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MYTILINEOS | Riding the aluminium wave

Stock weighed down by energy crisis concerns, ignoring soaring aluminium – Mytilineos’s shares have lost c8% since the end of August, weighed down by concerns regarding the impact of the energy crisis on EU power companies. The market seems to completely ignore soaring LME and aluminium premia, which have led to “all-in” prices well above 3,000 $/Ton, signaling strong performance ahead for Mytilineos’s Metallurgy segment (>50% of group EBITDA in 2022e). Mytilineos’s performance is more in sync with that of EU power companies (c5% decline over the same period) and less so with that of global aluminium producers (+4%).

Tight demand/supply dynamics for the aluminium market… – Aluminium prices have soared to multi-year highs, driven by rising demand combined with concerns over supply in China and political unrest. Economic recovery, supported by stimulus packages, has led to increasing demand across various sectors (packaging, construction, automobiles). On the supply side the market has moved from excess capacity in previous years to tighter demand/supply dynamics. A coup in Guinea threatened to delay bauxite projects, while China’s environmental policy action has restricted output, leading to concerns regarding supply bottlenecks in 2022.

… with structural drivers likely to sustain bullish trends – Against this background, inventories in LME-registered warehouses have declined by more than 30% since March. As such, aluminium prices have been rising steadily, touching 3,000 $/Ton in September, while premia have also more than doubled ytd. Given that the economic recovery is expected to accelerate, demand for aluminium is rising and supply is tight, bullish trends in aluminium prices should continue. This is even more so the case given the pursuit of net-zero policies globally which provides further structural support (consensus for LME at >$2,500/tn in 2023e). Expecting that next year’s volumes are almost fully hedged at highly favourable prices, we now see c24% EBITDA CAGR for Mytilineos’s Metallurgy segment in 2020-2023.

Rising energy input costs largely offset by natural hedging and aluminium trends – On Power & Gas, rising gas and CO2 costs are certainly a drag, but the group’s natural hedging (c15% mkt share in generation vs.