• Maintain OVERWEIGHT; Top Picks: Press Metal and Malayan Cement (LMC). We are still upbeat on aluminium prospects moving forward, given the still-low LME warehouse aluminium inventory, scarcity of low carbon-producing aluminium smelters in the ASEAN region (which would benefit from the “green push” towards solar panels and EVs), and potential resurgence of global demand in 2024, driven by China’s recovery. We prefer LMC among cement makers given its pricing power as market leader and a direct beneficiary of the revival of construction and property activities in West Malaysia.

• Expecting demand to pick up in 2024. Despite the disappointing demand outside of China, particularly attributed to sluggish global manufacturing, the outlook for aluminium consumption remains promising in the vibrant markets of India and China. The solar, EV, and infrastructure sectors in these countries and the region are expected to provide continued support. Looking ahead, marginal growth of 1-3% in global aluminium demand is anticipated for CY24-25, driven by the gradual penetration of EVs and increasing utilisation of aluminium in environmentally focused sectors. This positive trajectory is further supported by the current low inventory of aluminium in LME and Shanghai warehouses (Figure 3), suggesting favourable prospects for upcoming aluminium prices. Currently, LME aluminium inventory is at c.470k tonnes (vs historical average 2.43m tonnes), while Shanghai inventory stands at c.120k tonnes (vs historical average 360k).

• Global aluminium update and outlook. In 3Q23, global aluminium production experienced a modest 4% QoQ increase, propelled by the resumption of operations in China’s Yunnan province. However, as the impending drought season looms over Yunnan, strategic cutbacks of 9-40%, amounting to approximately 1.16m tonnes pa, are on the horizon. Meanwhile, European smelters have been cautious in resuming operations despite the relaxation of power prices. These production adjustments, coupled with a growing appetite for aluminium in the green sector, are poised to sustain a scenario of constrained inventory levels. Additionally, the supply constraints stemming from hydropower shortages could position China to absorb the global surplus, particularly in the domain of green aluminium.

• Our confidence in the cement industry remains unwavering, given its inherent synergy with the construction and property sectors. We reaffirm our conviction that cement demand will stand resilient and flourish in the medium to long term, fueled by the launch of major infrastructure projects in Malaysia. Our in-house assumption for cement demand (in terms of volume) would grow by 30-35% in FY24F.

• Raw material prices. As of end-Dec 2023, alumina and carbon anode prices have eased from their 2022 peak and continued to stabilise, with alumina averaging at USD336/tonne and carbon anode at CNY4,090/tonne. Bulk cement prices sustained an impressive growth of 23.1% YoY, reaching MYR380/tonne as of September, while its YTD average ASP held steady at c.RM380/tonne. Note that the 3-year average of bulk cement price for CY19-21 stands at c.MYR216.8/tonne. For LMC, the list prices for bulk and bag cement are c.MYR410 and c.RM450, with negligible rebates at MYR20-40/ tonne.

• Key sector downside risks. Declining LME aluminium prices, decelerating global economy growth, higher-than-expected raw material costs, lower-thanexpected cement ASP, and lower-than-expected cement production.

Source: RHB Securities Research - 2 Jan 2024