On behalf of the Board of Directors, I am pleased to present the Annual Report of Mycron Steel Berhad and its group of companies (“the Group” or “Mycron”) for the financial year ended 30 June 2017.
Mycron Steel Berhad comprises the combined operations of Mycron Steel CRC Sdn Bhd (“MSC”) as well as Melewar Steel Tube Sdn
Bhd (“MST”). The former is involved in the mid-stream sector of the steel industry, in the manufacture of Cold Rolled Coil (“CRC”)
steel sheets, while the latter is involved in the manufacture of steel tubes and pipes (“Steel Tubes”).
The year under review saw the steel industry take a breather from the all-round strong performance of the industry the previous
year. For the year under review, the Group performed well, with total revenue of RM726.2 million compared to RM566.8 million in the
previous year, an increase of RM159.4 million or 28.1%.
The increase in revenue was due to higher turnover registered by both divisions, especially Steel Tubes, which recorded revenue of
RM266.8 million, compared to the previous year’s RM206.1 million, a significant growth of 29.5%. The CRC Division also performed
creditably, chalking up revenue of RM482.1 million, compared to RM383.6 million the previous year, representing an increase of
In term of sales tonnage, CRC sales increased slightly by 2.4% to 191,048 tonnes, compared to 186,613 tonnes previously. Steel
Tube sales tonnage increased to 102,528 tonnes, compared to 96,604 tonnes the previous year, representing an increase of 6.1%.
It should be noted that the sales tonnage for Steel Tubes also included other items like second grade pipes, scrap, slitted edge, hot
dipped services as well as pipe-forming and slitting services, while sales tonnage for CRC also included second grade CRC, pickled
and oiled CRC, and scrap.
The Group recorded Profit After Tax of RM34.7 million, compared to RM24.2 million in the previous year, a significant increase of
43.4%. This was largely contributed by the Steel Tube Division, which by itself contributed RM23.0 million, representing 66.3% of the
Group’s Profit After Tax. A major contributing factor for this stellar performance was the improved margins for steel tubes, as a result
of lower cost for Hot Rolled Coils (“HRC”), the core raw material for manufacturing steel tubes, caused by the cessation of operation
of a domestic HRC manufacturer, Megasteel Sdn Bhd, which had previously dominated the domestic industry with inflated prices.
Despite the profitable performance for the year under review, the cash flow position of the Group is still considered to be tight,
especially given the price volatility for HRC and the intense competition from China as well as domestic competitors. Banking
facilities continue to be very limited, with existing bankers reducing their credit exposure to the sector. The Directors therefore do not
recommend the payment of any dividend for the financial year ended June 30, 2017.
CRC OPERATIONS REVIEW
During the first financial quarter, sales revenue of RM116.0 million was 10% higher than the previous quarter, while sales tonnage of
51,595 tonnes was marginally up by 0.6%. It should be noted that the fasting month and the 4-day Hari Raya Puasa (7 July 2016)
shutdown, occurred during this quarter, which ordinarily would have meant lower operating activity, and historically, would have
represented the lowest quarter for the Group. Due to strong sales, the Profit Before Tax (“PBT”) for the quarter remained strong at
RM8.19 million increasing by 8.9%.
For the second financial quarter, revenue dipped slightly by 3.7% to RM111.7 million, while sales tonnage dipped 6.6% to 48,208
tonnes. PBT dropped significantly to RM1.33 million, a drop of RM6.86 million, or a hefty 83.8%. Among the contributing factors for
the steep decline in PBT for the quarter was the sharp increase in HRC costs caused by the weak Ringgit, which depreciated from
RM3.90 in May 2016 to RM4.50 in January 2017 against the US Dollar.
DOMESTIC CRC INDUSTRY STRUCTURE
For the third financial quarter, sales revenue improved to RM132.4 million, an increase of 18.5%. Sales tonnage saw a slight increase
to 50,186 tonnes, an increase of 4%. PBT improved to RM2.87 million, up by 115.8%, caused by an upward revision in CRC and
steel tube prices.
