South32 receives all-time high prices for SA aluminium but struggles to clear inventories

South32 receives all-time high prices for SA aluminium but struggles to clear inventories

SOUTH32 reported record aluminium prices for metal produced by Hillside, its South African smelter, but struggled to clear a backlog of metal owing to port congestion in South Africa as well as for Mozal, a smelter in Mozambique.

Commenting in a second quarter production update today, the group said it was working on alternative measures to ameliorate a capital build as a result of the higher inventories.

“Third party port performance at Richards Bay and ongoing congestion in global shipping conditions” was the reason for the supply chain difficulties, South32 said. It also reported chain supply problems at its operations globally owing to Covid-19.

South32 said it had used “alternative discharge and cargo shipping options” in order to capitalise on strong aluminium prices. “We expect the current working capital build to unwind once we realise the full benefit of our initiatives, and port congestion and general freight tightness is alleviated,” it said.

The aluminium price averaged $2,952 per ton for metal produced at Hillside. On the negative side, electricity tariffs contributed to inflation which the group said would result in a 10% operating cost increase for the half year ended December 31.

Goldman Sachs said in a report dated January 20 that the aluminium market was heading for “a multi-year bull market” as supply would be constrained owing to the carbon-intensive processes in its production. This would see production fall foul of regulation and potentially lead to supply caps.

South32 said Hillside produced 1% less aluminium in the second quarter but full year production guidance of 720,000 tons remained unchanged. Production from Mozal – which saw a realised aluminium price of $3,041/t for its product – was on course to meet the annual guidance of 273,000 tons.

Full year production from South32’s manganese operations in South Africa remained unchanged at 2.2 million tons (Mt) but they reported a 7% increase in output to 1.16Mt and an increase in ore sale of 12% during the second quarter as well as some 9% across the half-year.

The reason for the increase in sales was a drawdown of inventory. South32, as in past reporting periods, circumvented constrained rail capacity on South Africa’s network by transporting by road.

It also optimised the sales mix, and achieved a premium of 11% to the medium grade 37% manganese lump ore index on a volume weighted basis.

South Africa’s mining sector has been struggling to transport export tons to the country’s ports owing to vandalism and theft on the rail lines operated by Transnet, the government-owned freight and logistics company.