News Room - Steel Industry

Posted on 08 May 2008

Steel makers set to beat analysts’ targets (Malaysia)

Malaysian steel companies look set to outperform analysts' earnings expectations in the first and second financial quarters of this year, going by the sterling results of Ann Joo Resources Bhd and Southern Steel Bhd. 

Yesterday, Ann Joo posted a more than three-fold jump in net profit to RM104.9mil in its first quarter ended March 31 from RM30.2mil a year earlier. Revenue grew 50.3% to RM671.3mil from RM446.6mil.

According to a company statement, the higher revenue was “mainly due to a strong global market and an uptrend in international selling prices, which resulted in better revenue from higher billet exports and local rolled products”.

It also attributed the improved profits to its effective inventory management and procurement strategies, in addition to the continual improvement in productivity.

A steel analyst at a foreign-backed brokerage said Southern Steel's exceptional earnings, announced on Monday, had spurred expectations that local steel companies would turn in better results.

Southern Steel posted a 600% year-on-year growth in net profit to RM96.3mil for its first quarter ended March 31 on revenue of RM838mil.

A stronger ringgit had also contributed to the solid earnings of steel makers, many of which were big exporters of the building material, she added.

Another steel analyst told StarBiz: “Steel makers will do very well. They will outperform (analysts') consensus expectations in the first two quarters of the year.”

With China raising export tax on steel billets to 25% effective Jan 1 from 15% previously, the margins for steel makers have increased even as the cost of iron ore and other raw materials have risen.

The analyst said although raw material costs had shot up, the selling price of local steel had increased even faster.

“There is a shortage of steel billets in South-East Asia due to China's tariff, and Malaysian steel makers are among the few in the region filling the void in this 'quite upstream' product,” she added.

The majority of steel makers in this region produced mainly rolled steel, the analyst said.

Apart from steel billets, China – the world's largest steel producer – has also imposed export duties on steel bars, wire rods and pipes, and removed the rebate on value-added tax for these products.

Export duties on long and strip steel products and welded tubes were raised to 15% from zero and 10% respectively.

China had as of July 1, 2007 scrapped its 13% export rebate on carbon steel welded tubes.

Analysts also expect Kinsteel Bhd to post a strong first-quarter result this month.