Posted on 05 Sep 2014
Companies in
Malaysia’s building materials sector are impacted by the challenging
environment in the steel industry caused by the global oversupply of steel
products spurred by China.
Affin Investment Bank Bhd’s research arm (Affin Research) in a recent note,
highlighted the outlook for the global steel market will continue to remain
challenging on the back of the oversupply situation.
Due to the oversupply, international steel prices continue to fall. In the H1
of 2014, the average selling price of Commonwealth of Independent State export
billet fell by 4.7% YoY to circa USD 496 per tonne. Similarly, the ASP of CIS
export rebar declined by a sharper 8.8% YoY to circa USD 540 per MT.
Year to date, the price of CIS export rebar continues to be on the downtrend,
averaging at USD 537 per MT. Given the softening China economy as well as the
still soft developed economies, we do not expect global demand to improve
significantly in the near term. As such, we expect international steel prices
to continue to remain soft in the near future.
MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research) also pointed out
that challenges for steel industry would persist with steel prices continuing
to be weak unless the Government approved measures to cease dumping of cheap
steel products.
Increase in intensity of dumping of cheaper steel products by China mills has
caused prices of steel bars and wire rods to remain weak for the industry. In
addition, the global production overcapacity in particularly China which is
higher relative to steel demand is likely to continue to impact steel product
prices.
Among companies that were impacted by declining prices in steel are Lion
Industries Corporation Bhd (Lion Industries) and Ann Joo Resources Bhd (Ann
Joo).
In particular, MIDF Research noted the steel manufacturing company; Lion
Industries saw its profit from its operations in the steel division was
declining lower at MYR 2.2 million in the Q4 of the financial year 2014 as
compared to MYR 7.9 million in the preceding quarter.
Cumulatively in FY14, MIDF Research noted that the company’s steel division
reported losses of RM51.3 million.
Of note, the group’s revenue in FY14 declined by 4.2% YoY to MYR 4.15 billion
while operating losses increased by more than 100% to minus MYR 46.8 million
contributed largely by losses of its steel division of MYR 51.3 million. In Q4
FY14, the group reported higher impairment losses and a write down in value of
inventories.
This include impairment losses on quoted and unquoted investments of MYR 13.5
million, impairment losses on trade and other receivables owing by related
parties of MYR 429.7 million, impairment losses on PPE of MYR 32 million, and
write down in inventory value of MYR 10.3 million.
