Steel, aluminium counters rally on higher commodities prices

This article first appeared in The Edge Financial Daily, on August 10, 2017.
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KUALA LUMPUR: Aluminium and steel counters on Bursa Malaysia had a good run yesterday as aluminium and steel prices rallied.

Aluminium prices climbed above US$2,000 (RM8,578) a tonne while Shanghai’s rebar steel futures steadied at its highest level in over four years, with investors anticipating steep production cuts in the coming winter.

The rally came amid reports that China’s Shandong province ordered 3.21 million tonnes of aluminium smelting capacity to be shut, more than previously expected, as Beijing intensifies its efforts to curb pollution in its bloated heavy industries.

The London Metal Exchange’s aluminium hit a 2½-year peak of US$2,030 a tonne on Tuesday. At the current level, it has risen 19.9% from US$1,693 per tonne seen at the end of last year.

In February this year, the Chinese government ordered steel and aluminium producers in 28 cities to slash output in winter to right smog. Reuters reported that the key steel-producing area of Tangshan and other parts of Hebei province said last week that they would implement the order and cut production by up to 50%.

The Hebei Province Enviromental Protection Bureau said steelmakers in Hebei must comply with state- and province-level emission restrictions by September this year or they will be shut down.

China’s steel prices, after recent rapid gains that lifted prices to their highest in more than four years, remained steady yesterday.

Lee Yen Ling, an analyst with Maybank Investment Bank, told The Edge Financial Daily that the buying interest in steel counters on Bursa could be due to the recent uptrend seen in steel prices, which appeared to have bottomed out in May.

Another analyst pointed out that the safeguard measures and import duties imposed by the Malaysian government on imported steel in April will also improve the average selling price for steel players.

However, there is risk that the safeguard duty would be quashed. The Edge Financial Daily reported on Monday that the Steel Wire Association of Malaysia had obtained leave to pursue a court challenge against safeguard duties imposed by the international trade and industry ministry.

Notwithstanding that, steel counters have been climbing. Ann Joo Resources Bhd’s share price closed 5.6% higher yesterday at RM3.21. Similarly, Southern Steel Bhd gained 7.6% or 13 sen to RM1.84, Mycron Steel Bhd was up 6.5% at 82 sen, and Melewar Industrial Group Bhd rose 8.8% to 31 sen.

The leading aluminium producer in Southeast Asia, Press Metal Aluminium Holdings Bhd, was the top gainer on the local exchange yesterday. It closed 11.2% higher at its all-time high of RM3.27 after more than 45 million shares were traded. Aluminium Company of Malaysia Bhd also gained 5.3% to RM1.78, amid stronger buying interest that saw some 5.2 million shares traded, compared with its 200-day average of 521,867.5 shares.

“For Ann Joo, we should see breakout above RM3.10 with near-term resistance at RM3.35 to RM3.50, while support level is at the range of RM2.95 to RM3,” said Loui Low Ley Yee, head of retail research at Hong Leong Investment Bank, when asked on the technical indicator of some of the steel players.

“Southern Steel could see breakout with a continuation rally above RM1.76. Next resistance is at RM1.93 to RM2.00 and support is seen at the RM1.66 to RM1.70 level,” he said.

On Mycron, Low said the counter saw a recovery from a downtrend position after surging above 78.5 sen. The counter may revisit the 85.5 sen to 87.5 sen range while support will be around the 75 sen to 76 sen level, he said.

“Melewar also rebounded off 28 sen and breakout is seen above 29 sen. Target of technical rebound stood at 31.5 to 33 sen. Support will be set around 27 sen,” Low added.

Meanwhile, UOB Kay Hian Securities kept its “buy” call on Press Metal and raised the target price to RM3.50 from RM3.30 on the rise in its raw material price.

Press Metal’s earnings for the second quarter ended June 30, 2017 (2QFY17), slated to be announced on Aug 16, are expected to improve quarter-on-quarter after accounting for seasonal weakness for the extrusion business in the first quarter due to the Chinese New Year holidays, the research house said in a note to investors yesterday.

In FY16, it turned in a record revenue of RM6.6 billion after a 44% jump, resulting in net profit more than tripling to RM495.45 million from RM132.35 million a year ago, on the back of a stronger US dollar against the local currency, and higher output.

It added that Press Metal’s commencement of additional capacity for value-add products and conveyor belt system by the end of the year will also drive margin expansion from FY2018 onwards.