Rise in aluminium use to benefit PRESS Metal Bhd

PRESS Metal Bhd expects to benefit from an improving upstream aluminium market which is now in deficit after years of oversupply, according to group chief executive officer Datuk Paul Koon Poh Keong.

He notes that there are no new smelters coming up in the next two to three years, a key factor which should fundamentally improve prices, as global aluminium consumption outside China is expected to rise.

“We are confident that the aluminium market will be better, and our performance should be in line. A good price range would probably be between US$1,900 (RM6,095) and US$2,000 (RM6,416) per tonne. Below US$1,800 (RM5,774) per tonne, a lot of smelters will still be losing money,” he says.

Group executive vice chairman Koon Poh Ming says its plants are low-cost smelters which sit within the first quartile of the global primary aluminium cost curve, allowing it to handle the impact of fluctuating aluminium prices.

Poh Keong adds that it has been able to compete during the past few years of oversupply due to its low-cost model which necessitates full capacity operations throughout the entire duration of its power purchase agreement period to bring costs down.

“Even when the cycle is up and down, it’s okay. Others will have to stop first before it comes to you. We also have a firm power price, compared to others who may depend on the market’s ups and downs,” he says.

He believes that transportation will be a key sector driving primary aluminium demand, noting Ford Motor’s decision to use aluminium for the production for the body of its best-selling Ford Truck F-150.

Observing that aluminium bodies were previously reserved only for luxury cars, he says this development is the beginning of mass aluminium use for the sector, which will also mean lighter and more fuel-efficient cars.

“Besides this, aluminium is replacing a lot of materials including in sectors like electronics, pharmaceutical, packaging and construction,” Poh Keong says, adding that he expects demand to keep growing.

Following the completion of its ramp-up exercise in March, RHB Research maintains its “buy” call on Press Metal, noting that the group was in time to capitalise on rising aluminium prices and premiums.

In a June 5 research note, it urged investors to take the opportunity to ride on Press Metal’s potential earnings wave before the market got wind of its actual earnings prospects in the next few months.

It said sentiment was generally bullish as aluminium prices had bounced back after the recent technical correction.

Besides this, it noted that world ex-China aluminium consumption rose 1% year-on-year to 25.2 million tonnes last year and conservatively expected global aluminium consumption outside China to rise 3% this year.

Taking this into account, RHB Research saids that with the last tranche of new smelting capacities ramp-up and production cuts, it estimated a deficit of 510,000 tonnes of primary aluminium this year.