Elkem and Landsvirkjun sign long-term power agreement in Iceland

Elkem and Landsvirkjun signed a power purchase agreement securing 127 MW for Elkem’s Icelandic ferrosilicon plant through 2039, replacing the existing agreement. The take-or-pay deal offers operational flexibility; from April 2029, pricing will include a fixed floor and a partial link to the ferrosilicon market price.

Analysis

The main value is reduced long-dated power-supply uncertainty for Elkem’s Iceland operation—not necessarily cheaper power. The take-or-pay structure leaves Elkem exposed if utilization falls or ferrosilicon economics weaken; the partial linkage to ferrosilicon prices may align costs with product conditions, but could also pass some upside in product prices back to the power supplier. The formula and floor level are undisclosed, so the net margin effect cannot yet be underwritten.

Near term, the announcement is only mildly positive: the new terms begin changing in 2029, and without comparison to the superseded agreement there is no evidence of incremental savings. Over 1–3 months, the catalyst is disclosure of the price formula, volume flexibility and any associated operating or investment plans. Over 6–18 months and beyond, reliable power could support operating continuity and competitiveness; conversely, a weak silicon cycle could make the take-or-pay commitment a burden. Competitors may gain relative advantage if Elkem is locked into power costs while cutting output.

The contrarian point is that “long-term security” is not synonymous with a favorable contract. Treat this as risk reduction with asymmetric contract risk, not a proven earnings upgrade. No standalone trade is compelling before the economics are quantified.

Key Decisions for Investors

• Keep ELK (XOSL) on watch rather than chase the announcement; do not treat the headline as evidence of a near-term earnings uplift.
• Before taking a directional position, verify the new and old all-in power-price formulas, the floor, the degree of ferrosilicon-price linkage, contracted-volume flexibility, and how 127 MW compares with expected plant consumption.
• If disclosures show materially improved downside protection without a costly take-or-pay burden, consider a measured ELK long on weakness; reassess if management signals lower Iceland utilization or if the contract raises costs during a weak ferrosilicon market.
• Falsify the constructive view if subsequent guidance indicates the agreement worsens power costs or limits production flexibility; strengthen it only if reported Iceland operating economics or guidance confirm a tangible benefit.