The research house said Press Metal had locked in most of its alumina requirement for 2018 based on the formula tied to the LME spot price movement with aluminium prices for a portion of its 2018 sales volume unhedged.
KUALA LUMPUR: UOB Kay Hian Malaysia Research is maintaining its Hold for Press Metal
with a target price of RM5, which 20 times earnings per share for 2019. Its entry price is RM4.70.
It said on Tuesday the US hinted at lighter Rusal sanctions the previous day, which saw aluminium prices plunge to the US$2,300 a tonne level from US$2,500 a tonne.
Alumina prices will follow suit in coming off from the recent peak of US$670 a tonne. The current situation which still points to tighter supply should be favourable to Press Metal, although it noted that it is too early to gauge the exact impact to earnings at this juncture given the big price swings.
US hints at lighter Rusal sanctions which saw aluminium prices retreat to US$2,300 on Monday.
To recap, Rusal and other Deripaska-linked companies were the targets blacklisted by the US in early-April in response to Russia’s malign activities around the globe.
Rusal is one of the world’s major producers of aluminium and alumina at 3.7 million tonnes (about 6% of global aluminium supply) and 7.8 million tonnes (about 6% of global alumina supply) respectively.
Following the sanctions, aluminium prices rose to more than US$2,500 a tonne from the year-to-date low of US$1,960 and retreated to US$2,300 on Monday after the US Treasury said it would provide sanctions relief to Rusal if Deripaska relinquished control, and also extend the deadline for companies to wind down dealings with sanctioned Rusal and its subsidiaries until Oct 23.
“Alumina prices should come off following US announcement of lighter Rusal sanctions. Alumina, a major raw material for aluminium production, accounts for approximately 35% of Press Metal (PMetal)’s COGS.
“It takes approximately two tonnes of alumina to produce one tonne of aluminium. The most recent and significant rally was from US$480 on April 12 to US$670 on April 20 as a result of the US sanctions on Rusal (year-to-date low at US$360).
“Current situation favourable to PMetal in the near term. PMetal has locked in most of its alumina requirement for 2018 based on the formula tied to the London Metal Exchange spot price movement, with aluminium prices for a portion of its 2018 sales volume unhedged.
“Separately, we note that the premium on value-added products is currently hovering at more than US$300 (vs our assumption at US$120). However, it is too early to gauge the exact impact to PMetal’s earnings at this juncture given the big swing in aluminium and alumina prices during this period,” it said.
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