Booming aluminium prices are driving the South32 share price this week
The post Why the South32 (ASX:S32) share price is breaking out this week to a 14-month high appeared first on The Motley Fool Australia. –
The South32 Ltd (ASX: S32) share price broke out this week after aluminium prices jumped to 10-year highs.
At the time of writing, South32 shares are changing hands for $3.26 apiece, up 2.03% from yesterday’s closing price.
Aluminium prices surge amid China concerns
The South32 share price is moving out this week. This comes as top producers in China face tougher power controls to meet green targets, according to Reuters.
“The government in China’s Guangxi region, an aluminium and alumina production hub, on Monday called for tougher controls on energy consumption in a statement issued after a teleconference,” the report said.
“The region is China’s third-biggest producer of alumina, a primary product of aluminium, with output of 925,500 tonnes in July, according to the National Bureau of Statistics.”
Reuters pointed out that China’s aluminium production would still increase year on year, “albeit at a slower pace … its output is about 500,000 — 600,000 tonnes lower than was expected at the start of 2021”.
Looking ahead, “Consultancy Mysteel said that 8 aluminium smelting companies in Guangxi will have to keep their September production at a maximum of 80% of average monthly output in the first half of the year”.
South32 share price rallies to 14-month high
Aluminium prices have been on a tear since 2-year lows of about US$1450/t in May 2020.
Prices surged to around US$2,550 by the end of FY21. They have pushed to 10-year highs of about US$2,700 in the past week.
Higher realised aluminium prices were a major contributor to the company’s 89% jump in underlying earnings before interest and tax (EBIT) to US$844 million in FY21.
According to the company’s FY21 full-year results, the change in the sales price of aluminium, silver, zinc, and nickel added US$363 million, US$123 million, US$65 million and US$65 million respectively to EBIT.
This was partially offset by a lower average realised price for other metals in the company’s portfolio. These included metallurgical coal, manganese ore and alumina.
Overall, shareholders should welcome the higher prices and the recent bullish performance of the South32 share price.
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Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.