PETALING JAYA: UOB Kay Hian (UOBKH) Research is keeping its “overweight” call on the local building materials industry, on the back of favourable structural supply-demand to support commodity prices following China’s termination of its lockdowns.
However, the research outfit acknowledged that hard commodity prices would remain volatile due to weak sentiment from the fear of a global recession, although prices of hard commodities such as aluminium, ferroalloy and tin have gradually rebounded on the back of China’s economic reopening.
Its analyst Hazmy Hazin said in a recent research report that commodity prices have retraced amid the weak economic environment, after rebounding following China’s reopening in December last year.
“Market sentiment is still expected to remain volatile in the near term, given that a commodity rally will add to the ongoing inflationary pressures, which central bankers are trying to get under control.
“Continued supply disruption and the energy crisis also put further pressure on the ongoing shortage due to the global decarbonisation agenda,” said the recent report.
UOBKH Research revealed that commodities-related players’ earnings for the final quarter of 2022 (4Q22) were mixed, with the tin segment’s results coming in above expectations, while aluminium and ferroalloy players’ results were largely within expectations.
The exported building materials index also climbed higher year-to-date (y-t-d), led by tin with a 21% gain, followed by aluminium and ferroalloy, as compared to the FBM KLCI’s relatively subdued performance of 4.5% y-t-d.
On the other hand, for the first three months of this year (1Q23), the research house is expecting upcoming quarterly results for the sector to be flattish quarter-on-quarter (q-o-q), as commodity prices have slightly eased after rebounding late last year, stimulated by China’s recovery.
Turning its focus on ferroalloy, Hazmy said for 1Q23, prices of ferrosilicon and manganese alloy have stayed range-bound at around US$1,663 (RM7,370) per tonne and US$1,101 (RM4,879) per tonne, respectively, with the pressure on prices stemming primarily from the fear of a recession, soft demand from steel mills, elevated global power costs as well as weak sentiment in the current rising rates environment.
“Having said, we expect prices to improve on the back of the steel recovery in China, as it is the largest player, consuming and producing 60% to 70% of global ferroalloy,” he predicted.
Meanwhile, the report said 2022 was a roller coaster ride for aluminium prices, reaching an all-time high at US$3,985 (RM17,685) per tonne in March last year before ending the year at US$2,380 (RM10,548) per tonne.
It said the extreme volatility was a result of supply disruption from the Russia-Ukraine conflict which contributed to the upswing in prices, while frail sentiment following a global economic slowdown pushed prices low.
Among the research house’s top picks are Press Metal
Aluminium Holdings Bhd and Malaysia Smelting Corp Bhd, with respective target prices of RM6.10 and RM2.69.
