KUALA LUMPUR (Nov 27): Integrated steel manufacturer Malaysia Steel Works (KL) Bhd (Masteel), which slipped into the red in the third quarter, expects robust steel bar demand from the domestic construction industry, despite higher production costs due to the recent hike in electricity tariff that has eroded its profitability.

“Despite the demand uptrend for steel bars, we faced a more challenging operating environment in the third quarter of this year (3Q14) due to higher electricity tariffs and other costs," Masteel managing director and chief executive officer Datuk Seri Tai Hean Leng said in a statement today.

"The group is taking appropriate measures to mitigate the higher utilities cost, such as implementing new processes and technical improvements to improve our production efficiency,” he added.

Tai said the recent commissioning of its new 70-tonne electric arc furnace in 3Q14 will help to lower production costs and optimise operational efficiency in the long run.

“At the same time, we are actively participating in dialogues with relevant authorities through the Malaysian Steel Association to enhance existing business and industry policies, in order to improve the operating environment for domestic steel manufacturers,” he said.

Masteel slipped into the red in the three months ended Sept 30, 2014 (3QFY14), posting a net loss of RM6.1 million or 2.73 sen per share from a net profit of RM9.71 million or 4.46 sen per share, on higher production costs resulting from an increase in electricity tariff.

Revenue, meanwhile, advanced 3% to RM362.1 million from RM351.18 million on higher sales volume.

Masteel did not declare any dividend for the quarter.

For the cumulative nine months to Sept 30, 2014 (9MFY14), Masteel’s net profit halved to RM11.28 million or 5.06 sen per share from RM23.39 million or 10.75 sen per share, while revenue improved 3.5% to RM1.06 billion from RM1.02 billion previously.

On its prospects, Masteel expects a positive business environment to persist in the remaining quarter.

“We anticipate demand for steel bars to be underpinned by robust construction activity, arising from both the public and private sectors. Hence, the construction of our new 300,000-tonne steel bar rolling mill, which is on track for completion in early 2015, will bode well with our long term growth prospects,” Tai said.

Masteel shares have fallen by 11.26% from RM1.11 on Aug 27 to close at 98.5 sen today, giving it a market capitalisation of RM231.8 million.