Press Metal’s sales assumption raised on possible Russia intervention with US sanctions
KUALA LUMPUR: Analysts have raised sales volume assumption for Press Metal Bhd (Press Metal) by 10 per cent annually following the latest development involving aluminum and its raw material alumina in the market which saw the Russian government considering the temporary nationalisation of Russian aluminum giant Rusal.
In a Reuters article, Kremlin spokesman Dmitry Peskov told reporters on a conference call on Thursday that a temporary nationalisation of Rusal is one of the options for helping the company, which has been hit by US sanctions.
AmInvestment Bank Bhd (AmInvestment Bank) recapped that after Rusal and controlling shareholder Oleg Deripaska had been placed under the US sanction list, Rio Tinto, one of the largest producers of alumina in the world, invoked force majeure for certain contracts including alumina shipments from a refinery it operates with Rusal in Australia, bauxite shipments to Rusal alumina refinery in Ireland as well as alumina from that refinery to smelters in Europe. According to AmInvestment Bank, this stoked fears of supply shortages in aluminium and its raw material alumina in the market, propelling their prices to multi-year highs.
The research firm noted that the prices of aluminum and alumina eased since Thursday on the back of the news.
“We believe the latest news is giving the market the comfort that with the Russian government stepping into the picture, Rusal’s production capacity will not be put off-line due to solvency issues,” it said.
“Meanwhile, there is a possibility the US may eventually back down from the sanctions, as prolonged high aluminium prices will hurt aluminium-consuming industries in the US such as food and beverages, auto, construction and aerospace.”
As such, for Press Metal Bhd (Press Metal), AmInvestment Bank raised its sales volume assumption by 10 per cent annually to 760,000 MT but kept relatively unchanged the research firm’s financial year 2018-2020 forecasts (FY18-20F) in terms of average selling prices (ASPs).
AmInvestment Bank’s FY18-20F ASP forecasts were maintained at US$2,050 per MT, US$2,450 per MT and US$2,500 per MT, while alumina price forecasts were at US$380 per MT, US$490 per MT and US$520 per MT respectively.
“Our investment case for Press Metal is premised on the positive price outlook for aluminum in the international market backed by supply constraints and strong demand from the automotive industry and infrastructure projects,” the research firm said.
The research firm’s investment case for Press Metal was also based on the group’s low cost structure compared to its peers owing to the cheap hydro power it has locked in over the long term and its strong management as evidenced in its ability to bounce back quickly from major production disruptions in the past.