Press Metal to gain from higher aluminium price

PETALING JAYA: Press Metal Aluminium Holdings Bhd, which has a good run in its share price over the last six-month, is expected to see higher earnings growth this year driven by new capacity and higher aluminium price.

Kenanga Research, in a report, said this year would be a “record year” for Press Metal with “explosive” earnings growth of 154% and 24% year-on-year for FY21 and FY22, respectively.

“Aluminium price is currently above US$2,100 per tonne – a new high since August 2018 which we believe has yet to peak with the tight supply trailing high demand on the reopening of economies. With new 42% capacity from Samalaju phase three, FY21 will be a record year,” it said.

The research house has raised its aluminium price assumptions to US$2,000 per tonne for FY21 and FY22 from US$1,950 per tonne.

“We believe our US$2,000 price assumption is not excessive given the current supply-demand dynamic mismatch.

“Key risks to our recommendation are a sharp fall in aluminium price, escalation of raw material prices as well as major plant disruptions or closure,” it said.

Kenanga said aluminium price remained solid at above US$2,100 per tonne and the year-to-date average price is US$2,023 per tonne and this is 6% above the US$1,916 per tonne in the fourth quarter of last year.

In addition, alumina-to-aluminium price ratio was only 14.9%, well below Q4FY20 of 15.4%.

“This indicates potential margin expansion,” it added.

Meanwhile, RHB Research expected a higher aluminium average selling price in the next three year as it expected the metal upcycle to sustain on ex-china consumption recovery versus muted capacity additions.

There was also the cost-push inflation factor led by rising raw material and energy costs as well as the improving supply-demand dynamics.

“Given the low carbon footprint of its predominantly hydro-powered smelters, Press Metal could begin tapping into the emergent market potential for green aluminium, for which extra premium of up to US$14 per tonne have been recently quoted in the European markets,” the research house said.

“We believe this trend will gain greater momentum as the global decarbonisation agenda continues, while the London Metal Exchange (LME) is also targeting to launch a new platform for price discovery and trading of low-carbon aluminium this year,” it said.

RHB Research has raised its 2021 to 2023 LME aluminium price to between US$2,100 and US$2,225 per tonne from between US$2,000 and US$2,090, while futures price is between US$2,160 and US$2,230 per tonne.