RHB marks Press Metal, Malayan Cement as standouts in the building materials sector

RHB Research has reaffirmed its "overweight" recommendation for the building materials sector, with Press Metal Aluminium Holdings Bhd and Malayan Cement Bhd being their top selections.

The research firm's optimism regarding aluminium is driven by several factors, including the current minimal inventory levels, the increasing emphasis on sustainability with a focus on solar panels and electric vehicles, as well as the expected resurgence in demand due to the anticipated growth in China's manufacturing and property sectors in the latter half of 2024.

According to the International Aluminium Institute (IAI), global primary aluminium production reached an all-time high of 6.04 million tonnes in August 2023.

Aluminium smelters located outside of China, primarily in Malaysia and Iran, have also been operating at levels exceeding initial expectations. In August, China's annualized production rate reached 42.4 million tonnes, which fell slightly short of its annual capacity limit of 45 million tonnes.

The award-winning research firm RHB said, "In view of this, we think China smelters will eventually transfer their capacity abroad, and South-East Asian countries such as the mineral-rich Indonesia, as well as Malaysia – with its ample hydropower capacity – could provide a large enough playground to meet China's demand and decarbonisation targets.”

Moreover, despite the increase in Chinese aluminium production, there has been a noticeable absence of a significant rise in aluminium inventories on the Shanghai Futures Exchange, as exchange stocks have consistently remained low.

In July, China witnessed a 20% year-on-year surge in aluminium imports due to limited stocks, and there are expectations of increased demand, particularly from the electric vehicle (EV) sector, in the near future.

Concurrently, bulk cement prices have remained high, with a 24.7 per cent year-on-year increase, reaching RM380 per tonne in August, which is also the average selling price for the year.

Considering the sustained low inventory of aluminium in LME (London Metal Exchange) warehouses, RHB suggests a positive outlook for aluminium prices in the coming period.

Furthermore, recent data from the Statistics Department has shown a slight decline in cement production to 1.52 million tonnes in July, surpassing the pre-pandemic monthly average of 1.3 million tonnes.

RHB, the research firm, maintains its confidence in the cement industry as it demonstrates inherent synergies with the construction and property sectors.

The research firm added, "We reiterate our conviction that cement demand will continue to flourish in the medium- to long-term, propelled by the commencement of major infrastructure projects in Malaysia."