High energy costs drag Romanian aluminum producer Alro back into the red

Aluminum producer Alro Slatina (ALR), one of Romania’s biggest industrial groups, failed to take advantage of higher market prices and posted losses in the first half of 2021. The company’s management pointed to high electricity costs and electricity supply uncertainties as the main challenges it encountered during the period.

Alro reported consolidated sales of RON 1.53 bln (EUR 314 mln) in the first half of 2021, up by 13% compared with the same period of last year. The group produced and sold more primary and processed aluminum and at higher prices. The average aluminum price on the London Metal Exchange in the first half of this year was USD 2,246 per ton, up from USD 1,595 per ton in the same period of last year.

However, the group couldn’t fully benefit from the higher prices as it faced challenges in the local electricity market. Alro is the biggest industrial consumer of electricity in Romania and energy has a significant share in the company’s production costs.

“In the analyzed period, the electricity market was dominated by a surge in electricity prices delivered in the local market that also embed a surge in the prices of the emission certificates. As a direct consequence, several of the Group's electricity suppliers claimed amendments regarding the prices contracted in advance by the Group, reducing quantities and terms of payment, while others have cancelled the previous signed contracts,” the group stated in its financial report.

Alro posted a consolidated operating profit (EBITDA) of RON 144 mln for the first half of 2021, about a third of the level recorded in the same period of 2020. The EBITDA drop was mainly related to extraordinary revenues in the first half of 2020 when the group cashed in state subsidies worth RON 453 mln to compensate for higher energy costs incurred in 2019 and H1 2020. The company says it would qualify to receive such subsidies this year as well, but the legal framework hasn’t been finalized.

Losses related to derivative financial instruments and foreign exchange losses took the company’s bottom line into the red. Alro posted a net loss of RON 47.6 mln compared with a net profit of RON 253 mln in the same period of 2020.

Investors on the Bucharest Stock Exchange reacted negatively to the H1 results and Alro’s shares dropped by 4.9% on Wednesday, August 11. However, the stock is still trading up 18% compared to the end of last year.

Alro’s biggest shareholder is Netherlands-registered Vimetco with a 54% stake. A Russian investor, Vitaliy Machitski, controls Vimetco. Alro’s second-largest shareholder is Paval Holding (23.2%), an investment vehicle controlled by two of Romania’s richest – Adrian and Dragos Paval, the owners of local DIY chain Dedeman. Alro currently has a market capitalization of RON 1.9 bln (EUR 390 mln).