Weaker US dollar to impact Press Metal

KUCHING (Oct 3): The US Federal Reserve’s (US Fed) aggressive monetary policy pivot has resulted in the US dollar-ringgit declining 12 per cent since 1 July 2024.

This poses a downside risk to Press Metal Aluminium Holdings Bhd (Press Metal) as aluminium trade is predominantly denominated in US dollar.

Based on RHB Investment Bank Bhd’s (RHB Research) sensitivity analysis, every one per cent change in the US dollar-ringgit rate will result in a 1.8 to two per cent change in its bottomline.

“We expect a cumulative 100 basis point (bps) cut in the US FFR in 2024 and additional 100bps cut in 2025, with no change to Bank Negara Malaysia’s overnight policy rate (OPR).

“This is expected to contribute to a downside bias for the US dollar,” RHB Research calculated.

“Nonetheless, the negative impact should be partially offset by the upward trend in LME aluminium prices, driven by mid- to long-term demand from green sectors and the US tariff rate hike on Chinese aluminium imports.”

Currently, alumina costs remained elevated amid tight supply at US$508.50 per tonne in the third quarter of 2024 (3Q24).

RHB Research expects prices to remain high before normalising in 2025 due to increasing supply, with one million tonnes of refinery expansions each in Mempawah, Bintan, and India scheduled from 4Q24 to 2027.

Meanwhile, carbon anode prices have eased from the 2022 peak and stabilised below 4,000 yuan per tonne.

“We expect a softer 3Q24, with core earnings estimated at RM250 million to RM300 million, driven by the LME aluminium price of US$2,385 per tonne, a weaker US dollar, higher alumina costs, and a factory fire incident at Samalaju in September.”

To recap, the fire affected circa nine per cent of the aluminium smelting line (phase 3), and repairs are expected to take 3-4 months.

Management estimates this will reduce 2024 annual smelting capacity by about three per cent, which translates to a four to five per cent reduction in the bottomline, based on our estimates.