keywords :
Paris, 28 April 2020, 7:30 a.m.
PRESS RELEASE
Eramet: Q1 2020 sales of €774m, down 11%, affected by the decline in material prices
Christel Bories, Eramet Chairman and CEO:
"The impact of the pandemic on our first quarter sales is limited. As soon as the Covid-19 spread around the globe, our priority was to protect the health and safety of our employees, their families and our communities. We created a solidarity plan with a specific budget allocation in addition to our internal initiatives.
The situation for our operations varies according to country. However, we have achieved new operational records in our mining activities as well as continued our work to prepare Weda Bay Nickel’s start up. In March, activities in France for the High-Performance Alloys division were affected by the implementation of health protocols at the plants. They are now penalised by a strong slowdown due to the effects of the pandemic on their end-markets. We are closely monitoring in a responsive way the development of the situation on a daily basis in order to ensure continuity in our operations. We have adopted immediate measures to reduce our costs, limit investment and preserve our cash, and we are doing everything possible to safeguard jobs.
It is too soon to assess the impact of the health crisis on business in the quarters ahead. I commend the exemplarity and commitment of our teams who are adapting and riding out this unprecedented situation with a strong cooperative spirit."
Safety is the Group’s top priority. Faced with the pandemic, Eramet is fully committed to protecting the health of all its employees as well as their families. The Group is also committed to ensuring business continuity as far as possible by adapting organisations working closely with employees, suppliers and customers.
The Group’s Executive Committee holds a daily crisis meeting to adopt all necessary health and operations measures, specifically complying with those provided by public authorities.
Working alongside our occupational health team and following discussions with staff representatives, we have rolled out sanitary protocol at all our sites to mitigate the risk of infection at the workplace. As a consequence, operations have since been able to continue or gradually resume after a temporary shutdown, as observed in some of the High-Performance Alloys division sites in France. We have applied stringent guidelines order to comply with health regulations (social distancing, use of masks, and washing and disinfecting following good hygiene practices).
On the Group’s tertiary sites, we have implemented remote working for all office employees whose jobs allow.
Parallel to this, the Group remains highly focused on accidents in the workplace. The rate (TRIR1) stood at 4.1 year-on-year at end-March 2020, steadily declining for several quarters (-24% versus 2019).
Operating activities
As regards the Mining and Metals division, all Group sites are open and fully operational to date in a fast-changing environment. All the division’s mining centres and plants are operating at nominal production levels. In Indonesia, the schedule for ramping up production at the Weda Bay plant in H1 2020 is maintained. Overall, in all divisions, first-quarter deliveries were made with satisfactory volume levels. However, it remains very difficult to plan ahead for developments of the health crisis in each country and in terms of customers’ business levels over the coming months.
Regarding the High-Performance Alloys division, following the implementation of health protocol, Aubert & Duval’s plants are running at an operating rate of about 65% to date. The latter will be revised according to changes in customer demand and an analysis of their markets. Erasteel’s plants’ operations are more contrasted: high-speed steels produced by power metallurgy recorded good levels of activity; conversely, conventional high-speed steels were deeply affected by a decline in customer order intake.
Business measures and Group’s cash preservation
The Group has strengthened and accelerated all measures taken to preserve cash in order to ride out this health crisis of unprecedented scale and whose length is uncertain.
A dedicated committee strictly and regularly monitors all operating expenses.
Some sites in France have used partial unemployment arrangements for some services in order to limit the economic impact of the activity slowdown.
Capital expenditure has been cut; beginning of April, the Group announced not to engage the construction of its lithium production plant in Argentina.
Moreover, as announced on 19 February, a proposal not to pay out any dividends will be made at the Shareholders’ general meeting held on 26 May.
As of 31 December 2019, the Group had liquidity of €2.3bn, including credit lines that had not been drawn down at that date for €1.5bn. During the first quarter, all those credit lines were drawn down as a precaution and the Group maintained a high level of cash.
| (Millions of euros)1 | Q1 2020 | Q1 2019 | Change (€m) | Change2 (%) | |
| MINING AND METALS DIVISION | |||||
| Manganese BU | 359 | 434 | (75) | -17% | |
| Nickel BU | 151 | 164 | (13) | -8% | |
| Mineral Sands BU | 70 | 59 | 11 | +19% | |
| HIGH-PERFORMANCE ALLOYS DIVISION | |||||
| A&D and Erasteel | 196 | 217 | (21) | -10% | |
| HOLDING COMPANY & ELIMINATIONS | (2) | (1) | (1) | n.s. | |
| ERAMET GROUP | 774 | 873 | (99) | -11% | |
1 Data rounded up to the nearest million.
2 Data rounded up to higher or lower %.
N.B.: all the commented changes in Q1 2020 are calculated with respect to Q1 2019, unless otherwise specified.
In Q1 2020, the Group’s sales totalled €774m, down 11%. At constant scope2 and exchange rates2, the change in sales declined 14%, mainly owing to an unfavourable price environment for the manganese activity and the decline in sales at Erasteel.
Manganese BU
Manganese BU sales, which represent about 46% of the Group’s consolidated sales, fell by 17% to €359m in Q1 2020. The growth in sales’ volumes (+29% for manganese, +3% for alloys) partly offsets the decrease in selling prices, which was particularly strong for manganese ore (-41%).