Financial Year 2017 was a unique period, in which two Hari Raya Puasa celebrations occurred in the same 12 month period, the
second occurring on 25 June 2017. For the fourth quarter, sales revenue dropped to RM122 million, a decrease of 7.9%, whilst sales
tonnage took a sharp drop to 41,059 tonnes, a decrease of 18.2%. This drop was due to the 4-day Hari Raya shutdown, as well as
the restriction on heavy trucks on public roads during the period which affected deliveries to customers. PBT however continued to
improve to RM3.44 million, an increase of 19.9%, as profit margins improved.
Hot Rolled Coil (“HRC”) steel sheets are the basic raw material used in the production of Cold Rolled Coils (“CRC”) steel sheets. CRC
manufacturers, in general, produce two types of CRC, namely:
- Scrap Based CRC (produced from Scrap Based HRC), and
- Iron Ore Based CRC (produced from Iron Ore Based HRC).
Compared to Iron Ore Based CRC, Scrap Based CRC is considered to be inferior in quality metallurgically, as the latter contains
impurities in the scrap used to manufacture the HRC. Therefore, being of lower quality HRC, Scrap Based CRC are used by the
downstream manufacturers mainly in the steel tube and pipes as well as the furniture sectors.
On the other hand, due to its higher quality, the Iron Ore Based CRC are used by a different group of manufacturers mainly involved
in the production of steel drums for the palm oil and petroleum sectors, for producing steel sheets for color coating and galvanizing
purposes, for producing electrical appliances mostly comprising of white goods like washing machines, refrigerators, microwaves
ovens, rice cookers and also for producing components and parts for the automotive industry.
Of the 5 licensed CRC manufacturers, only 4 are actively still in production, with Megasteel Sdn Bhd having stopped production of
its CRC plant, 2 years ago. Eonmetal Group Berhad is more concentrated on the production of machinery and equipment compared
to CRC, hence their low capacity utilization. CSC Steel Berhad and YKGI Berhad are also involved in color coating and galvanizing
activities, which are down-stream consumers of CRC. It should be noted that all the producers use both Scrap Based and Iron Ore
Based CRC as their raw material.
Table 2 provides details of utilization rates and total capacity for the domestic CRC industry. It will be noted that the industry’s
capacity utilization rate is relatively low at 57.6%, excluding Megasteel Sdn Bhd.
For 2016, the estimated CRC production in the country was 691,200 tonnes, which means that there was unutilized capacity of
508,800 tonnes, that could have been manufactured in the country. This sizeable amount of unused capacity was a result of the huge
amount of imported CRC of 899,253 tonnes in 2016, the bulk of which could have been manufactured locally.
Table 3 shows the summary of imports of flat steel into the country. It is clear from the table, that the amount of imported CRC
(899,253 tonnes in 2016) has been increasing steadily over the past 5 years (765,789 tonnes in 2012).
Taking into account the sizeable imports of CRC and Related Products in 2016, the combined magnitude of cold rolled steel sheets
being imported into the country, adds up to a staggering 1,566,343 tonnes. This high level of imports can be largely attributed to the
dumping practices by some countries, even though there is an import duty of 15% imposed by the Malaysian Government on steel
imports into the country. Unfair trade practices of providing subsidies for CRC exports by certain countries also adds to the low
capacity utilization of Malaysian producers.
After numerous complaints from the domestic CRC industry, the Ministry of International Trade and Industry (“MITI”) imposed anti-
dumping action against certain manufacturers from China, South Korea and Vietnam in May 2016, ranging from 3.06% to 23.78%.
However, as can be seen from Table 3, the situation showed limited improvement, as some of the duties imposed, were simply not
high enough to deter the perpetrators. The CRC industry has recently requested MITI to undertake a review on the anti-dumping
rates, to impose a more realistic check on dumping activities.
STEEL TUBE OPERATIONS REVIEW
The year under review was a sterling one for the Steel Tube Division which saw sales revenue rising by 29.5% to RM266.8 million,
from RM206.1 million in the previous year. Production tonnage also showed a similar improvement, increasing by 24.7% to 89,992
tonnes from 72,188 tonnes previously. Table 4 shows the quarterly operating performance for the Melewar Steel Tube Sdn Bhd
For the first financial quarter, sales revenue was RM57.4 million, up 11.5% over the previous quarter’s RM51.5 million, whilst
production tonnage was 21,402 tonnes, up 27.1% over the previous quarter’s 16,843 tonnes. This improvement in sales and
production reflects the division’s enhanced marketing performance, following a revamp of the sales team and their operating
For the second financial quarter, total sales revenue improved further by 27.7% to RM73.3 million, with further increase in production
tonnage by 13.3% to 24,252 tonnes. PBT surged to RM10.62 million from RM5.37 million in the previous quarter, due to higher selling
prices in tandem with the upward trend of international steel prices, together with lower HRC cost following the closure of Megasteel
Sdn Bhd’s HRC plant in Banting, which was announced in 30 August 2016.
