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Aluminum prices have surged yet again, breaking the ceiling of the USD2,800 per ton amid ongoing fears of tighter supply coinciding with rebounding demand. This comes post a coup that began in Guinea, sending fears of supply disruption, due to Guinea’s immense bauxite reserves. Moreover, power curbs in China, as well as drought in certain provinces there provided further boost to aluminum prices. However, some reports started to hint that supply is not expected to be that thin that justifies current price levels.
Here at home, this couldn’t be more perfect for Egypt Aluminum [EGAL], which is off to strong earnings, projected in 2021/22. The main downside risk for EGAL at such market price is the possible expiry of the electricity price cut decision, which was dated in April 2020 for 5 years to come. We believe that given the rally that took place in EGAL’s share price, the only thing that justifies EGAL current price levels is the continuation to receive electricity at EGP1.01/kWh post the year 2025, assuming global aluminum price normalization.