Metal stocks to gain from China’s rising demand


MALAYSIA’S metal stocks are showing signs of recovery after global restrictions on movement in March put a stall on factory activity which caused a slump in demand for steel and other base metal.

Expectations of increased demand from China are lifting the recovery following Beijing’s economic rebound in the last two quarters and as trade figures improve.

A check on Bloomberg showed that 22 out of 28 metal and steel companies listed on Bursa Malaysia have recorded increases in their share prices since the start of the year. The top 10 counters alone have seen RM265.37 million added to their market capitalisation to date.

Press Metal Aluminium Holdings Bhd’s share price is currently trading nearly 70% or RM3.25 higher year-to-date (YTD) at RM7.90 as of last Friday, valuing the company at RM31.9 billion from RM19.2 billion earlier this year.

The company’s net profit saw a marginal increase year-on-year (YoY) by 0.39% to RM121.98 million in its third quarter ended Sept 30, 2020 (3Q20), from RM121.51 million in the same period last year.

On a quarterly basis, the group’s net profit jumped 35.4% from RM90.07 million in the preceding quarter, while its revenue increased by 7.6% to RM1.86 billion compared to RM1.73 billion, lifted by higher aluminium prices.

Group CEO Tan Sri Paul Koon said there was an improved demand for aluminium from key end-user industries such as automotive and construction, where manufacturers for these industries were holding low inventory.

“China’s swift economic rebound led to increased aluminium demand and higher domestic aluminium prices on the Shanghai Futures Exchange compared to the London Metal Exchange prices.

“China, which historically was a net exporter, has reversed its position to be a net importer of primary aluminium during this quarter. Inventory levels are also seen to be decreasing week on week which only demonstrates the tightness of aluminium supply within China currently,” he said in a bourse filing recently.

Meanwhile, LB Aluminium Bhd’s share price also increased by 31.3% or 16 sen YTD, giving the company a market capitalisation of RM165.24 million last Friday against RM134.18 million on Jan 2.

The company’s net profit surged 128.3% YoY for its 2Q21 to RM9.33 million from RM4.09 million a year ago mainly backed by better margins from the aluminium segment. Revenue for the quarter slipped 3.8% YoY to RM125.09 million from RM129.98 million previously due to lower average selling prices.

At the opposite end, Ann Joo Resources Bhd’s share price remains 15% or 21 sen lower YTD at RM1.14 compared to RM1.35 registered earlier this year despite making solid gains in the past month. The company’s market capitalisation stood at RM638.3 million at close last Friday.

Ann Joo Resources narrowed its net loss in 3Q20 to RM18.92 million versus a net loss of RM65.03 million a year ago, on a 10.9% YoY higher turnover of RM560.21 million in the quarter under review. The improved revenue was attributed to higher export tonnage sold amid weaker domestic demand.

In a filing recently, the group said domestic demand is still below pre-pandemic level as recovery continues to be disrupted by the resumption of restrictions on movement due to a resurgence of Covid19 infections.

It, however, expects domestic steel demand to gradually improve in the coming year mainly due to a gradual revival of major infrastructure projects.

“The strong steel demand from China and other countries, due to their robust infrastructure development post lockdown, has contributed to a rise in international steel prices.

“For the remainder of the year, we will further enhance our efforts on exports to China and other countries in the region,” it said.