KUALA LUMPUR: Aluminium prices have not taken off as expected as the Chinese economy continues to stumble on an ailing property and construction sector.
With the ongoing demand weakness, analysts are anticipating a continued surplus of the metal in 2024, which should keep downward pressure on prices.
"We acknowledged that contrary to expectations, China’s reopening has not significantly boosted the demand for aluminium.
"While the Chinese government has introduced various measures to stabilise the property market, a meaningful recovery is still not quite on the horizon," said Kenanga Research in a note.
However, the research firm noted that there are signs of a pick up in demand for aluminium in the solar sector, electric vehicles (EV) and transmission infrastructure in China.
It noted also that more stringent green requirements, especially in China, will result in the permanent shutdown of smelters powered by fossil fuels, which will further tighten the gobal aluminium supply.
Meanwhile, Western countries will continue to avoid Russian aluminium, which makes up about 6% of world aluminium production.
Reviewing Press Metal
Aluminium Holdings Bhd's results for FY23, Kenanga said the results met its expectations.
Press Metal's FY23 revenue contracted 12% owing to the weakening average selling price (ASP) as LME aluminium spot price fell 17% to US$2,255 per tonne on average from US$2,705 per tonne last year.
Subsequently, the producer's core profit dropped 13% to RM1.25bil.
Press Metal, however, received a 3% higher share of associate income, due to the full commissioning of PT Bintan's entire two million tonne capacity per annum in 2QFY23, which was partly mitigated by a weaker ASP.
Kenanga cut its profit forecast for Press Metal's FY24 by 7% to reflect lower aluminium price assumptions of US$2,350 per tonne and a US dollar to ringgit exchange of 4.40.
The research firm also introduced its FY25 forecast with earnings projected to grow at 15% on the back of an aluminium price assumption of US$2,400 per tonne with a US dollar to ringgit exchange of 4.40.
Kenanga kept a "market perform" recommendation on Press Metal with a lower target price of RM4.90, from RM5 previously.
Meanwhile, Hong Leong Investment Bank (HLIB) Research maintained its "hold" call on Press Metal with an unchanged target price of RM4.38 as its results came in within estimates.
