Press Metal’s margins to improve as alumina prices normalise
KUALA LUMPUR: AmInvestment Bank Bhd (AmInvestment Bank) raises its net profit forecasts for Press Metal Bhd (Press Metal) to reflect a downward revision in our price assumption for alumina – which is the input for aluminium – translating to improved margins for the group.
“We now project the alumina price for FY19–21F at US$400 to US$450 per tonne underpinned by the additional alumina supply from Hydro Alurnote refinery in Brazil and Al-Taweelah refinery in the United Arab Emirates.
“We are keeping our aluminium per tonne price assumptions of US$1,900, US$2,000 and US$2,100 for FY19–21F respectively,” it said in a note yesterday.
This comes on the back of global alumina supply possibly seeing additional output as there is a strong chance that the Brazilian Federal Court will rule in favour of a petition submitted by Norsk Hydro, the world's largest alumina produce.
To note, Norsk Hydro has requested that the court lift a production curb on three million tonnes, translating to half of its annually capacity of six million at its Hydro Alurnote alumina refinery.
The Hydro Alurnote refinery in Barcarena, Brazil has been
We now project the alumina price for FY19–21F at US$400 to US$450 per tonne underpinned by the additional alumina supply from Hydro Alurnote refinery in Brazil and Al-Taweelah refinery in the United Arab Emirates.
AmInvestment Bank
placed under half curtailment since March 2018 on suspicion of toxic waste overflowing from a holding basin.
Following an investigation, the local environmental authorities concluded that there was no contamination.
The half curtailment resulted in a global alumina supply deficit of three million tonnes annually, helping to drive alumina prices up to as high as US$650 per tonne in end-2018, from about US$400 per tonne prior to the incident.
The high alumina prices also drove Alcoa, the biggest aluminum producer in the world, into a net loss of US$199 million in 1QFY19 reported last week. However, Press Metal is cushioned by its low cost structure underpinned by cheap hydro power cost.
“We are cautious on the outlook for aluminium prices in 2019. We forecast the average aluminium price to ease by five per cent to US$1,900 per tonne from US$2,000 seen in 2018,” AmInvestment Bank said.
“Industry experts project aluminium consumption in China to grow by a healthy five per cent to 38.3 million tonnes in 2019, from 36.5 milillion tonnes in 2018, largely backed by the growing automotive and aircraft manufacturing industries.”
However, during the same period, aluminium production in China is projected to outstrip consumption, rising by a faster rate of eight per cent to 40 million tonnes from 37 million tonnes last year.
China remains the largest producer and also consumer of aluminium in the world.
“While we like Press Metal for its favourable cost structure with the bulk of its energy cost (from hydro power) locked in at very competitive rates over the long term, the stock's valuation is already at a significant premium to its global peers which means the upside to its share price may be capped.”