CSC Steel Sees Higher Net Profit

By Kang Siew Li

CSC Steel Holdings Bhd, the country’s largest producer of cold- rolled steel, expects an improvement in full-year net profit to December 2008 as growth accelerated to its quickest in the first half.

The company saw net profit increase 61 per cent to RM73.5 million in the first half of the year ended June 30 2008, which represents 92 per cent of the total figure for full year 2007 of RM79.7 million.

Managing director Su Wei Jin said looking at the first half 2008 results, full-year net profit is likely to grow at a faster rate this year compared with 2007, which rose by 10.7 per cent over 2006.

“Although the second half of our fiscal year is traditionally a slow period due to the seasonality of the industry, we expect the company to show strong, double-digit net profit growth in fiscal 2008,” he told Business Times in Malacca.

He declined to give a forecast for 2008 results.

CSC Steel, formerly known as Ornasteel Holdings Bhd, has seen prices of its steel products increased by RM200 per tonne in the first quarter and by RM600 to RM700 per tonne in the second quarter, amid rising cost of its principal raw material – hot rolled steel.

“We were able to pass on those increased costs to our customers, plus more, in the first half of the year. That’s why we could make higher profits,” said Su.

The company has also developed new steel products, which helped to boost its profits.

“Through our efforts, coupled with improved market conditions, we enjoyed good performance in the first half of this year,” he added.

On its outlook for the remaining year, Su said prices of cold- rolled steel, galvanised steel and pre-painted galvanised steel have fallen since September 2008 although they are expected to stay above last year’s level.

“I don’t think the drop in price will be worse than last year,” said Su.

He added that Malaysia’s steel market is reflective of global market performance, which has seen a slowdown in demand beginning this month, mainly due to a huge increase in China’s steel exports to the world.

This has in turn led to a drop in steel prices.

“In recent years, the boom cycle of the steel market has become short – about once a year, with the prices fluctuating quite significantly of a couple of hundred US dollars.

“However, due to high raw material costs, steel makers are left with limited room to reduce their selling prices, especially for those small- to medium-sized steel makers supplying ordinary grade steel products. They have to cut or stop their production once they sustain operating loss in a period,” said Su.

“But looking at the price movements of steel for the past three years, it tells us that steel prices would recover soon and may reach another record again. Apart from that, resources and energy costs also play an important role (in determining price changes),” he added.

Meanwhile, CSC Steel is still considering plans to start expansion of its existing operation in Ayer Keroh, Malacca.

“We are still considering adding new production lines at our Ayer Keroh plant or other suitable locations, which will allow us to introduce a new category of high-end flat steel products that would be the first of its kind in Malaysia,” said Su.

However, the go-ahead will depend on the approval of its parent China Steel Corp and upon it obtaining incentives, land, natural gas supply and import protection from the Malaysian government for the new product.

CSC Steel is a 45 per cent subsidiary of China Steel Corp, Taiwan’s largest steelmaker.

“Because this product has never been produced in Malaysia and requires a large expenditure of capital, we need to obtain some protection from the Malaysian government, such as a 10 per cent import duty and an import restriction that 70 per cent of the new steel product must be procured domestically,” said Su.

The proposed expansion is divided into two phases and will increase CSC Steel’s production capacity by 30 per cent and 80 per cent, respectively, from the current production of 500,000 tonnes of cold-rolled steel a year.

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