The metal industry is not performing well on the stock exchange in current year due to lower expectations about the US infrastructures investment plan and fears of contraction in China’s growth. Specifically, Acerinox has dropped around 14% in the last three months, while in the whole year lost near 5%. Analysts have been supporting the company with a recomendation of “hold” and buy”, but Citi has broken the tendency by downgrading to “sell” and cutting target price to €10.50 from previous €14.
For the house analysts, competitive intensity in key markets is a key headwind for Acerinox.
“Acerinox’s EBITDA/t has been similar to that of Aperam and significantly ahead of Outokumpu over the past decade – mainly due to the strong profitability profile at its North American Stainless (NAS) operations . However , with Outokumpu ramping up its production in the US and establishing relationships with key customers, the profitability in North America could be at risk.”
As regards higher exposition to Chinese exports, experts remind that Europe has high tariff barriers on Cold Rolled stainless steel, but none on Hot Rolled Stainless.
At 25% of sales in the form of Hot Rolled Stainless, Acerinox has the highest exposure to Hot Rolled and Long stainless products amongst European players. Also less than a third of its production is in Europe and hence offers the least relative protection due to tariff barriers . While China has been cutting production since May in response to very low price s, any recovery in prices brings the threat of incremental exports and hence weaker margins – especially in South East Asia and Africa where Acerinox has manufacturing presence.
Finally they think investors looking for leverage to higher stainless steel prices “would be better off getting that through Outokumpu.” On the other hand investors looking for high (and less volatile) margins, high cash flow and dividend yields could get that through Aperam. Therefeore, Citi concludes that “Acerinox is stuck in the middle on either investment proposition.”
