The largest metal producers: Aurubis remains on top, steel producers grow the most

After the shock at the start of the pandemic in 2021, markets have revived and the whole industry has gone up

The largest metal producers: Aurubis remains on top, steel producers grow the most

Appreciation of metals prices increased company earnings by 33% in 2021, but forecasts for 2022 are less optimistic

After the shock at the start of the pandemic in 2021, markets have revived and the whole industry has gone up

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This article is part of the Special Issue of KInsights dedicated to the K100 rating of Bulgaria's largest firms. You can buy the entire issue here.

High metals prices have led to a sharp rise in earnings of Bulgaria's largest smelting companies in 2021. For the second year in a row, the copper mining plant in Pirdop Aurubis Bulgaria, which tops the sector ranking for years, overtakes Lukoil Neftochim Burgas in the overall K100 ranking of Capital and remains the country's most profitable firm. All 15 major metallurgical companies increased their turnovers, with average growth reaching an impressive 33%. The most significant increase has been recorded by steel companies, while new ferrous metal traders also joined the leading companies in the sector.

At the same time, the industry faces rising material and energy costs, a trend that has continued this year. Steep inflation, coupled with the onset of falling metals prices and recession fears, are the main risks for companies in 2022.

Copper leaders

The largest metallurgical enterprise in the country - Aurubis Bulgaria, which is part of the German Aurubis group, continued to grow last year, with its sales alone already reaching BGN 6.5 billion and total revenues exceeding BGN 6.6 billion. "This is mainly due to the significant increase in metal prices - mainly copper and gold. In volumes, we have even lower results due to the planned overhaul, which took place in August and September 2021 and resulted in lower production and, respectively, volumes sold," CFO Ivaylo Vatev told Capital.

Higher prices and higher volumes are also behind the 50-percent revenue growth at copper products producer Sofia Copper. Market conditions were favorable last year, especially because of a particularly strong demand for connectors from the automotive and electrical distribution sectors. In recent years, the company has focused on more sophisticated products with higher added value, which also responds to market dynamics. Due to sustained long-term demand, production in 2022 is expected to continue to grow.

Aurubis Bulgaria also expects higher sales volumes, as no capital repairs are foreseen this year and global demand for raw materials remains stable. "On the other hand, metals prices have already seen a significant decline from the record levels of last year and early 2022," Mr Vatev points out. He believes that the high prices of energy sources (especially electricity for the plant), as well as a significant increase in inflation, will lead to a significant increase in operating costs compared to 2021. "There are hard-to-measure risks related to the war in Ukraine and the growth of the global economy, and the resulting effects on demand and prices for raw materials, including metals," Vatev points out.

Steel production is on top of its game

After the shock at the start of the pandemic, in 2021 markets came back to life and the industry recovered. This led to strong demand for steel products, with shortages at certain times. As a result, prices and margins rose. It is therefore not surprising that Burgas-based Promet Steil doubled its turnover and emerged as the fastest growing company in the sector, while Pernik-based Steel Industries' revenues rose by 63%, with both companies reporting profits.

However, this situation is already beginning to change. "The supply/demand ratio is balancing out and even going in the opposite direction now that energy prices are rising sharply. This is leading to a reduction in volumes and is a very serious indication that we are moving either towards a recession, stagnation or, in my opinion, stagflation. Metals are a harbinger of these events," says Anton Petrov, chairman of the Bulgarian Metallurgical Industry Association.

Lead-zinc growth

Stable demand is also reported by the only producer of zinc and lead in the country - Plovdiv-based KCM. The company recorded a double-digit increase in revenues, the main reason being the significant appreciation of metals - 20-22% on average for the plant's two main products. Overall, the plant maintains constant volumes at around 150 thousand tonnes in total, although there were brief periods of production shutdowns last year due to high electricity prices. "We strive to be as efficient as possible," KCM CEO Ivan Dobrev says.

The first half of 2022 remains traditionally strong, although there are already signs of falling demand. "The price on the London Metal Exchange is falling, which is an indicator that production is starting to decline," Dobrev said. The company expects its revenue to reach BGN 1 billion, with the forecast again based on the price of metals while maintaining stable production volumes.

Prices drive Alkomet revenues up, but costs keep profits low

The Shumen-based aluminum products manufacturer Alkomet reports a nearly 50% increase in revenues, which now exceed half a billion leva. The main reason is the appreciation of aluminum, although the company also increased its sales volume by 14,000 tonnes to 86,000 tonnes due to strong demand in various areas of the industry. Material, fuel and energy costs also increased significantly.

In the first half of 2022, the company continues to increase revenues and profitability. It has already started series production of components for electric cars after it revealed last year that it had signed a 12-year contract with BMW. It was made possible after a series of investments in recent years, with a new 2,500-tonne press being commissioned at the plant and a section machining shop being built. This year, work continues on the Alugreen project to introduce green processes in the Eloxy shop, worth EUR 1.7 million, which is co-funded by the Norwegian Financial Mechanism. A further EUR 5.4 million is targeted for ancillary equipment in the rolling mill, which will increase capacity by 25%, and EUR 2.3 million is earmarked for the foundry.

Stable gold

After the record surge reported the year before last, the two gold mines owned by the Canadian Dundee Precious Metals are seeing more moderate growth in 2021. Production at the Chelopech operation declined slightly to 177,000 tpy of gold in concentrate form, while the Krumovgrad operation increased output to 133,000 tpy, with the total about 12,000 tpy above that of 2020. Revenues increased by around 7% and 12%, respectively. "The sales made by the companies were under more favorable commercial conditions, including a better macroeconomic environment reflected in the growth of metal prices," the companies' office said. However, inflation has also affected costs. "We have seen a substantial increase in the cost of production as a result of increased prices of key raw materials and external services," it added.

After launching in 2019, by 2020, the Krumovgrad plant saw triple-digit revenue growth. Now that full capacity has been reached, no changes are planned in the production capacities of the two companies. They specify that they can only forecast production figures for this year, with Chelopech expected to remain stable and Krumovgrad seeing a slight decline in production. However, what the revenues will be will depend on market conditions and gold prices.

Copper growth driven by global prices spike

The appreciation of copper in global markets is reflected in the results of Ellatzite Med, which produces copper ore from the Ellatzite deposit. The company is owned by Tsolo Vutov's Geotechmin. In 2021, its revenues increased by 42% and its profit jumped more than two and a half times. This is also the reason for the high profitability the enterprise is experiencing.

The recovery of the global economy last year after the 2020 pandemic is cited as the reason for the more than 23% increase in revenues of the copper mining firm Asarel-Medet. "This has had an extremely positive impact on the prices of exchange-traded commodities and in particular the price of copper," said Director of Financial and Economic Activities Nikola Anev. The increased revenues have helped the company continue work on its long-term projects, with BGN 57 million invested last year.

In addition to the high copper prices, however, Asarel-Medet also reports a significant increase in energy prices. Therefore, the forecasts for this year are less optimistic. Nevertheless, the company remains optimistic, as it expects the influence of copper to rise as one of the basic raw materials for the implementation of EU's Green Deal.

This article is part of the Special Issue of KInsights dedicated to the K100 rating of Bulgaria's largest firms. You can buy the entire issue here.
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