Hiap Teck Venture expects to resume Eastern Steel operation in FY18

Based on today’s market conditions, company is con dent that Eastern Steel would be profitable

By RAHIMI YUNUS / Graphic By TMR

Steel company Hiap Teck Venture Bhd is looking to resume the operation of Eastern Steel Sdn Bhd in the financial year 2018 (FY18), following its suspension since October 2015 due to difficult market conditions.

“We are in the final stage of planning. We hope to resume its production by FY18. Based on today’s market conditions, we are confident that Eastern Steel would be profitable,” ED Foo Kok Siew said on the sidelines of the company’s AGM in Shah Alam yesterday.

Eastern Steel is a 55%-owned joint venture between the group and a Beijing-based steel slabs producer Shougang Group with a total paid-up capital of RM200 million in August 2012. To date, total investment by Hiap Teck Venture in Eastern Steel has reached RM757 million.

Earlier in April 2017, the group decided not to extend the deadline of its cooperation agreement with four parties — Eastern Steel, Angang Group Hong Kong Co Ltd’s unit An Steel International Co Ltd, Shougang Group’s unit Orient Steel Investment Pte Ltd and Chinaco Investment Pte Ltd — due to disagreements on the final terms.

The cooperation was supposed to include initiatives on the resumption of Eastern Steel’s production and its future expansion of production capacity and product range.

“The negotiations were too long and the continued suspension of the operation was not in the best interest of the company,” the company said in its 2017 annual report.

Currently, Eastern Steel’s plant in Kemaman, Terengganu, has a slab-making capacity of 700,000 tonnes per annum.

Hiap Teck Venture’s manufacturing segment is engaged in the manufacturing and distribution of steel pipes, hollow sections, scaffolding equipment and accessories, steel slabs and other steel products.

Separately, the company said it is seeking clarification over the announcement made by China’s Ministry of Finance to remove export duties on some steel products last Friday.

“We are not sure. We think that China is cutting export rebates rather than duties. Our people are still try- ing to clarify it,” Foo said.

He said the clarification is imperative before the company could make any assessments on the impact of China’s latest move on steel products’ export taxes on its business and local industry in general.

China typically revises its export tax levels at the end of each year. The announcement last week would make it easier for its local steel mills to export.

According to Global Steel Trade Monitor report, China is the world’s largest steel exporter at 39.9 million metric tonnes in the year-to-date 2017 through June.

The August 2017 report noted that Malaysia was the top 15th steel importing country in 2016, receiving 8.9 million metric tonnes.

As it is, Hiap Teck Venture viewed that China is keen on capacity-cutting and the market has a favourable outlook in the near future.

“They have been serious in cutting capacity and that is why the market has stabilised and steel prices have improved. We expect this to maintain for the immediate future,” Foo said.

The company returned to the black in the first quarter ended Oct 31, 2017, with a net profit of RM16 million compared to a net loss of RM958,000 a year ago.

The result was attributable to higher margin contributed by both trading and manufacturing division on higher steel prices.

Moving forward, Foo singled out two risks existing in the local steel industry, which is the price volatility and foreign-exchange (forex) rate.

“Firstly, the risk is in the volatility of the prices. They have moved up and down by 5%. The other thing is forex and the US-ringgit rate has been fluctuating.

“The weakening of the US dollar is good for the company as there would be less forex losses especially in Eastern Steel because the company has shareholders’ loans in US dollar,” Foo said.

He also said the company does not foresee any further impairment exercise in FY18, unlike in FY17.