Market trends & prices
Global production of carbon steel, the main outlet for manganese, slightly decreased at 447 Mt3 in Q1 2020, down -0.8%3 vs. Q1 2019 (-2.7%3 versus the last quarter in 2019). Production in China (52% of global production) was up (+1.4%3), despite the development of the pandemic. This resulted in a build-up of steel inventories in China which started to decline at end of Q1. As for the rest of the world, steel production, which had already been considerably impacted by the downturn in the automotive sector, slowed
(-3.1%3),with contrasted changes for each region (-7.2%3 in Europe, -5.3%3 in India and -4.0%3 in North America).
Manganese ore consumption declined by -3.8%3 vs. Q1 2019. Ore production adjusted down -4.1%3. This means there is still a slight surplus in supply/demand balance. At 31 March inventories in Chinese ports are slightly up at 5,8 Mt equivalent to approximately 10 weeks’ consumption. These stocks are including 1,1 Mt of ore in bonded warehouses which were not accounted before.
CIF China 44% manganese ore market prices decreased significantly in the first quarter (average price of
USD 4.4/dmtu4) versus the same period last year (USD 6.6/dmtu4, representing -33.8%5,6). However, prices recovered (+7.8%5) compared with the last quarter of 2019 (USD 4.0/dmtu4 on average).
The fall in prices has also been more marked for Eramet, whose sales in January and February were signed on the basis of spot prices at lower levels in December 2019.
In a market environment that remains penalised overall by the sharp slowdown in steel production in Europe, amplified by the health crisis, market prices for main alloys declined in Europe by -6%5 for silicomanganese and by -10%5 for ferromanganese in the first quarter. However, they rebounded slightly on the last quarter of 2019 (+3.7%5 for silicomanganese and +3.2%5 for refined ferromanganese), factoring in limited production for the sector in Europe.
Activities
In Gabon, manganese ore production at Comilog once again achieved quarterly record levels at about
1.3 Mt (+28% versus Q1 2019). Transported manganese ore volumes also increased by 25%, owing to an improved logistics performance. External sales volumes were up considerably, to about 1 Mt (+29%) over the period.
Manganese alloy production rose to 196 kt, up +3% vs. Q1 2019 (+20% compared with Q4 2019), reflecting nominal production levels at the Group’s plants. Alloys’ sales volumes also increased by +3%, driven by the sale of standard products.
Outlook
Steel production has been strongly impacted since the spread of COVID-19 across the globe, and western producers have announced large-scale production cuts which should weigh on the manganese ore and alloys demand. As regards supply of ore and alloys, some producing countries have also been forced to stop or substantially limit their mining or metallurgical industrial activities. This scenario applies to South Africa, which accounts for c.40% of global ore production (seaborne). However, the length of such limitations remains uncertain.
In the context of unstable supplies and reduced demand, the evolution of manganese ore prices remains uncertain: markets have observed a significant increase in average market prices in mid-April, at more than USD 5.5/dmtu.
Nickel BU
The Nickel BU’s sales ended at €151m in Q1 2020, down 8%. At SLN7, sales fell 10 % to €132m. The strong increase in nickel ore exports combined with high ore prices only partially offset the decline in ferronickel sales. The latter simultaneously reflected the decrease in volumes sold and a decline in selling prices. Ferronickel has indeed been sold at a large discount applied to the LME in first-quarter 2020. Sandouville’s sales remained stable, ending at €18m.
Market trends & prices
Due to the downturn in the automotive sector and the health crisis in Asia, global stainless steel production, which is the main end-market for nickel, contracted sharply vs. Q1 2019 ending at 10.9 Mt8 (-12.1%). This change was observed in both China (-6.0%8) and the rest of the world (-18.8%8), specifically in Indonesia (-9.8%8). The decline was even more marked versus Q4 2019 (-15.5%8), particularly in China (-19.3%8).
Demand for primary nickel was down 13.5% to 508 kt8.
Conversely, primary nickel production increased in Q1 2020 compared with last year to 569 kt8 (+2.9%), propelled by continued growth in NPI9 production (+15.2%8), driven by Indonesia in the context of the ban effective since 1st January10 (+53.4%8).
The nickel supply/demand balance is now in surplus by about 60 kt8, resulting in an increase in stocks at the LME11 and SHFE11 at end-March 2020. Stocks now total more than 250 kt (+35% versus end-2019), representing approximately 10 weeks’ consumption.
The average LME price was USD 5.8/lb in Q1 2020, up 2.7%12 on prices in Q1 2019 at USD 5.6/lb, and down 17.2% versus Q4 201913. Furthermore, considering the fall in demand for stainless steel, ferronickel was sold at a very significant discount compared with the LME price during the period.
In contrast, following the Indonesian ban, effective as of 1st January 2020, the price of nickel seaborne ore (1.8% CIF China) grew considerably, amounting to USD 67.7/wmt14 on average in Q1 2020 (about +32%). Nonetheless, the price decreased by about 7% vs. Q4 2019.
Activities
In New Caledonia, the implementation of SLN’s new business model remained successful in the first quarter. Mining production delivered a record first-quarter performance, ending at 918 kwmt, up +5%. Despite the early year impact of social unrest at the loading port of one of the mining centres, low-grade exported ore volumes increased by 41% to 331 kwmt.
Ferronickel production at the Doniambo plant decreased by 1% to 12.1 kt, supply to the ore smelting furnaces being still impacted by the grade of ore delivered to the plant, which was too low. Ferronickel sales were also down (-3%) to 11.6 kt.
Cash-cost2 came out at USD 5.2/lb in the first quarter, in marked progress versus Q1 2019 (-11%)