Aluminium prices are expected to enter a consolidation phase in the third quarter of 2026 as easing geopolitical tensions in the Middle East and expanding regional supply help stabilise the market, according to Kenanga Research.
In a sector update, the research house said London Metal Exchange (LME) aluminium prices have retreated significantly after peaking at around USD3,850 per tonne during the first half of the year, following the de-escalation of tensions in the Middle East and the normalisation of shipping through the Strait of Hormuz.
Spot aluminium prices have since fallen to approximately USD3,122 per tonne, with further upside expected to be limited to the USD3,300-3,400 per tonne range over the coming months.
Kenanga said the improving geopolitical environment has eased logistics bottlenecks and restored the flow of raw materials, while aggressive capacity expansion in China and Indonesia is expected to rebalance the aluminium market.
“The massive regional supply wave from Chinese production and rapid smelting expansions in Indonesia is likely to anchor aluminium prices near USD3,300 per tonne during the third quarter,” the research house said.
For Press Metal Aluminium Holdings Bhd (Press Metal), Kenanga maintained its average aluminium price assumptions at USD3,000 per tonne for FY2026 and USD3,100 per tonne for FY2027.
The research house estimated that every USD50 per tonne movement in aluminium prices would result in approximately a 4.4% change in Press Metal’s FY2026 earnings.
Meanwhile, Kenanga said the outlook for steel prices continues to improve, supported by China’s efforts to curb excess production through stricter supply-side reforms.
The report noted that Beijing’s anti-overcapacity measures and tighter capacity replacement policies are expected to cap annual crude steel production at between 930 million and 944 million tonnes, compared with 961 million tonnes in 2025.
At the same time, lower freight costs following the reopening of shipping routes through the Strait of Hormuz have eased transportation expenses.
Steel rebar prices have declined to around CNY3,060 per tonne after reaching a peak of CNY3,494 per tonne in May.
While lower steel prices are expected to benefit downstream construction and infrastructure projects, Kenanga said companies whose selling prices are directly linked to spot steel benchmarks could experience lower revenue per tonne and near-term margin pressure.
This includes Engtex Group Bhd, whose earnings remain closely tied to prevailing steel prices due to its price-taker business model.
Despite maintaining a Neutral stance on the broader metals sector, Kenanga named Engtex as its preferred stock.
The research house said Engtex remains one of the few local manufacturers capable of supplying large-diameter ductile iron (DI) pipes and has historically secured around 60% of contracts in this specialised segment.
Kenanga believes lower steel prices could accelerate the rollout of major water infrastructure projects with an estimated tender value of RM1 billion, providing Engtex with opportunities to secure a significant share of upcoming contracts.
The research house maintained its “Outperform” recommendation on Engtex with a target price of RM0.51.
