Firm demand for cement and aluminium

RHB Research is anticipating demand from major infrastructure projects and construction activity in the country to continue to drive demand in the medium to long term.

PETALING JAYA: Analysts are optimistic about the demand outlook for cement and aluminium going forward driven by supportive fundamentals such as tight supplies, rising demand and strong prices.

RHB Research is anticipating demand from major infrastructure projects and construction activity in the country to continue to drive demand in the medium to long term, thus supporting cement prices.

In a sector report, the research house said bulk cement prices remained elevated at RM380 per tonne as of August, up some 24.7% year-on-year (y-o-y), and well above the three-year (2019 to 2021) average bulk cement price of about RM216.80 per tonne.

The strong prices remained despite national cement production standing at 1.52 million tonnes in July as compared with 1.56 million tonnes in March, and well above pre-pandemic monthly average production of 1.3 million tonnes.

RHB Research’s top prick for the sector is Malayan Cement Bhd with a target price (TP) of RM4.43 a share.

The research house also remained positive on Press Metal Aluminium Holdings Bhd (TP of RM5.70 a share) on the belief that aluminium prices would be supported by lower production and stock levels.

In addition, the rising demand from the solar panel and electric vehicle (EV) manufacturers as well as anticipated upturn in China’s manufacturing and property market in the second half of next year will augur well for the raw materials.

Data showed global production of primary aluminium achieved an unprecedented high of 6.04 million tonnes (up 1.6% y-o-y) in August driven by smelters in Iran and Malaysia while the output of Chinese smelters remained below total annual capacity.

“In view of this, we think China smelters will eventually transfer their capacity abroad, and South-East Asian countries such as the mineral-rich Indonesia, as well as Malaysia – with its ample hydropower capacity – could provide a large enough playground to meet China’s demand and decarbonisation targets,” RHB Research noted in a report on the building-materials sector.

It added that inventory remained low, signalling improving demand.

Despite the higher production in China, there has not been a noticeable accumulation of aluminium inventories in the Shanghai Futures Exchange, and exchange stocks have remained consistently low.

“China’s aluminium imports in July surged by 20% y-o-y amid tight stocks, with expectations of stronger demand on the horizon particularly from the EV sector,” said RHB Research.

Furthermore, it said the low aluminium inventory in London Metal Exchange warehouses suggested a favourable outlook for prices ahead.