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Analysts: US tariffs have no direct impact on PMetal


PETALING JAYA: The potential tariff on primary aluminium imports by the United States has no direct impact on Press Metal Aluminium Holdings Bhd (PMetal).

According to AmInvestment Bank and UOB Kay Hian, PMetal exports less than five million tonnes of extrusion goods to the United States, or less than 1% of the company’s sales.

However, AmInvestment Bank believed that PMetal would still feel the impact of lower aluminium prices in the international market if the tariff takes effect, irrespective of whether it exports its products to the United States.

“Assuming the tariff is to take effect, theoretically, aluminium in the US domestic market will trade at a 25% and 10% premium to international prices.

“This could prompt US aluminium producers to restart their idle capacities, which are not commercially viable based on the current international prices of steel and aluminium.

“We estimate that the US idle aluminium production capacity stands at about one million tonnes per annum, translating to about 50% to 60% of the total installed aluminium production capacity in the US,” said AmInvestment Bank.

Meanwhile, UOB Kay Hian opined that there would be minimal impact from higher alumina prices on PMetal due to hedging policy.

The research house said although alumina prices, which account for more than one-third of cost of goods sold, fell to below US$400 per tonne currently from the fourth quarter 2017 high of US$450 to US$500 per tonne, prices are still high compared with US$200 to US$350 per tonne in 2016.

“However, we are not concerned about the impact in the near to medium term, given that PMetal has locked in the bulk of its alumina requirement for 2018 at low prices.

“For its 2019 requirement, we opine that there is still ample time to lock in its alumina requirement when prices turn favourable,” said UOB Kay Hian.

Meanwhile, the price of carbon anode has seen a significant rise, reaching a seven-year high of 4,500 yuan in December 2017, from 2,650 yuan in November 2016.

PMetal said the sharp increase in anode prices suggested that a further increase might not be likely, but current high prices might prolong.

AmInvestment Bank revised up the carbon anode cost price in FY18 to FY20 by 10%, 5% and 8%, to US$560, US$600 and US$660, respectively.

For every 1% drop in the US dollar to ringgit exchange rate, it is estimated that the company’s overall earnings will be eroded by 2%, to which AmInvestment Bank revises its dollar to ringgit assumptions to 4.10 in FY18 and 4.00 in FY19 to FY20, from 4.35 in FY18 and 4.20 in FY19 to FY20 previously.

Press Metal closed 4.4% lower at RM4.95, trading on a volume of 15.1 million shares.

   

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