The research house said it expects cement prices in Peninsular Malaysia not to fall given the emergence of a price leader in the market following YTL Cement's acquisition of Malaysian Cement in 2019 and easing supply pressure with the recent shutdown of clinker plants by Malaysian Cement and CIMA.
However, it projects cement consumption in Peninsular Malaysia to decline 30% to 10.5 million tonnes in 2020 from 15 million tonnes in 2019.
The consumption is set to improve in 2021 by 30% assuming construction players are able to bring their productivity back to close to pre-pandemic levels.
"Despite its significant pricing power, we believe the price leader will toe the line and only raise cement prices slightly to RM260/tonne in 2021F," said AmInvestment.
Meanwhile, aluminium prices are projected to undergo a mild recovery to US$1,600/tonne in 2H2020 from US$1,528/tonne in 2Q2020.
While aluminium consuming industries are coming back online as economies reopen, there is a build-up in invengory as smelters globally have contiued to produce throughout the pandemic due to the cost of shutting down and restarting them.
"This has led to a huge inventory build-up, as reflected in a 23% increase in global aluminium stockpile to 13.3mil tonnes in end-1Q 2020, from 10.6mil tonnes in 4Q 2019," said AmInvestment.
It added that prices could improve slightly to US$1,700/tonne in 2021 as the investory build-up decreases.
Steel prices however are expected to recover in 2H20 as Chinese construction activities pick up.
Supply pressure in Malaysia remains manageable with a key foreign-controlled steep producer continuing to export a signification portion of its production while domestic construction activities recover.
AmInvestment also expects cost pressure to ease with lower irone ore prices in 2H20 as the mines in Brazil reopened following temporary shutdown.
"Nonetheless, based on our forecast of an average steel bar price of RM2,100/tonne in FY20F (revised up from RM1,860 we assumed previously), we expect local steel players to remain loss-making," it said.
The research house's top sector pick is Malayan Cement with a "buy" recommendation and target price of RM3.30.
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