INDUSTRIAL PRODUCTS & SERVICES RATINGS

(Company No. 208095-U)

Contact:
Renee Quah
(603) 7628 1781
renee@ram.com.my

No. 19-G, The Boulevard, Mid Valley City

Lingkaran Syed Putra, 59200 Kuala Lumpur
(603) 7628 1000

Brighter prospects for aluminium extruders?

luminium
prices
dived
below
USD1,300 per MT immediately after the
11 September 2001 terrorist attacks in
the US. Before that, prices had averaged at
USD1,500 per MT between January 2000 and
August 2001. As the global community
continued to cut back on air travel in the wake
of those infamous events, the commercial
aerospace industry plunged into financial
chaos, with several major American airlines
being compelled to cease operations. Further
along, other major international events such as
the US-Iraq war and the outbreak of the deadly
Severe Acute Respiratory Syndrome in early
2003 did not help air travel. Given the
circumstances, much of the demand for
aluminium was curtailed as the metal accounts
for about 80% of the weight of an empty plane.
Boeing Co, the worlds biggest aircraft maker,
was beleaguered by a 3-year slump in demand
as denoted by the dwindling number of its
plane deliveries; the 271 planes in 2003 was
almost half of the number that it delivered in
2001.
In an about-turn, however, aluminium prices
have risen above USD1,500 per MT since 2H
2003. This has been largely driven by the
rosier global economic outlook and the brighter
prospects for the economies of both the US
and China - both of which dominate the global
consumption of aluminium.

H i g h g r a d e a lum inium - sp o t price

1 ,9 0 0
1 ,8 0 0
1 ,7 0 0
1 ,6 0 0
1 ,5 0 0
1 ,4 0 0
1 ,3 0 0
1 ,2 0 0
1 ,1 0 0
Jan97

Jan98

Jan99

Jan00

Jan01

Jan02

A c tual prices

Jan03

Jan04

Jan05

Jan06

R A M 's estimate

Source: London Metal Exchange, RAMs estimate

Growing demand to drive aluminium prices

up
RAM believes that aluminium demand from
China will continue to grow, driven by its
construction sector in preparation for the 2008
Beijing Olympics. We also maintain a positive
outlook on the world economy, with a projected
3.1% Gross Domestic Product growth for 2004
compared to a more modest 2.2% last year.
Meanwhile,
global
primary
aluminium
production is expected to increase from
23,774,000 MT in 2003 to 25,339,000 MT in
1
2005 . On the other hand, its consumption is
estimated to be even higher at approximately
2
31,000,000 MT in 2005 . As such, there is still
upside potential for aluminium prices as
demand outstrips supply.
What does this mean
aluminium extruders?

for

Malaysian

The Malaysian aluminium industry is

dominated by extruders and focused on
developing
higher-value-added
products.
Aluminium ingots and billets are moulded to
form extruded products that are generally used
1

International Aluminium Institute

Forecast by Metal Bulletin Research

300,000

14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0%

250,000
Sales (RM '000)

in the construction, engineering as well as

electrical and electronic industries. Malaysian
extruders currently have to import their main
feedstock - primary aluminium - due to the
non-existence of aluminium smelting plants
here. Although plans are afoot for up to 3
smelting plants to be built, these are not
expected to come on-stream until after 2007.
As a result, Malaysia will still have to import
about 250,000 MT of primary aluminium
annually for further downstream production.
Approximately 60% of the domestic extrusion
market is dominated by the 3 largest
aluminium extruders, i.e. LB Aluminium Berhad
(LBA), Press Metal Berhad (Press Metal)
and Sin Kean Boon Group Berhad (SKB).

200,000
150,000
100,000
50,000
FY 2001

FY 2002

OPBIT margin

INDUSTRIAL PRODUCTS & SERVICES RATINGS

FY 2003*

Press Metal manufacturing & trading sales

LBA sales
SKB sales
Press Metal manufacturing and trading OPBIT margin
LBA OPBIT margin
SKB OPBIT margin

Note: * = Annualised figures

Source: Various annual reports and announcements

Outlook
Despite fluctuating aluminium prices, LBA and
Press Metal have been able to sustain healthy
operating profit before interest and tax
(OPBIT) margins due to the robust demand
for extrusion products. To keep up with the
increasing demand, LBA and Press Metal have
augmented their production capacities through
acquisitions and line expansions. For instance,
LBA raised its annual production capacity from
15,000 MT to 24,000 MT between 2001 and
2003, while Press Metal acquired the extrusion
operations of Aluminium Company of Malaysia
Berhad in late 2003. RAM believes that the
expansion plans of both LBA and Press Metal
indicate strong demand ahead for extruded
aluminium products. In contrast, SKBs
profitability has been adversely affected by one
of its subsidiaries.

We believe that for the medium term,

aluminium prices will continue trending
upwards from the USD1,705 per MT recorded
for February 2004 the highest price in the
past 6.5 years. Aluminium extruders will have
to fork out more money to sustain their raw
material supply. Their profitability will then
depend on their operating efficiencies and
ability to pass costs on to their customers;
likewise for Malaysian aluminium extruders.
The timing of price fluctuations is also critical.
At times, extruders have to absorb the price
increases if aluminium prices surge and drop
within a short period of time (i.e. within a few
days). Nonetheless, RAM opines that local
players will be able to generate higher profits
when sales volumes and selling prices
appreciate in tandem with the demand for
extruded products.

www.ram.com.my