Optimistic about Press Metal’s outlook from promising prices
KUCHING: Analysts remain bullish on the building materials sector given its optimistic outlook for Press Metal Aluminum Holdings Bhd (Press Metal) which could be supported by promising aluminum prices.
Kenanga Investment Bank Bhd’s research team (Kenanga Research) in a report, noted that aluminum prices are still on the rise. He explained that in early September, a military coup in the African mining nation of the Republic of Guinea (Guinea) rocked the aluminum market at a time when aluminum prices were rising. already high since the start of the year in line with the rally in commodities which was driven by demand induced by the reopening of economies.
The coup raised fears of a likely supply chain disruption, with Guinea accounting for 55% of China’s bauxite supply.
The price of aluminum has jumped to a decade high, topping US $ 2,900 per metric tonne last Friday since the start of the month and below US $ 2,700 per metric tonne.
The research team noted that since the start of the year, aluminum prices have risen 49 percent from US $ 1,974 per metric tonne at the start of the year.
“We remain optimistic on Press Metal for the promising aluminum pricing outlook associated with its new additional capacity expansion of 42% which will lead to explosive earnings growth this year.
“In the meantime, the next profits of 3QFY21 could be affected by higher logistics costs due to the disruption of the shipping market and the delayed commissioning of P3 from 3QFY21 to 4QFY21.
“However, although the commissioning of P3 is delayed at 4QFY21, coupled with the first delivery of alumina from PT Bintan expected soon, this should help improve margins and increase profits in the future,” a- he declared.
As for the performance of other materials such as the long steel industry, Kenanga Research noted that structurally, the outlook indicates a stable steel price environment.
“China’s long-term policy of achieving carbon neutrality by 2060 has been felt by Chinese steelmakers through production limitations. Being the world’s largest steel producer, a steel production cap would mean tighter supply while demand remains high in line with the global recovery of Covid-19 (albeit at an uneven pace across countries) .
“Therefore, we believe that this dynamic would keep steel prices at high levels compared to previous years.
“But higher steel prices above current levels are unlikely. However, ultimately China’s target of limiting steel production from 2021 to 1.065 billion tonnes to reach the Carbon neutrality is a long-term goal, so being too rigid with this policy in the midst of a post-pandemic recovery would lead to another problem – inflation – something more serious and serious in the short term.
“So, we believe that if steel prices skyrocket again due to tight supply, the Chinese government will give its production cap target some leeway to ease. Coupled with the crisis. of Evergrande’s debt that could potentially reduce demand for steel in China as construction activity declines, the prospects of rising steel prices in the immediate future are unlikely, ”he said. -he declares.
Overall, he doesn’t expect a sharp drop in steel prices to come given pent-up demand after the pandemic.
For flat steel, Kenanga Research continued to believe that Ulicorp has good prospects for reopening in the coming quarters, supported by the decrease in the number of competitors facing cash flow issues due to the pandemic and demand. export markets (Singapore, Bangladesh and Myanmar).[ent-updemandfromexportmarkets(SingaporeBangladeshandMyanmar)[ent-updemandfromexportmarkets(SingaporeBangladeshandMyanmar)
He noted that its current order book stands at around RM 120 million (1/3 for export and 2/3 other local) to be delivered within the next six months.
“Since current demand far exceeds supply, Ulicorp can pick good payers and avoid bad ones. Ulicorp’s products are less commoditized and more specialized in nature. While we recognize that Ulicorp has benefited from the inventory lag effect of rising steel prices in previous quarters, we believe it will still be able to maintain strong earnings once the steel prices will have stabilized.
“This is mainly due to the ability of Ulicorp to dictate the prices of products given their less marketable products coupled with the weakening of competition which has diminished by the pandemic,” he said.
Overall, Kenanga Research maintained its “overweight” sector call given its optimistic outlook for Press Metal.