Posted on 01 Dec 2015
Managing director Datuk Seri Tai Hean Leng told StarBiz that he expected brighter prospects as its newly-commissioned rolling mill in Bukit Raja, Klang would increase the production of steel bars by a-third.
That will contribute RM200mil more a year to its top line.
The rolling mill would allow it to achieve better economies-of-scale and hence better margins.
The facility started production in mid-October and the company had the capacity to progressively convert most of its upstream billet output to steel bars that command a price premium over other steel products such as wire rods and hot rolled coils.
He anticipated scrap prices to remain low and had seen prices almost halved.
Of the total raw material used for its production, Tai said 70% was from scrap.
According to a Japanese trading house, scrap prices were expected to be depressed to levels before 2003 due to an oversupply in the market. “That means our production cost will be lower in the long run,” he said.
However, analysts pointed out that low selling prices of steel bars and sales volume might continue to impact the performance of the company.
Notably, steel bar selling prices fell by 30% to RM1,480 per tonne from RM2,070 per tonne last year mainly due to stiff competition from China.
In a note, PublicInvest Research said: “On the plus side, the weak local currency has made China’s steel products less competitive compared with local steel products, somewhat alleviating competitive pressure.”
As of the latest quarter, exports contributed more than a-fifth to its turnover compared with 8.5% for the first nine months.
The company reported a net loss of RM24.14mil for the third quarter ended Sept 30, compared with a loss of RM6.1mil a year ago mainly due to foreign exchange losses, which amounted to RM18.7mil.
“Once the ringgit recovers, the losses will reverse as they are not realised yet,” he says.
Stripping out the unrealised losses from foreign currencies, its core net loss had actually narrowed to RM5.3mil from a loss of RM11.4mil in the second quarter, according to PublicInvest Research.
On the industry outlook, the research house noted that current steel bar prices of RM1,350 per tonne were a challenge for steel players as it is well below the break-even level of RM1,800 per tonne.
On the accounting hiccup it experienced earlier this year, Tai said UHY FLVS Sdn Bhd had conducted an independent and comprehensive review of the issues raised by its previous auditor Nexia SSY and that the board of directors had agreed to the positive findings of the UHY report.
“That was in the past. We think the present and future is more important and our focus is to bring the company forward,” he said.
Opportunities are aplenty in the domestic market as the construction industry remained resilient with a growth rate in excess of 10%, he added.
“Demand would continue to be spurred by the strong line-up of major infrastructure projects coming on stream, especially in the Greater Kuala Lumpur.”
Meanwhile, the group is collaborating closely with the relevant regulatory bodies to ensure enforcement of the recently-announced 5% import duty for steel bars.
The measure is expected to curb the activities of false declaration and duty circumvention of imports of steel bars from overseas.
Moreover, the Construction Industry Development Board Act (Service of Notice) Regulations 2015, which was announced in June 2015, would take effect from January next year, it said.
