US silicon and silicon alloys producer Globe Specialty Metals will increase its exposure to spot and independently published silicon and ferrosilicon prices this year, CEO Jeff Bradley told investors and analysts in a Friday earnings call.
"Approximately two-thirds of our business this year will be exposed to the index market and the spot market and index really is spot," Bradley said.
Historically, Globe has had about half of its long-term business priced on a fixed-price basis and half on formulas based on independently published prices. He said Globe decided to increase its exposure to spot prices, adding that the move did not reflect its customer belief that spot and index pricing is certain to move lower in 2014.
Bradley also said Globe believes it can run the Silicon Technology ferrosilicon plant in South Africa more efficiently than its previous owners, and has identified Europe and Asia as the plant's main markets.
Globe acquired Siltech in November for an undisclosed sum. Siltech has an idled 45,000/mt year silicon alloys production facility with two furnaces rated at 27 MW and 31 MW, respectively.
"We're going to run it [the plant] very lean," Bradley said. He predicted the plant would run with about half of the workforce it had before the previous owners halted production.
He said the company had looked at the production numbers of one of the plant's furnaces, which was similar in size to a furnace in one of Globe's other plants and concluded that Globe's performance was better.
Asked if any of Siltech production is likely to be exported to the US, Bradley said "the intended markets for [Siltech] would be Europe and Asia."
Bradley did not give details about power costs at the plant, saying Globe has yet to finalize its costs. "As time goes on and we get close to [re]opening the plant, then we'll be able to share some of that with you," he said. He did not, however, provide any indication of when Siltech would resume production.
SURPRISE AT NEW QUEBEC PLANT
An analyst on the call expressed surprise by last month's announcement that rival producer FerroAtlantica of Spain was planning on building a $375 million silicon plant in Quebec, Canada, where Globe has a joint venture at Becancour. Michael Gambardella of JP Morgan Chase described the capacity of the new plant at 100,000 mt/year in his question, although FerroAtlantica has not put a figure on it publicly.
In response, Bradley said: "That was just an announcement. I guess we will have to wait and see if that actually happens. I don't think the permits are in place for that. It's going to probably take ... three to four years to get a plant up and going."
Bradley said Globe's success at filing an antidumpiung complaint against Chinese silicon in Canada had "opened up about 25,000 tons of silicon metal business to us up in Canada." FISCAL Q2 SHIPMENTS RISE
In its second-quarter fiscal 2014 earnings statement, released late on Thursday, Globe said shipments of silicon and ferrosilicon in its fiscal second quarter rose 7.5% year on year to 66,616 mt and were up 7% from the 62,035 mt reported in fiscal Q1.
Globe reported Q2 net income of $16.3 million, up from $15.6 million a year ago. The Q2 results also reversed the $6.8 million net loss Globe reported in fiscal Q1.
Net sales in the second quarter rose 3% to $178.4 million, from $173 million in the last quarter, but fell less than 1% from $179.9 in the year ago period.
Globe said the sales increases from the prior quarter were mainly due to a 15% increase in ferrosilicon shipments, although average selling prices for ferrosilicon fell 2% from the first quarter. Silicon metal prices increased 2% quarter on quarter. Globe said aggressive pricing of imports continued to negatively affect US market prices.
The company said a nearly eight-month lockout at its Becancour plant in Quebec ended December 27 with the ratification of a new collective bargaining agreement. The 45,000 mt/year silicon plant is running two of its three furnaces and expects to be back in full production by the end of March.
Globe gave no details of the new labor agreement.
The company said Q2 fiscal 2014 results were hurt by a $1.6 million after-tax charge related to the lockout that was offset by a $2 million after-tax curtailment gain related to the closure of the Quebec silicon non-pension post-retirement benefit plan for union workers retiring after January 13, 2016.
"As the demand and pricing environment improves for many of our products, we continue to drive operational efficiencies and margins across the business through cost savings measures," Bradley said in a statement. "We also continue to work cost out initiatives in all areas of the business."
In fiscal Q2, Globe realized an average silicon price of $1.25/lb ($2,766/mt), down from $1.32/lb ($2,908/mt) in the year-earlier quarter, but up from $1.22/lb ($2,699/mt) in fiscal Q1.
The average ferrosilicon realized price fell to 90 cents/lb ($1,983/mt) from 98 cents/lb ($2,152/mt) a year earlier, and from 92 cents/lb ($2,019/mt) in the previous quarter.
Globe did not report its cost of production for either silicon or ferrosilicon. But its Q2 cost of goods sold fell to $150.7 million from $152.3 million in Q1. It was up from from $148.3 million in fiscal Q2 2013. Selling, general and administrative expenses rose to $26.5 million from $25.1 million in Q1 and $9.1 million in fiscal Q2 2013.
