Press Metal to gain from aluminium price’s rise to three-year high

KUALA LUMPUR: Press Metal Aluminium Holdings Bhd (Press Metal) is poised to reap the benefits as aluminum price jump to threeyear high, analysts say, as China clamps down on circa 10 per cent of its aluminium production.

According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), Bloomberg reported that China “called for the closure of 3.21 million tons of illegal aluminium capacity by end July” in Shandong on July 24, higher than analysts' expectations.

Kenanga Research noted that the news led to a price spike of seven per cent to US$2,017 per metric tonne (MT), the first time prices have traded over US$2,000 per MT since end-2014.

“Press Metal prices similarly rallied, jumping 22 per cent to RM3.27 over the same period,” the research arm said.

As such, this was viewed by Kenanga Research as positive news given that tightening supply provides good short-run support for aluminium prices.

Kenanga Research highlighted that while higher prices may trigger new starts, the commissioning process requires a rampup of circa six months, which could lead to supply tightness up to the second half of 2018 (2H18).

“Furthermore, China noted that ‘all new capacity should replace capacity that has already exited the market' via ‘Replacement Permits' which are in tight supply at circa two million MT, compared to the “illegal” capacity of circa six million MT,” it said.

The research arm remained optimistic on short-term price prospects as the Chinese government signals its intent to shut down excess capacity for ‘blue skies' over the winter months.

“Since then, aluminium prices have been on a consistent uptrend, and we think that with the environmental deadline looming, further shutdowns should propel prices over the next quarter.”

Kenanga Research highlighted that although producers are facing potentially significant shutdowns over “illegal” capacity, Reuters notes that legality issues might be a “stretchable and negotiable concept”, illustrated by a plant shutdown of 540,000 MT, which only made up half its “unauthorised capacity”.

The research arm pointed out that without apparent physical dismantling, restarting the plants could merely be a matter of securing permits.

“Meanwhile, China production numbers indicate an uptrend since February 2017, and the first half of 2017 (1H17) production actually increased 11 per cent annually to 16.7 million MT,” it said.