The prospect of a rebound in steel demand and lower energy costs are making Cia. Minera Autlan SAB the best-performing stock among global industry peers.
Shares in North America’s largest manganese ferro-alloy producer surged 30 percent since April 3, when the San Pedro Garza Garcia, Mexico-based company said first-quarter sales volume probably jumped 44 percent and earnings before interest, taxes, depreciation and amortization may have doubled. That’s the biggest gain among 15 similar companies tracked by Bloomberg. They averaged a 3.5 percent drop in the same span.
Autlan, scheduled to report earnings tomorrow, is benefiting from an increase in prices for processed manganese used by steelmakers including ArcelorMittal as U.S. demand picks up, according to Alik Garcia, an analyst at brokerage Intercam in Mexico City. At the same time, the company is increasing output of unprocessed manganese and its own electricity generation to contain costs.
“Prices look to have bottomed out and Autlan is primed to benefit as they move back up,” Jean-Baptiste Bruny, a BBVA Research analyst, who has the equivalent of buy rating on the stock, said by phone from Mexico City. “The company is seeing positive results in the mining sector with some new opportunities in energy in the mid to long term.”
Bruny is the most accurate of three analysts tracked by Bloomberg covering the stock. Vector Servicios Financieros also has a buy recommendation while Eva Dimensions’ rating is the equivalent of sell. The stock is trading at 31 times estimated profit, double the peer-group average.
Autlan forecast in a regulatory filing earlier this month a 32 percent rise in first-quarter net sales from a year ago.
Higher magnesium exports combined with revenue from the company’s energy unit probably pushed up operating income and Ebitda by 386 percent and 109 percent, respectively, it said. Besides exporting to the U.S., Autlan sells to steelmakers in Mexico, including units of Ternium SA and ArcelorMittal.
Autlan is positioning itself to benefit from legislation to end Mexico’s state electricity monopoly.
In January it reached an agreement to take control of hydroelectric plant operator Cia. de Energia Mexicana. The company plans investment in wind and hydroelectric plants to generate as much as 200 megawatts by 2018, Chief Financial Officer Gustavo Cardenas said in an interview with El Financiero last month. Producing its own power would shield the company from price swings.
Autlan wants to generate 75 percent of its power needs and sell electricity to third parties, newspaper La Reforma quoted Cardenas as saying last month. The company didn’t respond to interview requests or e-mailed questions from Bloomberg.
While energy cost savings will help, the sustainability of Autlan’s rally hinges on further stabilization of ferro-alloy prices, such as silicomanganese, which is used as a deoxidizer and alloying element in steel, Intercam’s Garcia said.
The price of hot-rolled coil steel is up 3.3 percent in the past month in New York, reducing a year-to-date decline to 2.2 percent. China’s steel reinforcement-bar spot price is down 4.7 percent this year.
Futures declined yesterday after a report that banks in China will raise the cost of financing for purchasing iron ore. Chinese steelmakers’ profit will improve this quarter compared with the first quarter, China Iron and Steel Association said in a statement on its website yesterday.
“Autlan is a beneficiary of the ferro-alloy price increase and of higher production volume amid a gradual recovery of the steel industry in Mexico and the U.S.,” Garcia said. “We want to see exactly what the reason for the price increase was, as well as what the future performance of China will be. China’s economy is very important in determining how Autlan will fare.”