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 2021 (“FY2021”).
BUSINESS AND OPERATIONS
Mycron Steel Berhad encompasses the combined operations of two subsidiaries, namely Mycron Steel CRC Sdn Bhd (“MCRC”) and Melewar
Steel Tube Sdn Bhd (“MST”).
MCRC is involved in the mid-stream sector of the steel industry, converting Hot Rolled Coil (“HRC”) steel sheets into thinner gauge Cold Rolled
Coil (“CRC”) steel sheets. MST is involved in the down-stream sector, in the manufacture of Steel Tubes and Pipes (“Steel Tube”) which are
made from HRC or CRC.
FINANCIAL PERFORMANCE
The COVID-19 pandemic has continued to domineer our
lives throughout the first half of 2021, which carried a
significant impact on the Group’s operations during the
preceding financial year (FY2020). Despite the climate of
uncertainty, the turnaround in the Group’s performance
over the past year (FY2021) has proven steadfast and
exceptional.
For the year under review, the Group performed strongly,
with a total revenue of RM736.7 million compared to a total
of RM596.1 million in the previous year, representing an
increase of RM140.6 million or 23.6%.
The increase in revenue was due to higher sales volume
and higher average unit selling price for both the CRC and
Steel Tube divisions.
For FY2021, the Group’s total steel sales tonnage increased Exhibit 3: Sales Tonnage by Division
by 18% to 267,218 tonnes (FY2020: 226,471 tonnes).
Of this amount, CRC sales tonnage increased by 17% to
180,792 tonnes (FY2020: 154,348 tonnes) whilst Steel Tube
sales tonnage increased by 20% to 86,426 tonnes (FY2020:
72,123 tonnes).
DIVIDENDS
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 current record-high global HRC
prices, which utilises a great amount of working capital.
Moreover, banking facilities continue to be limited. The
Directors, therefore, do not recommend the payment of any
dividend for the financial year ended June 30, 2021.
COVID-19 ECONOMIC ENVIRONMENT
The COVID-19 pandemic has caused the largest economic shock the global economy has witnessed in decades. Governments and societies,
including those of Malaysia have been grappling between economic and public health priorities.
Historically, the steel industry has been highly cyclical. The industry is significantly affected by economic conditions as well as fluctuations in
global production capacities, mainly due to the cyclical nature of the construction, machinery, equipment, transportation, and manufacturing
industries, which are core consumers of steel products. The COVID-19 pandemic caused an unprecedented, sharp decline in economic
activities and steel consumption during the first half of 2020. Malaysia was not spared, and the effect of this fallout significantly impacted the
Group’s performance during the first nine months of 2020, due to mandatory nationwide lockdowns.
While the Group’s performance was significantly affected during the first half of 2020, underlying domestic steel demand rebounded strongly
throughout the second half of 2020. The strong economic recovery is reflected in the Group’s financial results.
The first half of 2021 was a race between our national vaccination progress and the spread of new COVID-19 variants. The sharp resurgence of
COVID-19 cases, hospitalisations, and deaths from the month of April 2021 onwards, weighed on Malaysia’s healthcare system and economic
recovery. Due to the rapidly increasing number of cases and hospitalisations, the government of Malaysia imposed a full mandatory nationwide
lockdown on the 1st of June, 2021. The measure significantly affected the final month of FY2021 as the Group was not allowed to operate.
Thankfully, the national vaccination programme picked up in the month of June 2021, showing an affirmative progress in the following months.
We are optimistic that the rapid vaccination campaign would lead to the ease of restrictions and expedite economic recovery. However, the risk
remains high at areas where cases and deaths are still on the rise.
Through this backdrop filled with numerous disruptions and risks, the Group’s employees have shown resilience in ensuring the Group is able
to achieve a turnaround in performance despite difficult circumstances.
