CSC Steel to ride on high demand, rising prices

By Kang Siew LiPublished: 2010/05/31


CSC Steel Holdings hopes to maintain its full-year pre-tax profit at some RM100 million compared with last year's RM116.6 million

CSC Steel Holdings Bhd, the country's largest producer of cold rolled steel by volume, expects to post higher profits and revenue for the first half of this year from a year ago, driven by stable domestic demand, a continuing recovery in steel prices from 2008 lows and cost cuts.

The Malacca-based steelmaker's net profit rose more than fivefold to RM30.6 million for the first three months en-ded March 31 2010, while its revenue increased 63 per cent to RM281.6 million. The first quarter is traditionally the company's weakest period.

"Our first half performance should be better (than the year-ago period). And as long as the market remains in the same mood, the second half of the year will still be good.

"We hope to maintain our full-year pre-tax profit at some RM100 million. Last year it was RM116.6 million," CSC Steel outgoing group managing director Su Wei Jin told Business Times in Malacca recently.

Liang Shiu-Chang has since May 1 2010 assumed the role of the company's group managing director, replacing Su who has taken a larger role as assistance vice-president (commercial) of China Steel Corp, Taiwan's largest steelmaker. CSC Steel is a 45 per cent-owned subsidiary of China Steel.

"Factors contributing to the rise in (2010) profits and revenue will be the same as last year. At the same time, we must watch the market carefully for any change and try to lower raw material costs and raise selling prices of our steel products," he added.

Su said the company was quick to react to changes in the marketplace last year, raising the selling price of its steel products when demand started to recover.

CSC Steel's net profit rose 55 per cent to RM91.2 million, despite a drop in revenue for the fiscal year ended December 31 2009. Revenue slid 37 per cent to RM869.9 million from RM1.4 billion a year ago.

"Last year, every single company in the steel sector faced the same problem. Demand was bad and selling prices reduced sharply in the first half of 2009.

"We saw a recovery in domestic steel demand and selling prices of steel products from June 2009 until November. Prices fell again in December 2009 and January this year, although not as sharply as 2008's levels where prices dropped by more than 50 per cent," said Su.

Today, prices remain some 30 per cent off their pre-crisis levels, and Su said they are unlikely to return to pre-crisis levels this year.

"It will be very risky if prices were to return to pre-crisis peak levels in 2008 because that will be too high.

In 2008 we experienced 'heaven and hell' when prices were so high in the first half and in the latter half, prices dropped more than 50 per cent," he added.

Su said another reason for the improved results last year over 2008 was the launch of a new product - hot rolled pickled and oiled (P&O) coils, which are sold to downstream customers to make pipes, industrial and car components.

"The new product has helped enlarge our revenue stream and generates profits. However, we want to focus on producing more value-added products like cold rolled steel coils (CRC), galvanised steel coils (GI) and pre-painted galvanised steel coils (PPGI)," said Su.

"As such, producing P&O is our last priority. If we can secure enough orders for CRC, GI and PPGI, then we won't sell P&O even though P&O generates higher profit than CRC," he added.

Currently, the bulk of the company's revenue comes from CRC, followed by GI and PPGI. Revenue contribution from P&O is below 15 per cent.

CSC Steel's cold rolled steel mill Ayer Keroh, Malacca, is operating at 85 per cent capacity in the first half of this year compared with 100 per cent in the first half of 2008.

Meanwhile, Su said export contribution to the company's revenue will continue to be low at below 10 per cent this year, due to the higher cost of its principal raw material - hot rolled coils (HRC), which make its steel products less competitive in the international market.

Currently, CRC manufacturers in the country have to buy 40 per cent of their HRCs from Megasteel Sdn Bhd, a subsidiary of Lion Group, while the remainder 60 per cent is allowed to be imported.

It is understood that Megasteel's HRCs are priced at about 13 per cent higher than imported HRCs.

OSK Research Sdn Bhd said it is positive on CSC Steel in the upcoming one or two quarters as it sees higher selling prices boosting the group's topline.

"However, we remain cautious for the second half as the improved sentiment may reverse as there is an over-production of flat steel products," it said in a report dated May 10.

It is keeping its target price unchanged at RM2.22, with a "buy" rating for the stock.