What happened
Shares of Ferroglobe (GSM) are on fire this year. This morning alone, the metal stock surged a whopping 24% within minutes of the market's opening, and while it gave up some of those gains as the day progressed, it was still up around 17% at Thursday noon. With those gains, Ferroglobe stock has rallied almost 40% year to date, as of this writing.
So what
Ferroglobe produces silicon metal, as well as silicon-based and manganese-based ferroalloys. Silicon is a key raw material for several industries, including steel, aluminum, solar power cells, semiconductors, and consumer products.
Prices of most metals have surged in the wake of the Ukraine-Russia conflict. Silicon is one of them, but that's not the reason Ferroglobe shares skyrocketed today.
Image source: Getty Images.
Ferroglobe released its fourth-quarter and full-year 2021 numbers after market close on Wednesday, and that's what the market is reacting to.
As you may have guessed, Ferroglobe delivered a stellar set of numbers. Its revenue surged 78% year over year to $569.8 million. It is the highest quarterly revenue the company has seen since 2018.
Most importantly, Ferroglobe turned a profit of $66.3 million in the fourth quarter versus a loss of $139 million in the year-ago quarter, and generated positive cash flow from operations.
Given those numbers, it's easy to understand why the market sent Ferroglobe stock soaring today. In fact, the market pumped the stock as it expects bigger things from the company, going by some of what it just said.
Now what
Three things that Ferroglobe said during its earnings release stand out.
First, it highlighted how a tight market is driving prices of silicon metal and ferrosilicon to "unprecedented levels." Second, Ferroglobe's restructuring efforts are paying off, with the company even stating it was meeting its targets ahead of schedule.
Third and most important, Ferroglobe's yearly fixed-price silicon contracts expired at the end of 2021. So given the recent rise in silicon prices, the company's average realized prices in the first quarter could be substantially higher, and the new contracts it signs should be higher priced as well.
Ferroglobe typically sells 50% of its production under fixed-price contracts and the remaining half at spot prices. That's a win-win strategy in a rising-price environment, which is what the market's betting on today.