CRC OPERATIONS REVIEW
For FY2021, the CRC division’s sales revenue increased by 19.7% to RM499.8 million. The growth is mainly attributed by higher sales volume
and higher selling prices. Total sales tonnage increased by 17.1% to 180,792 tonnes. The CRC division registered a Profit Before Tax of
RM40.62 million for FY2021. The improvement in performance is rather timely for the Group after enduring years of injury to our operations from
Chinese and Vietnamese steel dumping activities, coupled with the significant impact of the COVID-19 pandemic.
During the first financial quarter (Q1), sales revenue of RM99.8 million was 36.9% higher than the previous quarter, while sales tonnage of
38,237 tonnes was 38.9% higher than the previous quarter. The rebound was due to the resumption of nationwide economic activities and a
healthy demand from all customer segments. It is worth noting that the CRC division was on course for a strong quarter, if not for an unfortunate
equipment breakdown that derailed the August 2020 production. Due to this unprecedented event, the CRC division registered a Profit Before
Tax (PBT) of RM1.81 million.
For the second financial quarter (Q2), revenue improved by 33.4% to RM133.1 million, with sales tonnage showing an improvement of 40.2%
to 53,620 tonnes. The CRC division registered a PBT of RM12.23 million driven by global steel supply tightness due to a global surge in steel
demand as manufacturing supply chains began to normalise following the forced global lockdowns caused by the COVID-19 pandemic.
For the third financial quarter (Q3), revenue further improved by 22.9% to RM163.6 million. Sales tonnage increased by 9.2% to 58,550 tonnes
for the quarter. The strong performance is mainly attributed by a combination of factors emanating from certain sectors driven by the pandemic
and ensuing stimulus spending. During this period of time, the demand for white goods, furniture, cars, and steel drums increased significantly.
For the fourth financial quarter (Q4), sales revenue declined by 36.9% to RM103.3 million. Sales tonnage decreased by 48.1% and PBT declined
by 39.9% to RM9.98 million. The steep decline is primarily caused by the imposition of a mandatory nationwide full lockdown from June 2021
due to the spike of COVID-19 cases and hospitalisations. As a result, the CRC division was unable to operate during the month of June 2021.
DOMESTIC CRC INDUSTRY STRUCTURE
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:
1. Scrap Based CRC (produced from Scrap Based HRC), and
2. Iron Ore Based CRC (produced from Iron Ore Based HRC).
Scrap Based CRC is regarded as inferior in metallurgical quality as it contains impurities derived from the scrap used to manufacture the Scrap
Based HRC. Manufactured from lower quality HRC, Scrap Based CRC is typically used by downstream customers, mainly in the Steel Tube
and Furniture sectors, which do not require high quality CRC.
Conversely, due to its higher quality, the Iron Ore Based CRC is used by a different group of customers, primarily involved in the production of
Steel Drums for the palm oil and petroleum sectors, in the production of Colour Coated and Galvanised CRC (usually for the manufacture of
roof sheet), in the production of Electrical Appliances mostly comprising of white goods such as washing machines, refrigerators, microwaves
ovens and rice cookers, and also in the production of components and parts for the automotive industry.
Historically, all HRC and CRC Steel Manufacturers in Malaysia were Malaysian owned. However, the mills have been either shutdown or taken
over by foreign owned steel mills over the years, the latest being YKGI Holdings Berhad’s disposal of its coated coil business to NS Bluescope
Sdn Bhd in 2019 due to sustained losses caused by years of battling cheap imported flat steel products.
Mycron is one of the few fully operational Malaysian-owned and managed flat steel mills in the nation. As a forerunner in the industry, Mycron
is proud to be part of the nation’s journey and goal in achieving a fully-developed nation status. Thankfully, the government is gradually
recognising the contribution of the Malaysian Steel Industry and is working towards safeguarding local steel mills such as Mycron against unfair
trade. To play its part in this measure, Mycron continues to engage with the Government to push for immediate actions in order to protect and
ensure the sustainability of the steel industry.
