KEY THEMES
Iron ore prices continued to drift downward, scoring a low on August below USD160/ton, before regaining some ground last Friday. The strong declines seen over iron ore prices represent a continuation to the direction that formed since last May. The reason for August’s stiff slippage is China’s steel output curb, as part of the Chinese government de-carbonization efforts, forcing steel mills to operate at low utilization rates, resulting in weaker steel output in H2 2021. Weaker iron ore prices should later support Ezz Steel [ESRS] cash spreads, given solidified steel selling prices.
Elsewhere, aluminum prices remained solid during H2 2021, on the back of yet another subdued output from China. Weaker chinses production is caused by power shortage, especially in Chinese Yunnan province. This comes due to the fact that most of the electricity used by aluminum smelters in Yunnan is generated through hydropower sources, at a time where a drought has weakened Yunnan’s hydropower capacity. We believe tight global supply of aluminum, could fuel prices for the remainder of 2021, and a good portion of 2022. This should bode well for Egypt Aluminum’s [EGAL] financial performance in 2021/2022. However, at a price above EGP20/share for EGAL, we believe the stock could be more than reflecting the current rally in aluminum prices.