Analysis: Upbeat on Press Metal on long-term prospects

KUCHING (Sept 5): RHB Investment Bank Bhd (RHB Research) remains encouraged on Press Metal Bhd (Press Metal) and its sector’s mid- to long-term earnings prospects, staying positive on its outlook for aluminium.

RHB’s positive outlook on aluminium is primarily driven by the ongoing rise in average selling prices (ASPs), and ‘green push’ towards electric vehicles (EVs) and solar panels.

“Press Metal’s Samalaju manufacturing facility has an annual capacity of 960,000 tonnes (89 per cent of the group’s total smelting capacity), and casting plants for value-added products like billets, alloys, and wire rods,” it said in a note.

“These facilities are operating at optimal utilisation, producing circa 900 tonnes/day in each of the three phases.

“The facilities are strategically located near the deep-water Samalaju Industrial Port (SIPSB) – vital for facilitating cross-border trade.

“Furthermore, a 3.5km conveyor belt system connects the plants to SIPSB, ensuring smooth and efficient delivery of alumina.”

The research firm remained cautiously optimistic on the outlook for aluminium as global prices have seen recoveries from the temporary blip in July, likely due to the possibility of rate cuts by the US Federal Reserve by September.

Notably, main Japanese Port or MJP spot premiums are also on an upward trend – rising by some 10.3 per cent quarter on quarter as of August — driven by higher freight costs.

“We expect aluminium ASPs to be supported by slow capacity expansions in Indonesia; mid- to long-term demand from green sectors such as EVs and solar; and increase in US tariffs on Chinese aluminium imports to 25 per cent from seven.

“While the pace of major drivers like solar-capacity expansions may moderate in 2H24, we expect long-term growth to be supported by the global push to reduce carbon emissions.”

The firm warned that alumina prices remain elevated amidst tight supply, standing at US$496.20 per tonne. By contrast, carbon anode prices have eased from their 2022 peak, declining to 3,730 yuan per tonne as at end August.

While the high alumina prices are a concern, RHB Research said this is expected to gradually soften as supply increases with the launch of three new projects in Mempawah, Bintan, and India, each with a capacity of one million tonnes.

They are scheduled to come online between 4Q24 and 2027.

RHB Research made no changes to its earnings estimates for Press Metal and reiterated its buy call on the stock, premised on Press Metal’s cost advantage (coupled with sustained demand from green sectors), potential US Fed rate cuts to boost global demand, and rising market preference for lower-carbon footprint smelters.