Stable outlook for non-ferrous metal players

Kenanga Research is “overweight” on the building materials sector.

PETALING JAYA: A stable price outlook is seen for the non-ferrous metal players due to supply constraints, but steel players may not be able to boost their margins following the doldrums in steel prices, says Kenanga Research.

The research house, which is “overweight” on the building materials sector said its top picks were aluminium smelter Press Metal Aluminium Holdings Bhd and ferroalloy smelter OMH Holdings Ltd in line with their significant cost advantages over their international peers.

“This is as both companies’ main source of energy comes from hydropower, which in turn also make them low-carbon metal players with an added environmental, social and governance or ESG appeal to investors,” Kenanga Research said in its latest report.

It added the supply constraints of aluminium, ferrosilicon (FeSi) and silicomanganese (SiMn) will persist due to the decommissioning of highly polluting plants and Western sanctions against Russian aluminium, providing support to prices.

Year-to-date, the London Metal Exchange aluminium prices averaged at US$2,347 (RM10,897) per tonne.

This is slightly 1% lower than US$2,364 (RM10,978) per tonne in the second half of 2022.

Meanwhile, FeSi and SiMn prices year-to-date have averaged at US$1,045 (RM4,857) and US$1,577 (RM7,330) per tonne, respectively.

“Hence, Press Metal and OMH should be able to deliver decent profits,” said Kenanga Research.

On the other hand, steel prices are likely to remain in the doldrums in the absence of significant stimulus and a soft property market in China.

“We gathered that the rollout of large-scale infrastructure projects and a more meaningful pickup in the property sector in China are more likely to materialise towards the later part of 2023,” the research house noted.

In May, the local long steel price declined to around RM2,911 per tonne, down 7% month-on-month (m-o-m), while local flat steel price declined to RM3,670 per tonne, dropping 6% m-o-m amid the slow demand recovery and excess production in China.

“As such, local steel players including Ann Joo Resources Bhd and United U-Li Corp Bhd will still not be able to significantly raise selling prices to boost margins,” Kenanga Research pointed out.

Meanwhile, Engtex Group Bhd is well-positioned to benefit from the revival of water projects as the unity government initiates public infrastructure rollouts, it added.

“While the company holds dominant market positions in manufacturing pipes for water projects, it’s important to note that a significant portion of its revenue still comes from low-margin generic steel products,” the research house explained.

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