Kaiser Aluminum’s high concentrations in the aerospace and automotive markets could affect its business in the near term, according to Fitch.
The ratings agency, which was giving Kaiser a first-time long-term issuer default rating of BB with a negative outlook, noted the aluminum maker’s chief strengths lay in a business model focused on specialty products that could hedge the risk from fluctuating metal prices.
However, it cautioned that Kaiser’s concentrations in the aerospace and automotive markets—two highly cyclical industries—could impact its short-term earnings.
The aluminum maker’s shipments to the aerospace and automotive industries stood at 44pc and 15pc, respectively, in 2019. However, Fitch expects the aerospace industry, especially commercial airlines, to be deeply affected by the COVID-19 pandemic, which could result in weak demand from Kaiser’s aerospace customers and much lower shipments.
The short-term impact was reflected in Kaiser’s Q1 earnings released on Monday. The specialty aluminum maker’s sales in Q1 were impacted in March after most automotive manufacturers and original equipment manufacturers suspended operations to contain COVID-19. Demand from the aerospace industry also waned last month after COVID-19 related shutdowns.
Long-term, though, Fitch noted Kaiser would benefit from the “significant growth opportunities” presented by both these industries, especially automotive, which increasingly uses aluminum to create light-weight vehicles.
The ratings agency also considered Kaiser’s strong liquidity position. Kaiser’s EBITDA increased by $3mn to $59mn in Q1 2020 compared to the previous year, as did its net income, which rose by $1mn to $29mn during the comparative periods.