For the third financial quarter, sales revenue was RM66.3 million, a drop of 9.5% over the previous quarter, while production tonnage
dropped to 23,563 tonnes or 2.8%. The main contributing factor was the Chinese New Year festive season, which saw a short
working month in February coupled with the restriction of heavy vehicles on the road.
For the fourth quarter, sales revenue increased by 5.3% to RM69.8 million, with improved sales prices. However in terms of
production tonnage, volume was down 11.8% to 20,775 tonnes, as a result of the fasting month and Hari Raya Puasa celebrations.
Overall, for 12 months under review Profit Before Tax (“PBT”) improved by 219% to RM30.0 million, compared to a profit of RM9.4
million in the previous year. In general, this significant improvement was caused by a substantial fall in HRC raw material price, as a
result of the division being able to import HRC competitively, coupled with a strengthening of the sales team which forged stronger
relationships with its key customers.
DOMESTIC FLAT STEEL INDUSTRY SUMMARY
In 2016, Malaysia’s overall flat steel consumption increased to 6.45 million tonnes, from 5.86 million tonnes the previous year, an
increase of 10.1%. Table 5 provides a breakdown of the domestic flat steel consumption for the past 5 years.
The increase in consumption was in tandem with the country’s growth rate of 5%, spurred on by domestic consumption and also
infrastructure projects like the MRT line from Sungai Buloh to Kajang and the Tun Razak Exchange (TRX) project.
Despite the increase in flat steel consumption, the domestic consumption of HRC fell by 11.5% to 1.72 million tonnes, a reduction
of 0.23 million tonnes over the previous year. With the closure of Megasteel Sdn Bhd’s HRC plant, imported HRC increased by 0.41
million tonnes to fill the gap in demand (refer to Table 3).
With the closure, both the CRC and Steel Tube sectors, began to import HRC relatively freely on competitive terms. This impact was
more significant for the Steel Tube sector, which uses a great deal of scrap based HRC, and which previously had to buy 100% of
their HRC requirements from domestic producers. The impact for CRC producers was less significant, which uses a great deal of Iron
Ore Based HRC, and were always permitted to import such HRC on a duty exempt basis.
It will also be noted from Table 5 that the consumption of Welded Pipes & Tubes, increased substantially by 233.1% or 0.66 million
tonnes to 0.95 million tonnes. A great deal of that consumption, was met by a surge of imports of Steel Tubes (refer to Table 3) of
0.37 million tonnes, an increase of 0.20 million tonnes or 125%. This increase was caused by dumping activities of certain countries,
which even after paying the 15% duty for imports, priced imported steel tubes at lower than domestic prices.
On the CRC side, domestic consumption declined by 3.2% to 1.48 million tonnes, a slight drop over the previous year’s figure of
1.53 million tonnes. Of this amount, imports increased by 6.3% to 0.90 million tonnes. The domestic CRC manufacturing industry, is
hopeful that MITI can persuade local CRC users, to buy more domestic CRC, by being stricter in its issuance of duty exemptions for
imported CRC which can be produced locally. In this way, capacity utilization will increase, which will lower manufacturing cost, the
benefits of which may be passed on to consumers, which would benefit all participants in the CRC value added chain.
Table 6 provides a summary of the overall movement of flat steel in Malaysia for the calendar year 2016.
In general, the flat steel industry has performed well, with domestic consumption growing by 10.1%. With respect to the sectors the
Group is involved in, consumption for CRC saw a slight drop by 3.2% to 1.48 million tonnes, with CRC Related Products growing by
7.0% and Welded Pipes & Tubes growing by a substantial 233.1%. HRC consumption was the key negative component in the flat
steel sector, shrinking by 11.5%.
