Press Metal sees lower raw material costs

Trend of weaker aluminium prices on LME

KUCHING: Press Metal Aluminium Holdings Bhd expects the average cost of raw materials for its smelting plants in Sarawak to drop this year, in line with weaker aluminium prices.

According to group chief executive officer Tan Sri Paul Koon Poh Keong, the prices of key raw materials, such as alumina and carbon anode, have dropped following the trend of weakening London Metal Exchange (LME) aluminium prices due to the impacts of the Covid-19 pandemic on world businesses.

He said 2020 was faced with a challenging start with the prolonged Us-china trade dispute, followed by the Covid-19 outbreak.

“During the earlier period of the outbreak, we were hopeful that the effects can be contained but the situation turned severe and actions were taken by the various governments to enforce quarantines, lockdowns and imposed travel restrictions.

“Numerous industries, including automobile, aviation and construction have been adversely affected, consequentially dampening the demand for aluminium which are prominently used in these industries.

“With reduced economic activities and shutdowns in industries, demand for aluminium will be affected in the coming months,” Koon said in the company’s 2019 annual report released last week.

He said supply might also be reduced by aluminium producers with high cost of operation if the pandemic prolongs. This , he added, could create a contraction in aluminium supply over the long term, lending a better support to aluminium prices.

“Although the full impact to the global economy is still unfolding, the pandemic may have deep implications if it carries on further into the second half of the year.

However, our low-cost model will continue to provide us with some respite during this uncertain climate,” he added.

Press Metal, which is South-east Asia’s largest aluminium smelters with current production capacity of 760,000 tonnes per annum from its smelting plants in Samalaju Industrial Park, Bintulu and Mukah, is currently constructing its third smelting plant in Samalaju.

Koon expects the new phase three smelter to begin operations by early next year that would boost the company’s capacity by 42% to 1.08 million tonnes per annum.

He said Press Metal embarked on the next phase of growth when it secured a 15-year power purchase agreement with Syarikat Sesco Bhd that would provide the company long-term access of up to 500MW of electricity for the third smelter.

“This expansion will further entrench the group’s position as the region’s largest aluminium producer and a key global player in the aluminium industry.”

According to Koon, Press Metal would be able to secure some 80% of its alumina requirements on its enlarged smelting capacity of 1.08 million tonnes per annum following its investments in Japan Alumina Associates Pty Ltd (JAA) and PT Bintan Alumina Indonesia (PT BAI) recently.

Press Metal paid A$259.9mil for a 50% stake in Jaa,which holds a 10% equity interest in Worsley Alumina Unincorporated Joint Venture in Australia, one of the world’s largest and lowest-cost alumina producers.

Through this investment, Koon said Press Metal is entitled to a supply of 230,000 tonnes of alumina per annum.

In February 2020, Press Metal completed the subscription of a 25% equity interest in PT BAI for Us$80.23mil. PT BAI is principally involved in alumina production and is currently in the midst of constructing an alumina refinery plant with total annual capacity of two million tonnes in Galang Batang, Indonesia. The refinery will be built over two phases, with each phase earmarked for one million tonnes of alumina production.

“Phase one operation is expected to start commissioning by end-2020 and phase two will follow subsequently. This subscription will provide the group with long-term supply of alumina via the purchase of not less than 50% of alumina before completion of the entire two-million tonne project and up to 1.5 million tonnes upon full completion,” said Koon.

He said the supply of alumina by JAA abnd PT BAI would serve to enhance the group’s aluminium operations by reducing reliance on third party suppliers and shielding the group against any supply disruption.

Last year, Koon said alumina prices were volatile, hitting a peak of US$417 per tonne in the first half. Prices began to normalise in the second half after a key South American producer resumed production after a shutdown.

Koon said via its investment in a new company – Shandong Sunstone & PMB Carbon Ltd Co (SSPC), which manufactures pre-baked carbon anode, Press Metal will secure about 40% of its plants’ current requirement in carbon anode, a primary consumable for aluminium smelting operations.

Press Metal invested about Rm32.4mil for a 20% stake in SSPC, which has an annual capacity of 300,000 tonnes. He said Press Metal is entitled to purchase 120,000 tonnes per annum, with an option to buy up to 40,000 tonnes. The SSPC plant, which was commissioned in the first quarter of 2019, achieved full operation in the following quarter.

“Alumina, pre-baked carbon anodes and electricity are the primary manufacturing costs for the group’s smelting operations. As such, the group’s operations are highly dependent on the ability to secure supply of such raw materials and consumables,” said Koon.

He said the group’s business strategy is to increase the production of value-added products, like aluminium billet, alloy ingot and wire rod which yield higher margin compared to the basic primary aluminium ingot. In 2019, the group’s sales of valued-added products rose to 53% from 46% in 2018.