Exhibit 5 provides details of utilisation rates and total capacity for the domestic CRC industry. Over the past four years, Malaysian CRC
producers have been facing substantial underutilisation of production capacity at 47.9%. Domestic CRC production decreased by 6.8% from
545,035 tonnes in 2019 to 508,033 tonnes in 2020.
From 2017 to 2019, the underutilised production capacity and lower production tonnage were predominantly due to substantial CRC imports.
However, in 2020, the aforementioned scenarios were primarily influenced by Malaysia’s government-imposed lockdowns.
Exhibit 6 shows the summary of imports of flat steel into Malaysia. Imports of Cold Rolled Coil (CRC) sheets and strips are 624,248 tonnes,
while the combined imports of CRC and CRC Related Products are 1,325,549 tonnes. Worldwide economic lockdowns severely disrupted the
steel supply chain. When global economic sectors reopened, the fear of supply shortages resulted in many steel producers hoarding material
to prioritise domestic consumption over exportation.
To ensure a level-playing field for all domestic CRC producers, Mycron continues to lead the CRC industry in efforts to address dumped and
subsidised steel imports that injure the domestic industry and the welfare of its workers and investors. Mycron will continue to engage relevant
government ministries, agencies, and industry associations to address unscrupulous imports on the domestic steel industry and emphasise
the need to safeguard the domestic steel industry.
STEEL TUBE OPERATIONS REVIEW
For FY2021, the Steel Tube division’s sales revenue rose by 34.2% to RM272.9 million, whilst sales tonnage increased by 19.8% to 86,426
tonnes. The Steel Tube division registered a Profit Before Tax of RM29.36 million for FY2021. The improvement in performance is mainly due to
the strong economic recovery which resulted in robust demand for steel tubes. This is reflected in the Group’s FY2021 results.
For the first financial quarter (Q1), sales revenue was RM62.3 million. Sales tonnage of 22,321 tonnes was notably higher than the immediate
preceding quarter (Q4, FY2020) which was significantly affected by the MCO 1.0 lockdown. The steel tube division registered a Profit Before
Tax (PBT) of RM3.54 million for the quarter.
For the second financial quarter (Q2), total sales revenue further improved by 16.7% to RM72.7 million. Sales tonnage rose by 12.7% to 25,151
tonnes due to robust domestic demand for steel tubes and the reopening of more domestic economic sectors after lockdowns. PBT for the
quarter increased to RM8.64 million.
For the third financial quarter (Q3), total sales revenue increased by 5.4% to RM76.6 million. However, sales tonnage decreased by 7.5% to
23,275 tonnes due to Global HRC supply tightness as the demand for steel was fast outpacing supply, leading to supply tightness. PBT for the
quarter was RM8.97 million.
The fourth financial quarter (Q4) was profoundly affected by the full month mandatory lockdown (FMCO) which started in June 2021. As a result,
sales revenue declined by 20.0% to RM61.3 million while sales tonnage decreased by 32.6% to 15,679 tonnes from the preceding quarter. The
Steel Tube division registered a PBT of RM8.21 million for the quarter.
DOMESTIC FLAT STEEL INDUSTRY SUMMARY
In 2020, Malaysia’s overall flat steel consumption decreased to 4.9 million tonnes from 6.3 million tonnes in the previous year, a decrease of
22.0%. Exhibit 8 provides a breakdown of the domestic flat steel consumption for the past five years.
The domestic consumption of HRC decreased by 19.5% to 1.6 million tonnes while the consumption of Welded Pipes & Tubes decreased by 36.94% to 0.46 million tonnes. On the CRC front, domestic consumption decreased by 21.95% to 1.1 million tonnes from the previous year of 1.4 million tonnes. These decreases are attributed by slow market demand in the CRC and pipe sectors as a result of government-imposed lockdowns.
Exhibit 9 provides a summary of the overall movement of flat steel in Malaysia for the calendar year 2020.
