Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Contemporary Amperex Technology Co. Ltd. posted its sharpest-ever drop in quarterly earnings and disclosed a sizable derivatives liability, the first time since listing that it’s recorded such a large charge.
Net income fell 24% to 1.49 billion yuan ($226 million) for the three months ended March 31 from a year earlier, CATL, as the Chinese battery giant is better known, said in an exchange filing Friday. First-quarter underlying profit tumbled 41% to 977 million yuan.
CATL also disclosed a 1.79 billion yuan derivatives liability, however, didn’t comment as to its origins. The company was battered by rapidly rising input costs over the period, with expenses soaring 198%. Revenue climbed 153% to 48.67 billion yuan.
The first three months of 2022 was an extremely volatile period for raw materials — particularly nickel, a key ingredient in electric car batteries. At the center of that crisis was Chinese entrepreneur Xiang Guangda, whose Tsingshan Holding Group Co. is the world’s biggest nickel and stainless steel company.
Xiang built a giant short position in nickel traded on the London Metal Exchange in a bet that increasing supply from Indonesia would drive down prices. Several other Chinese firms investing in Indonesian projects amassed short positions as his allies, Bloomberg News has reported. According to a person familiar with the matter, CATL is among those companies.
Representatives for CATL didn’t immediately respond to a request for comment. Jiang Li, secretary of the board of the company, said in a live-streamed interview with national broadcaster CCTV that the surging cost of raw materials and supply chain disruptions had posed challenges to the business in the first quarter. The company has negotiated with some clients on adjusting prices, he said, and market demand is strong. He also said the increase in the cost of materials is slowing, while the impact of Covid lockdowns on the supply chain is improving.
When nickel prices rose rapidly after Russia’s invasion of Ukraine, firms that were short the metal struggled to pay their lenders’ margin calls, setting the stage for a short squeeze.
The first-quarter earnings represent an abrupt reversal in fortune for CATL and stand in stark contrast to the company’s stunning trajectory up until the end of last year, driven by global demand for electric vehicles and, by default, the batteries that power them. Just a week ago, CATL reported full-year net income for 2021 that more than doubled from a year earlier to a better-than-estimated 15.93 billion yuan.
However, a delay to the company’s first-quarter results on a “principle of prudence” and a warning in the full-year earnings that surging raw material costs had eroded profitability at its key battery division stoked concern the latest figures may disappoint.
Second-quarter output also hasn’t been smooth for the world’s biggest battery maker, considering the strict Covid-19 lockdowns in Shanghai, which shuttered factories of CATL and of its major customers like Tesla Inc. and Nio Inc.
CATL has told some suppliers that it’s cutting the amount of inventory it needs from them, other people familiar with the matter said, declining to be identified because the information is private.
Pandemic lockdowns in China hit demand from carmakers and output for April and into May will be reduced, one of the people said.
CATL’s shares have fallen 30% this year.
(By Danny Lee and Alfred Cang, with assistance from Wenjin Lv)
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