Press Metal Bhd
(April 24, RM2.90)
Maintain hold with an unchanged target price (TP) of RM3.20: China has announced that it will end its export tariffs on aluminium products — a move that will exacerbate a global glut of the metal.

According to various reports, China’s Ministry of Finance said it will remove the 15% export tax on aluminium rods and strips, in addition to cutting taxes on other rare earths and metals. The elimination of tariffs is part of the republic’s general strategy to remove the red tape that allows corruption to flourish at state-owned enterprises, reported The Financial Times. We believe that the removal of export tariffs on aluminium products will exert further pressure on global aluminium prices, which are already depressed due to concerns of oversupply.

Recall that earlier this month, Alcoa Inc — the largest aluminium producer in the United States — revised its expectations of a global supply exceeding consumption by 326,000 tonnes for this year. Earlier in January, it forecast a global deficit of 38,000 tonnes. The move by China will result in more aluminium being offloaded into the global market even as smelters in the country increase capacity. Earlier this month, the Chinese reduced power prices for coal-fired plants, seen as a boost for aluminium smelters. This is in contrast to rising energy costs in other parts of the world, which has resulted in smelters being shuttered.

For the first three months of the year, aluminium shipments from China rose 43% to 1.2 million tonnes. Last year, China’s aluiminium output rose 9%. The London Metal Exchange aluminium spot price remains depressed for the year, trading at an average of US$1,801.34 (RM6,430.78) per tonne year-to-date (YTD). Last Thursday, it closed at US$1,797.75 per tonne. Coupled with falling global premiums (down by as much as 23% YTD), and a mixed global economic growth — we believe that outlook for the aluminium market remains muted for the year. We maintain our “hold” call on Press Metal Bhd. — AmResearch, April 24

This article first appeared in The Edge Financial Daily, on April 27, 2015.