Coal, nickel volatility may impact earnings, DMCI warns

The Consunji family conglomerate DMCI Holdings Inc. said windfall earnings from the surge in commodities could suffer “significant drawbacks” should foreign governments act to tamp down on price increases.

DMCI, whose mining businesses have benefited from the jump in coal and nickel, warned of possible policy intervention from governments such as China and Indonesia in its 2021 annual report.

It said supply disruptions could also raise costs for construction and real estate development, hurting profit margins moving forward.

Nevertheless, DMCI said higher commodity prices would stay “elevated” amid the ongoing Russia-Ukraine war.

“We anticipate significant volatility in the coal and nickel markets because of global supply disruptions and economic sanctions on Russia, the world’s third-largest and sixth-largest producer of nickel and coal, respectively,” it added.

DMCI was guiding investors on the outlook for the year after booking its highest ever earnings in 2021.

The company ended the previous year with a core profit of P17.4 billion, up 164 percent from 2020.

“Surging commodity prices, recovering electricity rates and higher construction accomplishments accounted for the spectacular growth,” DMCI said in a previous statement.

Even before Russia launched its invasion of Ukraine in late February 2022, DMCI chair and president Isidro Consunji said commodities were beginning a new “supercycle.”

The biggest earnings boost came from Semirara Mining and Power Corp., which contributed an income of P9.2 billion—up 360 percent on higher coal and electricity prices.

DMCI Mining said income contributions also jumped 150 percent to P1.2 billion from an increase in nickel shipments and selling prices.

“Our 2022 performance will be largely defined by the ongoing geopolitical crisis and rate of economic recovery of the Philippines from the COVID-19 pandemic. The outcome of this year’s elections could also affect the growth and sustainability of our businesses,” DMCI noted in its 2021 annual report.

Meanwhile, growth for its power and water (Maynilad Water Services Inc.) segments would also benefit from the full reopening of the economy.

In-person activities and the election season would likewise push demand for electricity higher. But DMCI also flagged regularly risks in the post-election period.

“These changes could have significant impacts on our coal operating contract, mineral production sharing agreement applications, rate rebasing exercise and project bids under the Build, Build, Build program,” it said in its annual report. INQ

Read more...