Press Metal introduces hedging policy to balance products’ cost with rising aluminium prices

The share price of Press Metal Aluminium Holdings Bhd is being positively affected due to the instability in aluminium prices, due to the introduction of the hedging policy.  Since both are inter-connected, this situation was first observed during the initial days of the pandemic by Affin Hwang Capital. 

In fact, Malaysian investment bank Affin Hwang Capital has also claimed that Press Metal is enjoying the boons of its hedging policy, which has significantly protected the company from price falls withstanding the continuously decreasing price of aluminium.

The systemical price increase of aluminium was at the same time when Press Metal was witnessing capacity-driven earnings growth, therefore boosting the company's share prices.

Despite the drop in aluminium prices at times, Affin Hwang claims Press Metal's hedging policy partially protected the company from price downswings, yet benefitting quite well from upswings during the unhedged phase.

The financial advisor, Affin Hwang, mentioned in a statement: "Management guided that 65 per cent of the company's production volume for the financial year 2022 (FY22) is hedged at prices of between US$2,400-US$2,500, with the remaining 35 per cent expected to be sold per spot prices."

"Taking into account the average monthly prices of aluminium prices (January-August), we arrived at a blended average selling price of US$2,572 per tonne for the company for the year FY22. This is 26.8 per cent above the average price booked for 2021," the note read.

"At this juncture, for FY23E and FY24E, management guided that they have hedged 35 per cent and 25 per cent of their production volume respectively at US$2,500 per tonne and US$2,600 per tonne," the bank concluded.

Affin Hwang also went on to explain that a low aluminium inventory induced due to intensive production cuts was one of the key factors in making the aluminium prices soar high.

Moreover, the advent of recycling and other sustainable methods is gradually lessening the demand for primary aluminium. The March data shows a drop of 82 per cent year-on-year, as cancelled warrants portray the falling demand for the non-ferrous metal, says Affin Hwang. 

Press Metal with hope narrates: "Nevertheless, the tight supply-demand situation supports our view that returning aluminium demand or any supply shocks will once again send aluminium prices on an upward trajectory."

Affin Hwang has again estimated the company's revenue forecast for 2023 and 2024 as Press Metal has perfectly transferred its works model to endure the plunging aluminium prices.