Global HRC prices have been extremely volatile, and have significantly increased in Q2 FY 2017 due to the spike in the prices of
coking coal and iron ore, the two key ingredients in steel making. The price of coking coal soared from USD 90/tonne in July 2016
to USD 307/tonne in November 2016 (a hike of 240%), and is currently hovering at USD 150/tonne. Similarly, iron ore also increased
substantially from USD 58/tonne in early September 2016 to USD 74/tonne in November 2016, and is currently at USD 75/tonne.
The weak Malaysian Ringgit has also played havoc in the cost of domestic HRC, and thus the sales price for CRC and Steel Tubes.
The Ringgit had depreciated some 12% against the US Dollar, from RM3.99 on 1st July 2016 to RM4.47 in end November 2016.
In 2016, Megasteel Sdn Bhd announced the closing of their HRC plant in Banting, after many months of quality issues and delayed
deliveries. Another scrap-based HRC producer, Penang based Southern Steel Berhad, also ceased their HRC production due to
some technical issues, having started their operations in 2015. As of now, there is no HRC manufacturer in operations in Malaysia.
In late June 2017, Megasteel Sdn Bhd had submitted a Safeguard petition to the government, its third petition submission, since
2011. If the safeguard measure were to be executed, the Tube Division would be unable to competitively import HRC, and risked
potential loss of profitability. The result on the petition acceptance is expected to be announced by the government in the near future.
The industry is confident that the Government will decide wisely and will not make any decision that would be detrimental to the steel
industry as a whole.
The long-term outlook for the CRC and Steel Tube industry depends on several factors, including the price of raw materials like
coking coal and iron ore, global and domestic economic factors, dumping of cheap steel into Malaysia by other countries, especially
China and also the weakness of the Malaysian Ringgit. Government policy also plays an important part for the well-being of the steel
The Chinese Government had been actively undertaking production cuts to curb steel oversupply, following worldwide anti-dumping
action taken against the country. This is in addition to the Chinese Government’s initiative to reduce pollution caused by steel
factories during the winter months by reducing steel output. This should temporarily check the uptrend for subsidized cheap Chinese
steel exports, which would be a welcome respite for domestic steel producers.
Of some concern, is the price volatility of HRC, which has caused many of its customers, to minimize inventory holding levels. In
addition, concerns about the underperformance in the automotive sales sector, may dampen sentiments for steel.
The Group is working closely with the industry, to engage MITI, in its CRC anti-dumping rate administrative review, for steel producers
from China, Vietnam and Korea, to reduce the influx of imported CRC. At the same time, in a potential pre-emptive move, the industry
is considering a new CRC anti-dumping action against India and Japan, if deemed necessary.
Whilst the industry’s outlook is positive, the ability to source working capital to fund operations, in terms of banking facilities, remains
tight, with many banks reducing loan facilities to the sector. As HRC prices increase, the steel industry faces increasing pressure,
to fund their raw material purchases. Supplier credit has absorbed some of the tightening cash flows, but at a high cost. Although
the Group’s gearing ratios are considered low, the Group will continue to actively look to reduce its borrowing levels further, should
PROSPECTS FOR THE NEW FINANCIAL YEAR
We cannot be overly optimistic for the prospects for the new financial year due to the many factors mentioned earlier, which cause
volatility in the domestic as well as international steel industry.
The domestic industry is fraught with challenges such as rising costs, soft demand and sharp swings in the prices of raw materials.
Despite the drawbacks, the overall sentiment of the domestic steel industry for the new financial year can best be described as
As the Group has performed well within the sector, barring any unexpected circumstances or any severe external shocks, the Group
is cautiously optimistic of its prospects for the next financial year.
On behalf of the Board, I would like to express my heartfelt appreciation and thanks to all members of the management team and
their staff for their hard work and dedication as well as contribution to the Group.
It is during these hard times that we differentiate ourselves by focusing our efforts in making quality products, backed by excellent
after sales services. Mycron will continue to be a force in the domestic mid-stream steel industry for many years to come. Success
does not always come easy and usually start from humble origins.
To our valued customers, suppliers and other stakeholders, I wish to thank them again, for their unwavering support and backing. We
truly appreciate your loyalty, and we look forward to strengthen the bond and strong relationship between us.
Tunku Dato' Yaacob Khyra