It is worth noting that for CRC, of the 1.1 million tonnes consumed in 2020, 0.62 million tonnes were imported CRC compared to only 0.51
million tonnes which was manufactured in Malaysia. Although this seems to be an indication of improvement, Malaysian CRC manufacturers
continue to operate at only half capacity utilisation. There is enormous opportunity for domestic CRC producers to supply the demand for
domestic consumption, and should be given priority.
GLOBAL AND DOMESTIC FLAT STEEL REVIEW
Despite the impact of COVID-19 on steel demand, the flat steel industry was highly volatile during 2020 and 2021.
A string of events stemming from the COVID-19 outbreak evolving into a pandemic during early 2020, followed by various industries preparing
for shutdowns, weakening demand, capacity cuts, and focus on inventory depletion, led to steel price lows, especially HRC and CRC. The lows
were during the months of May to June 2020 where HRC prices ranged between USD410 and USD440 per tonne.
As lockdown measures eased, steel prices rebounded across most global markets at the start of July 2020. Steel activities across the globe
gradually picked up, demand from various sectors strengthened, and inventories swiftly declined as economies reopened for business. The
rebound, coupled with a strong increase in iron ore, coking coal, and various other commodities, supported a strong bounce in flat steel prices
across the world.
By January 2021, HRC prices were hovering around USD700 per tonne. Global economic recovery had proven robust and HRC prices began
to soar, recording high levels in March 2021 and the consecutive months.
Demand for flat steel rebounded more strongly than anticipated and at a more rapid pace than the supply available. Many steel mills that were
shutdown during the onset of the pandemic, did not restart their blast furnaces quick enough. The disparity led to extended lead time and
reduced deliveries, which eventually drove global HRC prices to record-highs in May 2021.
In China, the abolishment of the 13% export steel tax rebates announced by the Chinese government in May 2021 to discourage cheap
Chinese steel exports, caused flat steel prices to strengthen further. This was the beginning of the normalisation of the global steel industry
after a decade of cheap Chinese steel that spawned significant negative impact on the global steel industry.
Overall, global HRC prices have doubled over the last 6 to 12 months. These record high prices for HRC have put pressure on the Group’s
cashflow, as HRC is the key raw material for both MCRC and MST.
HOT ROLLED COIL (HRC) SUPPLY
Hot Rolled Coil (“HRC”) is the key raw material used by the Group, for both its CRC and Steel Tube business segments.
The COVID-19 pandemic had dramatically shifted the strategies and operations of HRC producers as they cut their steel output with the
prediction that global steel consumption would remain sluggish in the remainder of 2020.
As economies reopened, the speed of rebound in steel demand caught many steel producers by surprise. Steel demand had rebounded faster
than available supply. Demand pressure created long lead times especially for HRC. This supply-demand pressure drove HRC prices higher.
Tight supply, production outages, and iron ore price spikes caused HRC prices to be on a constant uptrend throughout the first half of 2021
(Refer to Exhibit 10 & 11). The crackdown on steel ore production (capacity cuts), pollution, and abolishment of export rebates by the Chinese
government, were among other reasons for record-high HRC prices.
It is worth noting that during this period of global steel tightness, scarce supply, and global protectionism in the wake of the COVID-19
pandemic, the presence of domestic flat steel producers plays a crucial role in ensuring adequate and consistent supply of flat steel to the
domestic downstream industry. Although the downstream industries may never admit it, there were many months throughout the past year that
witnessed tremendous scarcity of steel supply in the international steel market, especially for flat steel products.
ELECTRICITY AND NATURAL GAS SUPPLY
Apart from HRC, which is the core raw material for the manufacture of CRC and steel tube, the industry is also a large consumer of electricity
for its rolling plants and natural gas, which is primarily used to anneal CRC. In the past decade, domestic CRC producers have experienced
substantial price hikes in these two inputs, which have contributed to significant margin squeeze.
As announced by the Energy Commission of Malaysia, the initiative to liberalise the price of natural gas has been postponed. Thus, natural gas
price will remain regulated until December 2021.
