EUR 100.00 For Business Accounts Only

IBERIAN DAILY 09 MARCH (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACERINOX, ELECTRICITY SECTOR, IBERDROLA, OHLA, TELECOM SECTOR.

Europe lurching
In view of the lack of progress in the Russia-Ukraine conflict, international sanctions against Russia increased (Japan imposed new sanctions and the US banned importing Russian oil) while the EU is deciding on an historic reform of the energy market. Thus, it was another highly volatile session, with the Euro STOXX closing with slight gains, and where Retail and Insurance were the best-performing sectors, compared to Media and Food, which brought up the rear. On the macro side, in the euro zone the final 4Q’21 GDP confirmed the preliminary reading, with growth reaching +4.6% YoY. In Spain, January’s industrial output sped up less than expected. In Japan, the final 4Q’21 GDP was cut unexpectedly. In China, as expected, inflation remained at 0.9% YoY in February and production prices slowed their advance. On the geopolitical front, the US and UK have vetoed imports of crude oil, gas and coal from Russia (effective from 22 April in the US), whereas the UK will cancel the exportation of raw materials, and awaiting details, yesterday nickel prices were suspended on the London stock exchange. Yesterday the EU presented its “ambitious” plan to reduce its independence on Russian gas by 2030, estimating that demand could fall by -2/3 by the end of 2022.
What we expect for today
The European stock markets would open with gains of as much as +0.5% awaiting the ECB meeting and what will happen with the energy supply in Europe, in addition to the fact that Ukraine would accept not trying to join NATO and Russia has committed once again to open 5 humanitarian corridors. Currently, S&P futures are up +0.4% (yesterday the S&P 500 ended flat vs. the European closing bell). Volatility in the US fell (VIX 35.13). Asian markets are falling (China’s CSI 300 -2.7%, and Japan’s Nikkei -0.3%).
Today in Mexico we will learn February’s inflation. In debt auctions: Greece (€ 625 M in 12M t-bills).

COMPANY NEWS

ACERINOX, BUY
The London Metal Exchange (LME) has suspended future trading on nickel after it exceeded US$ 100,000/t (4x vs. early February) due to the effect from sanctions stemming from the conflict between Russia and Ukraine (Russia produces ~17% of nickel globally). It appears the sharp rise also has a financial component linked to the closing of short positions on the futures.
The first impact would, according to ABC, be that ACX would have proposed an ERTE (temporary staff reduction plan) for its plant in Cádiz (30% of production) until raw material and energy prices normalise in Europe. In this regard, the company would have mentioned that 80% of the cost overruns it is facing would mainly come from its operations in Europe (€ 67 M).
MARKET IMPACT
Negative news. Although the nickel price was expected to increase and have some impact on demand, a shock like the current one could lead to production being suspended. Before the start of the Ukraine war, the alloy surcharge accounted for ~55/60% of the stainless-steel sheet price in Europe. Thus, although contracts in Europe had already returned to a model in which the alloy surcharge was passed onto the customer, it is to be expected that unless prices stabilise, production levels will be significantly impacted. In a first analysis, we believe that the extra costs would exceed € 150 M per year (15% of EBITDA’22e). Separately, we believe that the cost of the possible ERTE would have an impact of € 30 M (3% of EBITDA’22e).