Ann: 31 December 2023 Quarterly Market Update, page-25

OM Holdings to see earnings rebound on reversal of US interest rates
PETALING JAYA: OM Holdings Ltd (OMH) could see a meaningful earnings rebound in 2024 with the reversal of the US interest rate cycle, boosting demand for its products, says UOB Kay Hian (UOBKH) Research.
The Australian-listed OMH has smelting plants in Sarawak and is involved in manganese and silicon smelting and trading of raw ores and processed ferroalloys.

According to the research firm, OMH is “set to achieve a multi-year profit bonanza with expanded capacity, as hydro-powered smelters’ cost advantage has significantly widened versus global competitors”.
It noted that favourable structural supply-demand dynamics may have yet to be fully reflected in OMH’s share price as rising global energy prices have widened the cost differential gap between OMH and other fossil-fuel dependent smelters.
This gives OMH a significant low cost advantage due to its long-term access to 350 megawatt (MW) of inexpensive hydropower in Sarawak.
It said electricity accounted for about 40% of smelting cost. “For OMH, we estimate electricity costs at US$0.04 to US$0.06 per kilowatt-hour with a 1.5% to 2.5% per annum escalation.
“This places OMH in the lowest quartile for production costs. Comparable global smelters run at a cost that can be two to three times higher,” the research firm said in a note to clients.

UOBKH Research added OMH’s 2023 production output was in line with expectations, as its operations have gradually recovered amid ongoing major maintenance work.
Its production volumes of ferrosilicon (FeSi) and manganese (Mn) alloy in the fourth quarter of 2023 (4Q23) were 39,296 tonnes and 86,934 tonnes, respectively.
This brought the 2023 production volume of FeSi and Mn alloy to 139,529 tonnes and 294,432 tonnes, respectively.
The strong production improvement was due to an increase in furnace operation from 10 to 15 units following the conversion of both its dual use silicon metals (MetSi) furnaces to produce FeSi.
As at end-December, 15 out of its 16 furnaces were in operation, while the remaining manganese alloy furnace’s hot commissioning has been extended due to the furnace not performing as per contract requirements.
However, it said the outlook for ferroalloy is still not out of the woods.
“In 4Q23, prices of FeSi and Mn alloy decreased from US$1,360 to US$1,285 and US$945 to US$900, respectively, given the slow recovery of the steel market.
“Prices were mainly pressured by reduced global demand towards the year-end period and higher production rates from FeSi smelters in China during 4Q23.”
The research firm said OMH is diversifying into MetSi to capture further growth potential.
It aims to produce the highest grade it possibly can as silicon metal commands higher margins.
It is used in different industries based on the level of contaminants and is typically used for manufacturing microchips, steel and solar cells.
Notably, this marks OMH’s first step in diversifying into the aluminium, chemicals and solar downstream industries, added UOBKH Research.