Press Metal positive on aluminium price
KUCHING: Press Metal Aluminium Holdings Bhd (Press Metal) expects aluminium prices to improve further in the second half of 2020 ( 2H20), driven by better demand on economic recovery, especially in China.
This was shared during an analysts briefing, according to a report by the research team at AmInvestment Bank Bhd (AmInvestment).
“Press Metal expects aluminium prices to improve further in 2H20, driven by better demand on economic recovery, especially in China, while the supply-side pressure is benign in the absence of new capacity coming online globally,” it said.
“We are mildly positive on the alumimium price trend for a slightly different reason, which is the weakening US dollar that buoys commodity prices across the board, against a backdrop of just a mild recovery in demand.
“We maintain our assumptions on average aluminium selling prices per tonne of US$1,680, US$1,800 and US$1,900 in FY20 to FY22F,” it commented.
Aside from that, it noted that Sarawak’s state government has yet to finalise its decision with regards to the imposition of a one per cent state sales tax on aluminium products (proposed in November 2019) due to the disruption from the movement control order (MCO).
“We hold the view that the state government is unlikely to change its mind as it needs substantial funding to carry out state infrastructure projects, given the altered political landscape, it could no longer depend on federal funding to implement these projects, and there is a need to broaden its state tax base,” it said.
As such, it said its forecasts have already factored in the sales tax that has effectively eroded its earnings by about seven per cent.
On the Phase 3 Samalaju expansion (which will increase its aluminum smelting capacity by 42 per cent to 1.08 million tonnes from 760,000 tonnes), it noted that the project is on track for completion and commissioning by January 2021.
“It is pending the approvals for the arrival of high-skilled engineers from China to kickstart the machineries and smelters.
“Meanwhile, we gather that Press Metal’s 25 per cent-owned PT Bintan alumina refinery project will be slightly delayed (by about two months) due to the Covid-19 pandemic.
“Recall that the group is constructing a circa one million tonne alumina refinery project together with necessary facilities in Galang Batang, with plans for another expansion for another circa one million tonne in 4QFY21. Upon commissioning, the group will be able to hedge against the volatility in the spot prices of alumina input in the future,” it said.
All in, AmInvestment retained its cautious view on Press Metal’s outlook.
It said: “We remain cautious on Press Metal’s outlook as the upside to global aluminium prices is capped by a significant build-up of inventory (as aluminium production has not slowed down throughout the pandemic, while consumption takes time to recover), the unusually high volatility in the cost of input alumina in recent years, more often than not resulting in severe margin squeeze to aluminium producers, and the company’s premium valuations vs. those of its much larger global peers, capping the upside to its share price.”
However, it pointed out that this could be partially mitigated by Press Metal’s recent signing of a 15-year power purchase agreement ( PPA) with Sarawak Energy Bhd for the supply of 500MW of electricity, enabling it to power an additional annual aluminium smelting capacity of 320,000 tonnes.
This will boost its overall smelting capacity by 42 per cent to 1.08 million tonnes by 2021 from 760,000 tonnes currently.
AmInvestment maintained its ‘ hold’ call on the stock.