Friday 29 Mar 2024
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THE Ministry of International Trade and Industry (Miti) is understood to have commenced investigations, under the Countervailing and Anti-dumping Duties Regulations 1994, into the dumping of cold rolled coils (CRC) by China, South Korea and Vietnam, sources familiar with the matter tell digitaledge Weekly.    

The investigations, which began last week, came about after CSC Steel Sdn Bhd, a unit of publicly traded CSC Steel Holdings Bhd, submitted a petition to Miti, alleging that the CRC of alloy and non-alloy steel, originating from or exported by China, South Korea and Vietnam, are being dumped in Malaysia, causing “material injury to the domestic industry in Malaysia producing the like product”.

According to documents sighted by digitaledge Weekly, the allegations are centred on CRC of alloy and non-alloy steel with thickness of between 0.2mm and 2.6mm and width of between 700mm and 1,300mm.

CSC Steel (fundamental: 1.20; valuation: 1.80) is petitioning on behalf of the entire Malaysian CRC industry.

“The dumping [by China, South Korea and Vietnam] has more or less destroyed the local flat steel industry,” one source says.          

digitaledge Weekly was also privy to correspondence, simply dated August 2015, from Miti to the South Korean embassy, informing it of the petition requesting investigations into the alleged dumping.  

“The CRC players actually commend Miti's leadership, helping to protect the domestic industry from unscrupulous dumping of CRC by these countries (into the Malaysian market). Miti has helped the domestic steel industry initiate anti-dumping petitions for other forms of steel such as HRC (hot rolled coils) and helped implement safeguards on HRP (hot rolled plates) and PPGI (pre-painted galvanised iron). We hope Miti will show strong commitment this time to protect local industries, in this case, CRC outfits, from dumping,” says an official from a steel company.

According to some players, China, South Korea and Vietnam are exporting CRC at 21% lower prices than in their domestic markets.

To make matters worse, local CRC players are being hit by the depreciation of the ringgit against the US dollar of more than 25%, an almost 17% increase in electricity tariffs and a 31% increase in gas tariffs, all of which translate into millions of ringgit in operating costs. The implementation of the Goods and Services Tax and minimum wage has also hit the already ailing industry.

As such, the CRC-producing companies’ financials have been less than stellar. The publicly traded players include CSC Steel, YKGI Holdings Bhd, Eonmetall Group Bhd and Mycron Steel Bhd.    

For the six months ended June 2015, YKGI (fundamental: 0; valuation: 0.90) suffered a net loss of RM8 million on the back of RM273.6 million in sales.

The company says its prospects seem bleak as “the steel market conditions remain challenging and competitive with the weakening of the ringgit. This condition is expected to remain uncertain”.

YKGI closed at 20.5 sen last Friday, giving it a market capitalisation of RM71.4 million. YKGI is 26.8%-controlled by Marubeni-Itochu Steel Inc. The Hii family has about 20% equity interest in the company and Datuk Soh Thian Lai, 7.3%.

As for Mycron (fundamental: 0.40; valuation: 0.90), it posted a net profit of RM17.8 million on revenue of RM518.3 million in the financial year ended June 2015.

According to notes accompanying its financials, the profit would have been considerably less if not for a gain from a bargain purchase of RM21.3 million (a bargain purchase is where an acquirer gains control of an asset that has a fair value greater than the consideration paid for it), lower impairment loss on property, plant and equipment of RM3.5 million and a revaluation surplus of almost RM6 million on property, plant and equipment credited to other comprehensive income.

Mycron, which is 55%-controlled by Tunku Datuk Yaacob Tunku Abdullah — a member of the Negeri Sembilan royal family — closed last Friday at 29.5 sen, giving the company a market capitalisation of RM83.3 million.

Eonmetall (fundamental: 0.35; valuation: 0.90), for the six months ended June 2015, posted a meagre net profit of RM75,000 on revenue of RM32.9 million. The stock closed last Friday at 20.5 sen, giving the company a market capitalisation of RM34.6 million.

Eonmetall is 70%-controlled by businessman Datuk Goh Cheng Huat.

CSC Steel, which is 46%-owned by Taiwan’s Ministry of Economic Affairs via China Steel Corp, for the six months ended June 2015, reported a net profit of RM15.9 million on RM555.7 million in sales. In the previous corresponding period, it suffered a net loss of RM9.1 million on RM532.6 million in sales.

In notes accompanying its financials, CSC Steel says the dip in revenue was due to a fall in the selling price of steel products and lower sales volume, while the significant improvement in profit was because of lower cost of production brought about by lower hot rolled steel prices — the raw material for CRC.

CSC Steel adds, “There is no sign of improvement in demand in the local steel market thus far ... The group foresees that the local steel manufacturers will have a tough time in securing sufficient sales orders amidst stiff competition not only from imports but also amongst local steel producers”.

Last Friday, CSC Steel ended trading at 91 sen, giving the company a market capitalisation of RM336 million.

“The situation is so bad that the companies involved in the business are finding some way of showing a profit at the end of the year to keep the banks at bay. The banks are threatening to pull the plug on our loans … We are in dire straits now, and we are hoping that Miti can help us,” the steel industry executive says in conclusion.    

Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Visit www.theedgemarkets.com for more details on a company’s financial dashboard.

This article first appeared in digitaledge Weekly, on August 31 - September 6, 2015.

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