转贴;Sudden shortage of steel

Saturday, 23 April 2016

FROM a chronic oversupply situation just months ago, there is now a sudden shortage of steel in Malaysia, causing a rapid rise in prices.

The shortage stems from drastically lower imports of the commodity from China, due to the increasing demand for steel there, according to industry experts.

“The shortage we are seeing now is because Chinese exporters are cancelling their earlier contracts as they can fetch higher prices domestically.

“Steel prices are going up very quickly, and because we are importing much less, there appears to be a shortage,” says an industry source.

He says it is due to this situation that steel prices in Malaysia have shot up.

Last year, Malaysian steel millers were badly hit due to the aggressive dumping of China steel products at below-cost price in the global market.

Export prices were below cost by US$39 (RM1541) to US$89 (RM346) per tonne.

The companies suffered huge losses, with many cutting down capacity, retrenching workers and even shutting down mills.

In November, it was reported that the local mills were on average, operating at about a 30% capacity due to the chronic oversupply situation.

An industry source tells StarBizWeek that steel consumers in Malaysia, such as the construction industry, are now feeling the pinch as their costs are being pushed up.

“The local steel manufacturers were neglected when China was dumping steel below the market price – but now consumers are complaining because prices have shot up.

“Many millers had to shut down or cut capacity.

“Now that there is a shortage, they cannot instantly ramp up production - it takes some time.

“They would not have stocked up on raw material, and may have retrenched their skilled workers,” he says.

While Malaysia’s total production capacity is enough to cater to local demand, he says the producers needed time to catch up with the current demand.

However, he says the shortage situation was not expected to last for long.

“This will probably go on until July, after which it is expected to return to the oversupply situation,” he says.

Meanwhile, a peer comparison of 16 steel companies listed on Bursa Malaysia, conducted by RAM Ratings found that a “toxic mix” of rising competition, pricing pressures and domestic cost-push factors will result in another difficult year ahead for Malaysian steel players.

The rating house says the aggregate revenue for the peer group fell to RM15.08bil in financial year 2014 from RM16.32bil in 2011.

“More than half of the peer group recorded at least a year’s worth of operating losses over a 4-year period.

“Even the profitable ones have to be very vigilant as the majority of these recorded margins on operating profit before interest and tax of only 2% to 5%, leaving them vulnerable to any shift in revenue or cost,” says head of Consumer and Industrial Ratings Kevin Lim.

Steel companies have had to deal with rising domestic costs, which have slashed their margins, according to Lim.

“As expected, these companies also exhibited very volatile pre-tax profits and cashflows,” he adds.

The study also found that half of the companies studied had gearing ratios of at least 0.90 times, with many of the highly geared companies reporting “unimpressive” cashflow protection.

It says the average borrowings rates had risen for almost all the companies.

“Several of the larger entities have also issued private debt securities after the global financial crisis, proving that qualified borrowers should still be able to tap the debt market.

“On the other hand, fund-raising activity on the equity front has been rather muted,” it says, adding that the 16 companies had only raised some RM293mil in equity between 2011 and 2014, mostly driven by a single company, to partially fund its capital expenditure.

“With competition likely to get more intense, industry consolidation certainly makes sense, although this undertaking is certainly not a simple case of 1 plus 1 equals 2”.

“Financial risks aside, mergers and acquisitions would also involve various integration challenges. However, weak balance sheets and/or volatile cashflows are likely to constrain the ability of domestic players to undertake large scale mergers and acquisitions that could restructure the local playing field,” it says.


Construction industry reels from steel price hike

Saturday, 23 April 2016

Industry hit by a 50% hike in price of steel bars

THE construction industry is entering an unprecedented crisis, as the price of steel bars has increased by more than 50% since January.

The hike will affect the business of contractors in the country and raise prices by over 5%, absorbed by the contractors.

Penang Master Builders & Building Materials Dealers Association president Datuk Lim Kai Seng told StarBizWeek that the price of steel bars have increased from about RM1,500 per tonne in January this year to about RM2,450 per tonne at present.

“Contractors who had secured construction jobs from either the Government or the private sector prior to the latest increase in steel pricing are in a jam now, as they have to adhere to the old pricing negotiated early this year.

“This could cause many of our members to go bust.

“Until about two weeks ago, the price per tonne was hovering at about RM1,950.

“The prices of other construction materials, however, are still stable,” he adds.

The current price of a 50-kg cement bag is hovering between RM12.50 and RM13.00, while the price of sand is over RM60 per cubic metre.

Real Estate & Housing Developers’ Association Malaysia (Penang) chairman Datuk Jerry Chan (pic) says that the entire situation is topsy-turvy at the moment, as there is a shortage or zero supply of a variety of essential steel bar products.

The shortage has spilled over to steel mesh and pre-cast reinforced concrete products, increasing prices and causing delayed deliveries.

“The price per tonne was hovering at RM1,500 in January and then went up gradually.

“The last two weeks saw the price jumping drastically, causing the price per tonne to be about 50% higher than it was in January,” he says.

Chan explains that when the price of steel bars is down, it helps to cushion the impact of the price hike in labour and other raw materials.

“Now this cushion has been removed.

“If not addressed immediately by the authorities, projects would be delayed and contractors might go out of business.

“The selling price of houses may be increased by 1% to 2% or more if the situation persists,” he reckons.

Ideal Property Group executive chairman Datuk Alex Ooi says there are local steel manufacturing companies that have shut down temporarily recently to do maintenance work.

“This has exacerbated the supply situation of steel bars in the local market.

“Projects may get delayed as a result of the shortage and high pricing.

“Steel bars make up about 45% of the raw materials used in the structure of high-rise projects,” he says. Eco World (North) general manager Khoo Teck Chong says the group has locked in the prices for the essential construction raw materials early this year for most of its launched projects.

“We don’t foresee any delays in the implementation of the projects,” he adds.



2016-04-23 08:30