Aligned with its initiative to support the government’s efforts to combat the negative impacts of the COVID-19 pandemic and to ensure business
continuity, Gas Malaysia announced a price reduction in January 2021. The average natural gas selling price was revised to RM22.12/mmbtu
for the first quarter 2021, which translates to a saving of RM11.33/mmbtu or 34% lower than the 2020 average price. However, the average
selling price normalised again at RM30/mmbtu in July 2021.
In the similar vein, Tenaga Nasional Berhad (TNB) had also taken proactive action to waive the ICPT charges from July 2020 onwards, followed
by the reduction of coal and gas costs respectively. TNB’s announcement to extend the ICPT rebate of RM0.02 per kWh for first half of 2021
would translate to a total savings of approximately RM500,000 over a 12-month period, for the Group.
TECHNOLOGICAL ADVANCEMENT AND FUTURE INVESTMENT
As Mycron enters the 4th Industrial Revolution, both the Steel Tube and CRC operations are paving way to digitally transform their operations
and adopt a “Lean Manufacturing” philosophy.
MST had completed various improvement projects such as the single-piece breakdown roll for its largest pipe mill replacing its former 3-piece
design, an upgraded Pipe Mill Uncoiler Braking System, and a Piler PLC system.
MST had successfully upgraded its Galvanizing Plant furnace from a conventional design furnace, to a fuel-efficient furnace. The innovated
furnace design no longer uses a heat circulation fan, which translates up to approximately RM100,000 savings per year in maintenance and
downtime costs.
In further promoting sustainability, MST’s new solar panel system on its factories rooftops, had been successfully installed and had been
operating since March 2021. Under the nation’s renewable Net Energy Metering (NEM) 2.0 Scheme, MST’s utilisation of solar power totalling
0.83 MWp translates to RM135,000 in electricity cost savings per annum. At the same time, this solar system would reduce the division’s
carbon footprint by approximately 432 metric tonnes of CO2
annually.
The completion of MST’s Manufacturing Execution System (MES) was delayed due to the resurgence in COVID-19 cases and continuous
lockdowns. The MES which aims to enhance lean manufacturing by eliminating waste, optimising processes, reducing costs, and improving
innovation, is now expected to be fully integrated across all of MST’s factories and plants by Q2 of FY2022.
To further maximise operational efficiency, MST has 15 projects lined up in FY2022 for the purpose of upgrading its production line machinery,
equipment, and systems.
MCRC’s investment in the state-of-the-art pickling and acid recovery technology aims to improve the overall conversion cost, expand into new
market segments, and reduce environmental impact through a close loop acid-recycling system.
The delay in the Acid Regeneration Plant (ARP) project was attributed by the multiple phases of movement control orders, coupled with
challenges in obtaining visa and permit approvals for the entry of technical professionals from SMS Group, Austria into Malaysia for the testing
and commissioning phase. Nonetheless, the ARP was finally commissioned in July 2021 after an 18-month delay from its original schedule.
LONG TERM OUTLOOK
The long-term outlook for the CRC and Steel Tube industry depends on several factors, including pricing of raw materials such as iron ore and
coking coal, and Malaysia’s economic recovery from a prolonged FMCO lockdown, which significantly impacted key steel consuming industries
such as construction, manufacturing, and automotive. Perhaps, the most defining factor would be China’s stance on steel production.
Historically, demand dynamics in China significantly affected the global steel business, mainly due to huge fluctuations in net steel exports and
export price subsidies that resulted in worldwide anti-dumping action against Chinese steel. However, in 2021, the Chinese government shifted
their policy and almost immediately began clamping down on pollution caused by overproduction of steel; aggressively reducing China’s
steelmaking capacity for the next 5 to 10 years.
The removal of export rebates, and the potential implementation of export taxes on steel products, together with the substantial cut in China’s
steelmaking capacity in the near future, certainly bodes well for the long-term sustainability of the global and domestic steel industry.
Domestically, the successful Anti-Dumping review with regards to imported CRC of 1,300mm width and below, originating from Vietnam on
22 January 2021, levelled the playing field for the CRC division and stopped Vietnamese steel players from injuring domestic CRC producers.
