Although Ferroglobe PLC GSM has been proactive in curtailing its silicon metal capacity to combat weak pricing, the measures don’t seem adequate, according to Jefferies.
While high ore input costs may continue to pressure margins, the company also faces the risk of lower U.S. aluminum scrap prices ahead of Chinese restrictions, the research firm said in a Thursday downgrade.
The Analyst
Jefferies’ Martin Englert downgraded Ferroglobe from Buy to Hold and reduced the price target from $3 to $2.70.
The Thesis
Ferroglobe has proactively cut its silicon metal capacity by around 25 percent and curtailed its production of Mn-alloys in Europe. While these initiatives are positive, they seem insufficient to overcome the weak pricing trends, Englert said in the downgrade note.
There has been an improvement in Euro Mn-alloy spreads over ore input costs, the analyst said, adding that they remain 10 percent below the average spread since 2015 and more than 30 percent off the peak in the first half of 2017.
U.S. aluminum scrap prices are expected to remain under pressure, with increasing discounts likely ahead of incremental restrictions by China in July 2019, Englert said. The situation could worsen, with Ferroglobe’s Western market continuing to be impacted by low-cost scrap, he said.
Jefferies maintained the EBITDA estimate for 2019 at $130 million, below the consensus estimate of $148 million.
Price Action
Ferroglobe shares were down 2.53 percent at $2.31 at the time of publication Thursday.
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