HULAMIN: Power outages and lockdown resulted in low sales

Since early 2019, Hulamin has faced a number of headwinds both locally and internationally. In the local market, the weak economy, low investment activity, power outages and recent lockdown regulations have conspired to measurably limit sales. Local beverage can stock sales have been severely reduced.

Internationally, the distribution relationship between Hulamin and Ta Chen International / Empire Resources (TCI) started to breakdown during mid-2019, following major overstocking in the USA distributor market, the concerns raised in the market following the imposition by the USA of stringent import controls, the investment by TCI in its own rolling operation in the USA, the global slowdown in automotive markets and volatile currency and commodity markets.

The factors contributed to severe disruption to the consistent distribution of Hulamin products into our USA customer base from mid-2019. Only in recent months have sales begun to recover.

Hulamin Rolled Products sells approximately 20% of its volume into the United States. The overstocking and disruption to distribution during the middle period of 2019 created major problems for Hulamin, both in lost sales as well as a build-up of working capital.

Furthermore, the relationship breakdown with TCI aggravated an already unhealthy situation. Working through the excess inventory problem in the USA and maintaining its own sales force on the ground, the management realised that its customers demand for Hulamin products remained healthy even though there was excess stock in the distribution pipeline.

From mid-2019, and in response blockages in the established channels, Hulamin commenced direct sales to customers throughout the USA. Sales of Heat-Treated Plate recovered quicker than other products and demand reached normal / full capacity levels going into 2020. Other products are normalising more slowly.

In order to minimize fixed, on-the-ground overhead costs and reduce investment in working capital, while maintaining control over the customer interface, Hulamin investigated the opportunity to partner with service providers who can offer these services. Discussions with one such partner have reached an advanced stage.

Closing 2019 with a strong balance sheet and debt levels well under control has provided Hulamin with the liquidity required to face these challenging times within the constraints of available resources. Inventory and working capital levels are well controlled.

In addition to the overstocked market, and the breakdown in relations with our distribution partner, a further risk to common alloy, a standard product sold inthe United States, presented in March. The  US Aluminum Association, on behalf of domestic aluminium rolled products producers, launched an anti-dumping petition against 19 importing countries, representing 36 aluminium rolling mills including South Africa.

Common alloy sheet sales (standard dimension flat sheet and coil products affected by this case) represent approx. 10% of Rolled Products sales.

Hulamin has appointed experienced, local counsel in the USA to assist in defending the case. The US Department of Commerce is expected to publish its findings during October 2020.

At the end of March, and following the rapid spread of the Covid-19 virus, the SA government announced the imposition of stringent lockdown regulations. In addition to their intended impact of reducing the spread of this pandemic, the various restrictions have had the effect of constraining local economic activity.

Local sales of all Hulamin products have been negatively affected. Although automotive production has slowly started to recover, packaging material, especially beverage can products have been negatively impacted by the ban on alcohol sales.

Current forecasts indicate that Hulamin’s local beverage can stock sales will decline by at least 25% in 2020.

In contrast, aluminium beverage can stock is in short supply in international markets. Hulamin has sufficient orders to maintain 100% of its capacity for end and tab stock. Hulamin also has demand for Heat Treated Plate to operate at full capacity.

The negative impact of the spread of the Covid-19 coronavirus has increased measurably in recent weeks. To date, over 400 tests have come back positive, affecting many more employees through Hulamin’s quarantining and isolation rules. Tragically, the company also recorded its first loss of life early in July when an employee succumbed to symptoms of the disease. Maintaining safe operations is proving to be extremely challenging in the context of surging numbers of positive cases. Manufacturing has been disrupted on an intermittent basis.

The prevailing Rand-US Dollar exchange rate weakened earlier in the current year, following the Fitch downgrade, and will impact positively on Hulamin. US Dollar and LME Aluminium price volatility in turn has been impacted by uncertainty in unfolding trade tensions between the USA and China and global political uncertainty. This may also affect market conditions for our products in future; efforts are being directed to achieve a positive outcome for Hulamin.

Leave a Reply

Your email address will not be published. Required fields are marked *