Press Metal Bhd improves its outlook based on rising aluminium prices

As China squeezes 10% of its aluminium production and as a result, the LME aluminium prices have jumped to a three-year high, Press Metal Aluminium Holdings Bhd (PMETAL) is poised to leverage on  the benefits. Analysts have conservatively increased the company’s estimated financial year 2018 (FY18E) aluminium price to US$1,900 (RM8,151) per tonne. This will lift the estimated earning in FY18 up to 7% from 0% in FY17.

Recently, Bloomberg reported that China “called for the closure of 3.21 million tonnes of illegal aluminium capacity by end-July” in Shandong on July 24, higher than analysts’ expectations. Shandong is a major aluminium production hub in China, and the target makes up 10% of China’s total production of 31.6 million tonnes in 2016. The news resulted in a price hike of +7% to US$2,024 per tonne on August 10, the first time prices have traded over the US$2,000 per tonne mark since end-2014.

Press Metal prices similarly rallied with the increase of LME prices, jumping 22% to RM3.27 over the same period. Kenanga Research remains highly positive on PMETAL’s short-term price prospects. The long term earnings outlook for the company is supported by continued cost efficiencies and a higher proportion of high-margin downstream products.