Margin squeeze looms for Press Metal

PETALING JAYA: Press Metal Aluminium Holdings Bhd’s earnings are expected to come under pressure in the second half of this year.

This comes as moderating aluminium prices and rising raw material costs weigh on smelting margins, with improving global supply conditions potentially limiting the upside for the metal’s prices into 2027.

The company could see further pressure on profitability as aluminium supply recovers, although its underlying fundamentals remain intact amid the changing market environment.

Hong Leong Investment Bank (HLIB) Research expects Press Metal’s core earnings to reach RM600mil to RM650mil in the third quarter of financial year 2026 (3Q26).

It represents a 10% to 17% decline quarter-on-quarter, but a 1% to 9% increase year-on-year.

This would bring its nine-month core earnings to RM1.93bil to RM1.98bil, accounting for 75% to 77% of the research house’s full-year forecast.

The anticipated sequential decline reflects lower average spot aluminium prices on the London Metal Exchange of US$3,228 per tonne in 3Q26, compared with US$3,564 per tonne in the preceding quarter.

Average spot alumina prices, meanwhile, rose to US$347 per tonne from US$318 per tonne.

“The worst of the primary aluminium supply crunch is likely over as the narrative now increasingly shifts to a potential surplus in 2027,” HLIB Research pointed out.

“The gradual resumption of Gulf smelter operations and increasing exports from China and Indonesia should ease supply tightness,” the research house further elaborated.

“Emirates Global Aluminium reported that the restart of its Al Taweelah smelter was ahead of schedule in August – reaching approximately 25% of its 1.6 million tonnes per annum capacity – and will return to full production by 1Q27,” the research firm noted.

HLIB Research maintained a “hold” rating on Press Metal, but lowered its target price to RM7.44 a share from RM8.22 based on the five-year mean price-to-earnings ratio of 25 times pegged to financial year 2027 earnings per share.

According to HLIB Research, Indonesia’s nameplate aluminium capacity is expected to double from two million tonnes in 2026 to more than three million tonnes in 2027, although actual output could be constrained by power availability.

These developments – together with demand-side pressures and higher risk-free rates amid a hawkish US Federal Reserve stance – have contributed to aluminium prices retreating to around US$3,000 per tonne.

In the meantime, HLIB Research said input costs are moving in the opposite direction.

The research house noted alumina prices have climbed to US$370 per tonne since mid-October, supported by recovering downstream demand from the Middle East and additional demand from Indonesia’s new refineries. Guinea’s proposed bauxite export quota system also presents an upside risk to prices.

Carbon anode prices have risen to a multi-year high of 6,000 yuan per tonne, driven by elevated petroleum coke and coal-tar pitch costs.

“With the softer aluminium average selling prices and rising alumina and carbon anode costs, we foresee tapering smelting margins in the near-term,” HLIB Research said.