KUALA LUMPUR: The volatility in aluminium price has affected the share price of Press Metal Aluminium Holdings Bhd (PMetal) given the stronger correlation between the two prices since the early days of the pandemic. 

Affin Hwang Capital said higher aluminium prices positively affected earnings of aluminium producers such PMetal.

The aluminium price ascension coincided with capacity-driven earnings growth of PMetal, hence accentuating the upwards trajectory of the company's share price, and volatility enhanced by multiple catalysts over this period.

Although aluminium prices had declined, Affin Hwang said PMetal's hedging policy partly insulated the company from price downswings, while stil benefitted from upswings on the unhedged portion. 

"Management guided that 65 per cent of the company's production volume for financial year 2022 (FY22) is hedged at prices of between US$2,400-US$2,500, with the remaining 35 per cent expected to be sold per spot prices. 

"Taking into account the average monthly prices of aluminium prices (January-August), we arrived at a blended average selling price of US$2,572 per tonne for the company for the year FY22. This is 26.8 per cent above the average price booked for 2021. 

"At this juncture, for FY23E and FY24E, management guided that they have hedged 35 per cent and 25 per cent of their production volume respectively at US$2,500 per tonne and US$2,600 per tonne," it said in a note. 

Affin Hwang added that the low global aluminium inventory, exacerbated by capacity cuts, was a bullish factor for aluminium prices. 

However, the inventory data had not helped support the price of the metal. 

Among other factors, softening demand for aluminium was a key driver for the price correction since March this year as the drop of 82 per cent year-on-year, in cancelled warrants suggests soft demand for the metal, it said.  

"Nevertheless, the tight supply-demand situation supports our view that returning aluminium demand or any supply shocks will once again send aluminium prices on an upward trajectory," said the firm. 

Affin Hwang maintained "Hold" on PMetal with a lower target price of RM4.30. 

It also revised its earnings forecast for 2023 and 2024 as it fine-tuned its model to reflect the downward movement of aluminium price.