Solid aluminium price a boon for Press Metal

KUCHING: Press Metal Aluminium Holdings Bhd (Press Metal) is expected to benefit from solid aluminium prices coupled with the full impact of P3 production volume which started from October 2021, analysts say.

In a report, the research team at Kenanga Investment Bank Bhd (Kenanga Research) pointed out that although aluminium prices are off its decade high of US$3,876 per metric tonne chalked on March 4, 2022 after Russia invaded Ukraine as Russian aluminium producer Rusal, with production output accounts for circa six per cent of the global supply, shuttered production in an alumina refinery in Ukraine.

This is expected to tighten the supply chain further while economies reopeningled demand would continue to keep aluminium prices elevated.

In addition, the major structural decarbonisation trends for electric vehicles and renewable energy have boosted aluminium demand leading to aluminium prices remaining elevated.

Year to date (YTD), LME aluminium spot prices have risen another 13 per cent to US$3,436 per metric tonne as of last Friday while 1Q22 average aluminium spot prices jumped 18 per cent q-o-q and 55 per cent y-o-y to US$3,255 per metric tonne from US$2,756 per metric tonne in 4Q21 and US$2,094 per metric tonne in 1Q21, respectively.

After a price weakness in early 1Q22, alumina prices spiked up in March 2022 to close at US$525 per metric tonne last Friday which has surged 48 per cent YTD or constituting 15.3 per cent of aluminium price.

Nonetheless, this was still below the normalised level of 16 to 17 per cent when the average alumina prices in 1Q22 was five per cent lower q-o-q at US$401 per metric tonne from US$423 per metric tonne despite aluminium prices leaping 18 per cent over the same period, bringing the percentage of

alumina cost to aluminium price to 12.3 per cent from 15.7 per cent in the preceding quarter.

As such this implies that aluminium smelters are expected to see their profit margin expanded again in the upcoming 1Q22 after a compression in the preceding quarter.

“Despite a record FY21, Press Metal performed slightly below expectation for 4QFY21 with core profit of RM284.8 million, largely due to an accrual for Sarawak State sale tax of RM50 million for FY21 posted in 4QFY21, while operating costs continued to stay elevated especially logistic costs as well as raw material costs.

“Nonetheless, with alumina price easing off as mentioned above, Press Metal could likely to see margin improvement. Going forth, with solid aluminium prices coupled with the full impact of P3 production volume starting from October 2021, Press Metal’s earnings prospects remain promising and FY22 will be another record year,” Kenanga Research said.

All in, it maintained an ‘overweight’ rating on the building materials sector, with an ‘outperform’ call on Press Metal.