KUALA LUMPUR: Malaysia's building material sector is awaiting the awakening of a slumbering giant as the global aluminium price trends higher.
Kenanga Research expects stable prices with an upside bias for aluminium, ferrosilicon (FeSi) and silicon manganese (SiMn).
However, the demand outlook for these commodities is unfavourable due to economic challenges in China, partially cushioned by supply constraints and softening input costs.
"We see slightly better aluminium prices after a two-year lull, but remain cautious on FeSi and SiMn prices given the protracted downturn in China's steel sector," the firm said today.
Kenanga Research projected a slightly higher average aluminium price of US$2,450 per tonne in 2024 versis
an estimated US$2,262 2023, while slightly lower average FeSi and SiMn prices of US$1,350 and US$950 per tonne in 2p24 against an estimated US$1,450 and US$968 in 2023 respectively.
Kenanga Research prefers steel product players to steel players.
Nevertheless, considering China's economic woes, the world's biggest user and producer of steel, the firm does not anticipate a major rebound in steel prices in 2024.
"It was somewhat mitigated by supply shortages brought on by the closure of smelters that used fossil fuels, particularly coal-fired ones, as a result of tighter environmental regulations and Western sanctions against Russian aluminium," it said.
Kenanga Research's top pick is OM Holdings Ltd (OMH), due to its structural cost advantage over international peers given its access to low-cost hydropower under a 20-year contract ending 2033.
"OMH has strong growth prospects underpinned by plans to expand its capacity by 30 to 36 per cent to 610,000-640,000 tonnes per annum over the medium term, and its appeal to investors given its clean energy source," it said.
The firm also picked United U-Li Corp Bhd because of the strong demand for its cable support system products on the back of a construction boom in both private space and impending public mega projects such as MRT3 and East Coast Rail Link.
"U-Li Corp's improved pricing power of players following the industry consolidation during the pandemic, i.e. weak players shutting down permanently, and its growth driven by two new plants that will boost its capacity by 40 per cent," the firm said.
Kenanga Research maintained its "Neutral" call on the building material sector.
The firm expects financial year 2024 earnings growth for aluminium smelter by Press Metal Aluminium Holdings Bhd to be driven by better aluminium prices while FeSi and SiMn alloy producer OMH by a higher production volume.