With China’s reopening, demand should pick up further helping to bring SPs higher while higher Chinese costs on strengthening yuan should support FeSi price while destocking exercise likely to keep SiMn price elevated.
KUCHING (Feb 6): OM Holdings Ltd (OMH) stands to gain indirectly from China’s border reopening, as demand for its products is set to rise while the prices of its materials shhould rally this year.
After enjoying a solid price rally in the first half of financial year 2022 (1HFY22) due to Russia-Ukraine war-led power crisis, product prices have fallen since then in 2HFY22 and stagnated for the past four months.
This could signal that prices are bottoming, nited researchers with Kenanga Investment Bank Bhd (Kenanga Research).
“In 2HFY22, prices of FeSi and silicomanganese (SiMn) fell 20 and 31 per cent respectively, to average of US$1,682 per metric tonne (MT) and US$1,063 per MT from US$2,112 per MT and US$1,545 per MT in 1HFY22,” it said.
“With China’s reopening, demand should pick up further helping to bring average selling prices (ASPs) higher while higher Chinese costs on strengthening yuan should support FeSi price while destocking exercise likely to keep SiMn price elevated.”
To note, OM Materials (Sarawak) Sdn Bhd (OM Sarawak) is OMH’s flagship smelter complex in Samalaju, Sarawak. Construction commenced in 2013, and first production was tapped in 2014.
The plant consists of eight main workshops, with two units of 25.5 MVA furnaces in each. Out of the 16 furnaces, 10 are allocated for the production of ferrosilicon, and 6 for the production of manganese alloys.
Commissioned and built to anticipate the current paradigm shift in global ferroalloy production, OM Sarawak is a greenfield smelter located in the Sarawak Corridor of Renewable Energy, Sarawak, Malaysia. Run on renewable hydro-power, it is in the centre of South East Asia and well sited along global trade routes.
In other corporate updates, within 2022, OMH had completed two idle ferrosilicon (FeSi) furnaces to manganese alloys (Mn Alloys) and two others idle FeSi furnaces to metallic silicon (MetSi) furnaces.
The first MetSi furnace is currently undergoing hot commissioning and performance testing. The commercial commissioning of MetSi is likely to be in 2QFY23.
“Although installed capacity for MetSi furnace is half that of FeSi furnace, the net production economics is expected to be same as MetSi fetches far better margin than FeSi, according to OMH based on their observation of its Chinese peers.
“In 2022, overall plant utilisation at OM Sarawak is 75 per cent as four Mn Alloys furnaces were undergoing major maintenance coupled with the abovementioned MetSi conversion.
“Going into 2023, the company expects the utilisation rate to maintain around the same as eight furnaces will undergo major maintenance in phases throughout the year.
“However, production should improve as skilled workers from China are expected to arrive soon after China’s border reopened.”
Meanwhile, the company also said should ASP spike up, it would delay the maintenance work so that it is able to capture the benefit of high ASP.
Kenanga Research maintained its FY22 earnings which it believed has adequately reflected a weak 2HFY22 given the weak sales on a double-hammy of a weak volume and ASP.
“We continue to like OMH for its structural cost advantage over its international peers given its access to low-cost hydro-power under a 20-year contract ending 2033; its strong growth prospects underpinned by plans to expand its capacity by 30 to 36 per cent per annum over the medium term; and its appeal to investor given its clean energy source.”
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