Q2 2024 Earnings Summary
- Ferroglobe is poised to increase its U.S. ferrosilicon market share starting in early 2025 due to successful trade actions imposing tariffs on imports from Russia, Kazakhstan, Malaysia, and Brazil. U.S. steelmakers are already contacting the company to secure volumes for next year.
- Significant advancements in EV battery technology with Coreshell, where batteries containing 80% of Ferroglobe's silicon metal have achieved almost 1,000 charging cycles with 80% retention, paving the way for testing by OEMs and potential entry into the EV battery market.
- Expected positive impact on working capital and cash flow from strategic purchases of manganese ore ahead of price increases, with benefits anticipated to materialize in Q3 and potentially offsetting other business areas in Q4.
- Weaker demand and pricing expected in Q4: The company anticipates a weaker fourth quarter due to decreasing demand in most segments, including steel (with production down by 3.3% in the US), extremely weak aluminum markets in Europe, and a significant slowdown in the solar sector in Asia. Index prices have been weakening during Q3, leading to expectations of weaker volumes and pricing in Q4, which could negatively impact profitability.
- Increased Chinese overcapacity leading to low-priced exports: China has built overcapacity and is exporting aggressively at extremely low prices, resulting in increased silicon metal imports from China into Europe. This is negatively impacting index prices and causing greater competition in GSM's core markets. Additionally, Chinese exports are reaching the US via Angola, further pressuring prices and margins.
- Excessive ferrosilicon inventories in the US market: Massive imports of ferrosilicon from Russia, estimated at 120,000 tons (equivalent to one year's supply from Russia), along with increased exports from Kazakhstan and Brazil, have led to high inventory levels in the US market. Combined with an estimated 3.3% decrease in US steel production year-to-date, the market is stretched, leading to muted or depressed volumes for GSM's ferrosilicon products, which may negatively affect sales and margins until inventories normalize.
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Q4 Outlook
Q: Why is Q4 expected to be weak?
A: Demand is weakening in most segments. Steel production is down globally, with the U.S. in negative territory. Solar demand is slowing in Asia due to the dramatic growth of polysilicon prices and U.S. investigations, leading to delays in the solar supply chain. Index prices have weakened during the third quarter, so we're extremely cautious about Q4. -
Ferrosilicon Trade Case Impact
Q: Do you expect depressed ferrosilicon volumes in the U.S. this year?
A: Massive quantities of ferrosilicon have been delivered to the U.S. from Russia, estimated at 120,000 tons, which is a year's supply. Combined with increased exports from Kazakhstan and Brazil, and a 3.3% drop in U.S. steel production year-to-date, the market is stretched. Pricing has gone up based on authorities' announcements, but we don't see much liquidity yet. We're being contacted by steelmakers wanting to secure volumes for 2025. -
Chinese Overcapacity Effects
Q: How is Chinese overcapacity affecting prices?
A: China has built overcapacity and, due to their current crisis, is exporting extensively. Silicon metal imports from China into Europe increased significantly in Q2 at extremely low prices, impacting overall index prices. This affects mainly metallurgical silicon for aluminum. -
Share Buyback Plans
Q: Any thoughts on share buyback authorization?
A: Our AGM approved a share buyback program at the end of June, but we didn't have much time to react. Considering market conditions and our outlook for the second half, we want to take a conservative approach to preserve cash and liquidity, so we'll be prudent in using our cash for buybacks. -
Battery Technology Progress
Q: What positive results came from the Coreshell investment?
A: Our batteries containing 80% silicon metal have achieved nearly 1,000 charging cycles with 80% retention of properties—unprecedented results for us. This justifies moving toward producing pilot quantities for OEM testing. We're close to solving the swelling issue of silicon metal in batteries. -
Manganese Ore Stockpile
Q: When will stock costs normalize for manganese ore?
A: We've taken advantage in Q2, seeing the impact of higher manganese ore prices. We expect pricing to hold in Q3 with a positive effect on working capital, but the overall working capital release may be more in Q4.