This article first appeared in Corporate, The Edge Malaysia Weekly, on May 16 - 22, 2016.

AS global car makers increasingly use aluminium instead of steel for body panels to reduce weight and maximise fuel economy, homegrown aluminium smelter and extruder Press Metal Bhd is ready to seize the new growth opportunities in the automotive industry.

“This is an exciting time to be a part of the automotive industry,” its CEO Datuk Paul Koon Poh Keong tells The Edge.

“I believe there’s still a lot of room for growth [in this sector], not just in terms of car sales but also the use of aluminium in vehicles.”

With the push towards green cars, Press Metal opines that automakers will endeavour to make more low-emission vehicles that are also lighter.

For that reason, aluminium, which is light and recyclable, can be used as a substitute material to slash vehicle weight and, thus, cut down on harmful carbon emissions.

This is good news for Press Metal as 20% of its customers are from the automotive sector.

“We are talking about one material replacing another. There’s going to be huge replacement growth. More importantly, we have not seen much of other materials that can replace aluminium,” Koon says confidently.

He cites as an example US automaker Ford Motor Co, which made a bold move to introduce an all-aluminium truck dubbed “F-150”. “The big gamble turned out to be highly successful [for Ford] as F-150 has become one of the bestselling trucks in America.”

Other car makers, including Audi, BMW, Mercedes-Benz and Toyota, have jumped on the bandwagon to make the wheels, engine and body panels of their vehicles, among others, out of aluminium.

“The trend [of material substitution] has already begun. Of course, it took Ford years to reach this stage. But it’s getting more and more mature. We will get there,” remarks Koon.

“People believe in this product [aluminium car] now and it has taken off. So, the new-concept car companies, such as Tesla Motors, will have no second thoughts [about producing all-aluminium cars] because they believe that is the future,” he says, adding that an all-aluminium car is modern and easy to design.

Koon, 55, is one of the founders of Press Metal. He has more than 20 years of experience in the aluminium industry and took the helm of the company as its CEO after its listing on Bursa Malaysia in 1993. He is the younger brother of executive vice-chairman Koon Poh Ming and executive directors Koon Poh Kong, Koon Poh Weng and Datuk Koon Poh Tat. The family currently controls about 50% to 60% equity interest in the company.

The brainchild of the Koon brothers, Press Metal began as a local aluminium extrusion company in 1986. Today, it is the largest integrated aluminium producer in Southeast Asia with 760,000 tonnes of smelting capacity and 190,000 tonnes of extrusion capacity per year.

Its aluminium products are used by technology giants, high-speed train makers and household food and beverage brands from Malaysia, China, Australia, Southeast Asia, Europe and Americas.

In its upstream business, Press Metal operates three aluminium smelting plants in Mukah and Samalaju, Sarawak. The first smelter in Mukah has an annual capacity of 120,000 tonnes while its second and third have an annual capacity of 320,000 tonnes each.

In its downstream business, Press Metal has two aluminium extrusion plants in China, one in Foshan with an annual capacity of 120,000 tonnes and another in Hubei with 30,000 tonnes. Back home, it operates a 40,000-tonne extrusion plant in Klang, Selangor.

Koon says the company has no plans for a major expansion of capacity at its smelting operation at the moment, although this is an ongoing thing at its extrusion operation.

“We like the aluminium story. The whole of Malaysia uses only 200,000 tonnes of aluminium but we make 760,000 tonnes. So you can imagine how big an exporter of aluminium we are,” he remarks.

Moving forward, Press Metal intends to venture into bauxite mining in Kalimantan, Indonesia. An aluminium ore, bauxite is the world’s main source of the metal.

“We would certainly like to explore a further upstream business, such as the sourcing of raw materials. Kalimantan would be an ideal location for bauxite mining because it is very close to where we are,” Koon explains.

However, he points out that the new business venture is likely to involve huge capital expenditure. Thus, the company will be “a little bit more cautious”.

“We will see if we can expand into that area but maybe not in the next one to two years. It won’t be an easy venture and we have to be very careful. But if we are successful, it will help us secure a major portion of raw materials.”

In its first quarter ended March 31 (1QFY2016), Press Metal’s net profit more than doubled to RM94.55 million year on year while revenue rose 22% to RM1.28 billion.

The significant jump in net profit was attributed mainly to a second interim insurance claim of RM50 million due to a fire at its Samalaju smelter in May last year. To date, a total interim claim of RM70 million has been received by the company.

“It was an unfortunate event but we quickly recovered from that. In fact, after a few weeks, we restarted our operations and ramped up to full capacity in a few months. In the last quarter, we were already back in business,” says Koon.

He expects a final settlement in the second or third quarter of the year, which will go straight to the company’s bottom line.

“We are in the final stage of negotiations. We think it will be a substantial amount and certainly be more than enough to cover our losses.”

On the outlook for the company, Koon expects at least 40% growth in revenue in FY2016 as the market has shown good signs of recovery.

“At the beginning of the year, the market was quite depressed because the oil price was at a low, across all commodities. But towards the end of the first quarter, we saw an improvement. The oil price has recovered fairly well, as have the rest of the commodities, from iron ore to aluminium.”

Koon recalls that the price of aluminium was as low as US$1,400 to US$1,450 per tonne last year but it has since rebounded to around US$1,650 per tonne.

“The aluminium price is still at a low level; it cannot be staying at this level all the time. Once the commodity cycle comes back, we will see a huge benefit. Right now, we are just comfortable with the current situation.”

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