Continuing with Mycron’s efforts to address unfair trade practices and to ensure a long-term sustainable level playing field for Malaysian CRC
producers, MCRC filed a petition to initiate a sunset review of anti-dumping duty with regards to CRC of 1,300mm width and below from China,
Vietnam, and Korea. This is to ensure steel producers from these countries do not restart using Malaysia as their dumping ground. The sunset
review was also a success, with existing anti-dumping duties being extended for another five years until 8 October 2026.
Operationally, in the areas where we pose control, the Group is committed to improving our operations, maximising our product quality,
developing the talents of our employees, addressing the challenges of our customers, and providing them with a one-stop solution.
The Group is focused on value creation by developing and maintaining a cost competitive structure, centred on operational excellence. The
Group remains committed to upholding our position as the industry leader, by striving to create sustainable competitive advantage, with a
customer-centric focus, delivering high-quality products.
PROSPECTS FOR THE NEW FINANCIAL YEAR
With prolonged lockdowns on businesses extending into the next financial year, the Group’s prospect outlook for the first half of FY2022 is
rather uncertain.
The nation’s preceding five quarters of GDP (q-o-q) contraction would likely extend into its sixth in conjunction with our first financial quarter of
FY2022. The upliftment of lockdown on the non-essential manufacturing sectors on from 16th August 2021 brought much relief to our industry.
However, the path to business and economic recovery is expected to be gradual and uneven, considering the severity of damage done,
lingering curbs, and limited global vaccine supply.
Nevertheless, steel demand from on-going projects and contrarian-sectors thriving from the pandemic, amidst supply-chain tightness, is
expected to keep the steel sector afloat and running. The Group’s steel businesses may achieve a turnaround performance from the second
financial quarter and onwards, especially if the nation’s COVID-19 National Recovery Plan (NRP) progresses beyond Phase 1 for key states.
The second half of FY2022 could offer better prospects for the steel operations on the back of the nation attaining herd immunity from
vaccination, progression to NRP Phases 3 and 4, easing of border restrictions, and simultaneous recovery of regional economies. The Group
is optimistic that the government would continue to adopt “iron and steel” policies supportive of the domestic steel industry, particularly over
the pandemic recover phase.
On the global front, accelerated green targets and initiative due to pressing climate change threats would likely cap excessive steel capacity,
output, or dumping, which would work in favour of sustainable prices and margins for steel players. Significant allocation for infrastructure
spending of the world’s two largest economies, also adds optimism to global steel demand outlook and possibly supply chain tightness in the
short to mid term.
Nevertheless, significant downside risks persist with domineering COVID-19 variants and challenges which the new normal could pose on
growth, recovery, and impact on steel demand. Another risk worth noting would be the “China factor” which historically, has been known to
throw surprises and induce volatility to regional steel supply-demand prices.
ANTI-CORRUPTION COMMITMENT
Mycron continues to pledge its commitment towards anti-corruption. The Group reinforces its strict, zero-tolerance position against corruption,
bribery, or any kind of abuse of power. Directors, Senior Officers and employees have signified their undertaking through the personal
commitment and anti-corruption pledges.
The Group also expects all of its business partners and associates to operate in full compliance with the Group’s policies, follow the highest
standards of ethical conduct, integrity, and professionalism. Suppliers, vendors, and contractors have been made aware of the Group’s AntiCorruption Policy and affirmed compliance through their respective declarations. The Group shall continue to raise anti-corruption awareness
amongst its internal and external stakeholders.
ACKNOWLEDGEMENT AND APPRECIATION
On behalf of the Board, I would like to express my sincere gratitude to the management team and staff for their commitment, dedication
and contributions to Mycron. To our valued business associates, customers, shareholders; thank you for your continued invaluable support,
confidence, and trust, you have placed in us.
Tunku Dato' Yaacob Khyra
Executive Chairman