KUALA LUMPUR (Oct 26): Press Metal Aluminium Holdings Bhd (KL:PMETAL) is expected to see softer smelting margins in the second half of 2026 as aluminium supply crunch eases, said Hong Leong Investment Bank (HLIB) Research.

"The narrative now [is] increasingly shifting to a potential surplus in 2027. Coupled with falling Japan-Port (MJP) premium and rising alumina as well as carbon anode costs, we foresee sequentially weaker smelting margins in 2H2026," the house said in a note on Monday.

HLIB Research estimated that Press Metal’s 3Q2026 core earnings will come in between RM600 million and RM650 million, down 10% to 17% quarter-on-quarter but up 1% to 9% year-on-year.

This would bring nine-month earnings to about 75% to 77% of its full-year forecast.

The expected quarterly softening is driven by lower average spot London Metal Exchange (LME) aluminium prices of US$3,228 per metric ton (MT), compared with US$3,564 in 2Q2026, alongside higher average spot alumina prices.

The research house noted that supply tightness is easing due to the gradual resumption of Gulf smelter operations, such as Emirates Global Aluminium’s (EGA) Al Taweelah smelter restarting ahead of schedule, and rising exports from China and Indonesia.

“Meanwhile, Indonesia’s nameplate capacity is expected to double from 2mtpa in 2026 to over 3mtpa by 2027,” the research house added.

However, cost pressures are mounting with alumina prices rising since mid-October on recovering downstream demand from the Middle East, while carbon anode prices have hit “a multi-year high of CNY6,000/MT” on elevated petroleum coke and coal-tar pitch costs. The MJP premium has also fallen sharply since late September.

Consequently, HLIB Research has trimmed its financial year ending Dec 31, 2026 (FY2026), FY2027 and FY2028 earnings forecasts by 2%, 10% and 6% respectively, after imputing lowered MJP premium, higher alumina and carbon anode cost assumptions.

The research house is maintaining its 'hold' rating on Press Metal, with a lower target price of RM7.44 (down from RM8.22).

While HLIB Research remains constructive on the company’s underlying fundamentals, it noted that “the external environment has turned increasingly unfavourable” and “the lack of near-term earnings catalysts could limit rerating potential”.