Press Metal’s operating margin expected to improve
KUCHING: Press Metal Aluminium Holdings Bhd’s (Press Metal) operating margin is expected to improve on the back of lower alumina prices, analysts say.
“We believe Press Metal’s operating margin will improve on the back of lower alumina prices. Alumina prices fell to US$ 290 to US$ 300 per metric tonne ( MT) after peaking at US$638 per MT in September 2018 due to the disruption in global alumina supply,” said the research team at Affin Hwang Investment Bank Bhd ( Affin Hwang).
It expected alumina prices to remain at 16 to 17 per cent of LME aluminium prices as alumina supply recovers with the resumption of 50 per cent of Alunorte’s production at Alunorte and new capacity.
“In addition, Press Metal’s acquisition of PT Bintan Alumina Indonesia ( PT BAI) should ensure sustainable alumina supply and at favourable rates in the future,” it highlighted.
Of note, Press Metal’s acquisition of PT BAI is part of its strategy to become an integrated aluminium manufacturer. PT BAI is a limited liability foreign investment company in Indonesia, principally involved in the production of non-ferrous metals. “The majority shares of PT BAI are indirectly owned by Nanshan Aluminium Singapore Co (with an effective shareholding of approximately 94 per cent), one of the largest integrated aluminium manufacturers in China. “The acquisition will provide access to 0.5 million MT to 1.5 million MT per annum of alumina supply, ensuring a sustainable supply of alumina in the long run ( based on total aluminium capacity of 1.08 million per annum MT, Press Metal’s alumina requirement is 2.16 million MT per annum). “The first phase of the alumina refinery plant is under construction and is expected to complete in 4Q20. “We foresee some savings in transportation costs as the location of the refinery plant is nearer to Samalaju compared to Australia (where the group typically gets its alumina supply). In addition, PT BAI is entitled to a 20-year tax holiday as the plant is built in a special economic zone. The acquisition is expected to be concluded by end- October, pending negotiation on the pricing mechanism,” it explained. Aside from that, Affin Hwang believed that Press Metal is staged for earnings growth in 2020 to 2021 on the back of its production expansion. It noted that The construction of Press Metal’s third aluminium smelting plant with a production capacity of 320,000MT started in August 2019. The new plant is expected to come online in October 2020 and lead to a 42 per cent increase in smelting capacity.