in Q4 21 and 14% in Q1 21. Also, thanks to favourable government energy contracts, Alba was shielded from the global energy price spikes in Q1, as gas contracts were locked at US$3.75/mmbtu until April, when prices increased to US$4/mmbtu. Thus, we expect gross margins will print at 51% in the quarter, compared with 42% in the previous quarter and 25% in the comparable period last year.

Overall, we expect net income of BHD210mn in the quarter (Q4 21: BHD181mn, Q1 21: BHD52mn).

Aluminium Bahrain quarterly highlights

This report has been commissioned by Aluminium Bahrain (Alba) and independently prepared and issued by Tellimer for publication. All information used in the publication of this report has been compiled from information provided to us by Alba and publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Tellimer at the time of publication. The sponsor has had no editorial input into the content of the note, and Tellimer's fees are not contingent on the sponsor’s approval of the research.