KUALA LUMPUR: Steel manufacturers have yet to feel the impact of the slew of mega infrastructure projects that the government has dished out in recent months.
Margin squeezed by higher input costs, coupled with lower average selling price, has eroded the steelmakers’ earnings.
CSC Steel Holdings Bhd saw its net profit for the third quarter ended Sept 30, (Q3) decline 42% quarter-on-quarter (q-o-q) to RM6.2 million from RM10.68 million in the preceding quarter. Revenue, however, dropped marginally to RM306.6 million from RM308.6 million, indicating the narrower profit margin due mainly to higher raw material costs.
Southern Steel Bhd also announced a lower net profit of RM7.09 million for Q1 ended Sept 30, barely half of the RM14 million achieved in the previous corresponding period.
The fall was even bigger on quarterly basis. Southern Steel’s net profit slid 70% against RM23.5 million posted in the preceding quarter ended June 30.
“We expect Ann Joo Resources’ 3Q12 results, due out today, to trail expectations with core net profit to come in between RM13 million and RM18 million, down by between
21% and 43% q-o-q largely due to lower-than-expected selling prices achieved,” RHB said in a research note last week.
Analysts noted that dumping activities from China might have depressed sales volumes for Malaysian producers.
Numbers from the World Steel Association (worldsteel) show China’s crude steel production for October 2012 up by 6% y-o-y to 59.1 million tonnes. However, domestic steel demand in China is only expected to increase by 2.5% to 639.5 million tonnes in 2012 (2011: 6.2%).
In October, the world crude steel production for the 62 countries reporting to the worldsteel was 126 million tonnes in October 2012, a year-on-year increase of 1.3%.
Dumping of cheap steel products in Malaysia has become apparent with imports rising sharply 49% q-o-q in the second quarter, according to HwangDBS.
In view of the influx of cheap imports of steel products, the government had imposed provisional anti-dumping duties (up to 33%) for steel wire rods imported from China,
Taiwan, Korea, Indonesia and Turkey, effective Oct 23 to Feb 19, 2013.
|Margin squeezed by higher input costs, coupled with lower
average selling price, has eroded the steel-maker's earnings.
“We expect full implementation of anti-dumping duties once the government finalises its investigation in early 2013. The anti-dumping duties will benefit local steel players because they will lessen the threat of cheap imports competing with local steel products,” said the research outfit.
Until then, analysts said steel manufacturers would still have to compete with cheap imports.
With wire rods traded at the depressed levels of RM2,100-RM2,200 per tonne in the local market vis-à-vis RM2,400-RM2,500 a year ago, it is not surprising that local steel companies struggle to sustain earnings growth.
However, OSK Research concurred that implementation of the provisional measures, which should curb imports, is positive for major local wire rods producers such as Southern Steel.
Nonetheless, it cautioned that there would be limited impact from the imposition of a new duty as wire rod imports have declined since the petition (for the provisional measures) was submitted to the government.
“Furthermore, we see limited recovery in local steel prices despite a rebound in international steel prices over the past few weeks, given that domestic long steel product prices have held steadier than international prices in the recent downcycle,” wrote OSK Research in its review on Southern Steel’s latest quarterly earnings.
The road to recovery in the global front for steel, the second largest trading commodity after oil, is a long and winding one in view of the uncertainties surrounding the recovery of the global economy, coupled with growth in volatility of raw material prices.
“The picture for the local steel industry is only slightly brighter thanks to the projects rolled out under the Economic Transformation Programme (ETP) that will spur demand for steel in the local market,” said RHB Research.
TOP PICKS BY EDGEPROP
Semi D Duta Suria Residency Ampang 3.5 Storey Corn
Invest Dual Key Unit GRR 9 years RM280k
BUNGALOW 3 PINTU, KG. SUNGAI BUAH DALAM, DENGKIL,
NEW 1 Sty SEMI D Seksyen U14 Booking RM500 Only
Shah Alam, Selangor
Malaysia's Salem High Country Tanarimba Janda Baik
Suria Residence Breezy Modern Condo facing Pool
Bukit Jelutong, Selangor
DOUBLE STOREY HOUSE FOR SALE AT BUKIT RAJA, KLANG
Single Storey 20x60 Renovated, Jalan Dato Dagang
Shah Alam, Selangor
The Best Superlink Property In Seremban
Seremban, Negeri Sembilan
Beautiful Tropical Bungalow, Tanarimba, Janda Baik
Ukay perdana sierra hijauan ampang semi d