星期三, 九月 21, 2016

转贴:Industry sources say the firm has stopped operations after months of deliberation

AFTER months of deliberation, Lion Group’s ailing steel miller Megasteel Sdn Bhd has ceased operations at its 17-year old flat steel products plant in Banting, Selangor, according to industry sources.

The management's decision to fully shut down its RM3.2bil plant effective from Aug 30 until further notice, however, came as no big surprise to the local steel fraternity. A source says the Megasteel situation has taken a turn for the worse this year.

“From January to August there were no fresh orders coming in. Its plant has already been running on a single shift and the full shut-down will see some 800 workers facing termination. “It is an open secret that Megasteel will need to close shop at least temporarily as there is still no white knight coming to rescue the bleeding company,” adds the source. Megasteel is the country’s first integrated steel miller, producing flat steel products including 3.2 million tonnes of hot rolled coils (HRC) and 1.45 million tonnes of cold rolled coils (CRC) per annum. It is a 79%-owned subsidiary of Lion Corp Bhd and a 21.11% associate company ofLion Diversified Holdings Bhd. Both companies are controlled by Lion Group executive chairman Tan Sri William Cheng.

Apart from Megasteel, other steel plants of Lion Group, including Amsteel Mills Sdn Bhd and Antara Steel Mills Sdn Bhd, are believed to be still in operation. The sources say: “Antara Steel Mills in Pasir Gudang, Johor is operating at 50% production capacity because its long steel bar products are still demand well supported by the government’s on-going construction and infrastructure projects.”

Megasteel’s business for more than five years has been severely affected by stiff competition from the influx of imported steel products from China, which are selling below the cost production of domestic steel players. As a result of this, Megasteel defaulted on a banker's acceptance payment on Sept 23, 2015 in respect of a working capital facility. This default created a dominoes effect as it gave rise to cross default provisions under the loan documents for its other facilities, which amounted to some RM3.02bil.

These securities are:

  • Term loan facility agreement with principal amount outstanding of about RM21mil
  • Syndicated term loan facilities agreements with principal amount outstanding of approximately RM683mil
  • Bilateral working capital facilities agreements with a total combined limit of RM119.5mil; and
  • > Ringgit-denominated bonds (LCB Bonds), redeemable convertible secured loan stocks and US-denominated debts issued by LCB of some RM2.2bil.

Given Megasteel's status as the only HRC producer in Malaysia in 1999, the Government provided protection to Megasteel in the form of 25% import duty on HRC and also increasing it to 50% in 2002. And, it also introduced an import permit and quota system. However, despite the protection, Megasteel continued to record huge losses. As at Dec 31 last year, Megasteel had racked up RM2.43bil in accumulated losses.

So far, Megasteel has gone through four debt restructurings, the latest of which in 2014, when it only had consent from two of its seven US dollar term loan creditors. As at Dec 31 last year, Megasteel owed RM895.7mil to secured creditors, while unsecured creditors and suppliers were owed RM3.28bil. Meanwhile, Megasteel’s major stakeholder Lion Corp has been a Practice Note (PN17) company since Oct 25, 2013. Lion Corp has applied to Bursa for an extension of time from July 31 to Nov 30 for the company to explore available options for its regularisation plan.

While the closure of the Megasteel plant is still indefinite, an industry source points out that it is learnt that the local steel industry players’ effort to obtain anti-dumping steel safeguard measures from the Government still remains uncertain. “Megasteel management is still hopeful that the Government can still come to the rescue. The safeguards result is due sometime in September or October this year,” the source added.

Steel industries
Within Asean, Thailand and Indonesian governments have implemented significant measures to protect their steel industries. “The request for safeguard measures by Megasteel is a fair request because other neighbouring countries have already imposed it given the threat of cheaper imported steel products selling below the production costs of domestic steel players,” the source adds.

“Our government must naturally encourage the use of locally manufactured HRC and CRC-related products, by imposing anti-dumping regulations on countries undertaking such practices, and by controlling its issuance of duty exemption certificates. “This move will help to bolster and nurture the country’s RM41bil steel industry which is currently facing tough times.”
On another note, analysts say that the void left by Megasteel is expected to be filled by Southern Steel Bhd which is the country’s second producer of HRC after Megasteel’s monopoly for over 10 years.

However, Southern Steel is also badly affected by the dumping of cheaper imported HRC steel goods flooding the local market. At the same time, analysts say Mycron Steel Bhd, the producer of CRC, is making good progress following the closure of the Megasteel plant as reflected by its actively traded share prices lately. The share ended 7.5 sen higher at 78.5 sen yesterday.

While Megasteel has a monopoly on the sale of HRC locally, it also ventured into CRC production a few years ago, thus creating an imbalanced playing field to other CRC players like Mycron Steel. In Malaysia, CRC players are required to buy half of their HRC requirements from Megasteel while other HRC users, such as pipe makers, are required to buy all or a large portion of their HRC requirements from the company.


星期二, 九月 06, 2016

Malaysia Cold Rolled Coil (CRC) producers are enjoying good time - 转贴

Malaysia Cold Rolled Coil (CRC) producers are enjoying good time.

All CRC producers had delivered very good results in the latest quarter report (30/6/2016) due to the following 2 major events:

1. Imposition of Anti-Dumping Duties over imported Cold Rolled Coil by Customs (May 2016);
2. Ceasation of operations by Megasteel (Malaysia SOLE producer of Hot Rolled Coil) (Feb 2016)

Malaysia Top 4 CRC Producers are …
1. CSC Steel Bhd (620,000 tonnes);
2. Mycron Steel Bhd (260,000 Tonnes);
3. YKGI Bhd (220,000 Tonnes);
4. EonMetal Group Bhd (120,000 tonnes)

Malaysia Government has imposed anti dumping duties on CRC imported from oversea for 5 years period effective from 24/5/2016. As such, the selling price of the domestic CRC, which ranged from RM2068 to RM2,292 in 2015, are expected to be maintained or even possibly increased in coming months from Sept 2016.

The Royal Malaysian Customs Department will enforce the collection of anti-dumping duties and this measure will be effective for five (5) years, from 24 May 2016 to 23 May 2021. With the imposition of anti-dumping duties on imports of Cold Rolled Coils of Alloy and Non-Alloy Steel from the alleged countries, it is expected that the issue of unfair trade practices will be addressed.

Hot Rolled Coil (“HRC”) steel sheets are the basic raw material used for the production of the Cold Rolled Coils (“CRC”) steel sheets.

In general, CRC manufacturers produce two main types of CRC, namely:
1. Scrap Based CRC (made from Scrap Based HRC), and
2. Iron Ore Based CRC (made from Iron Ore Based HRC)

It should be noted that Scrap Based CRC has lower metallurgic qualities compared to Iron Ore Based CRC, because its raw material (i.e. Scrap Based HRC) contains impurities which were inherent in the scrap used to manufacture the HRC. Having a lower quality, Scrap Based CRC is used by downstream manufacturers, mainly in the steel tube and furniture sectors.

The higher quality Iron Ore Based CRC, is used by downstream manufacturers, mainly involved in producing steel drums for the petroleum and palm oil sectors, in making components for the automotive industry, in producing steel sheets for color coating and galvanizing purposes, and in the electronic and electrical appliances manufacturing of white goods, such as refrigerators, television sets, rice cookers, microwave ovens, etc.

Scrap Based HRC, which was supplied EXCLUSIVELY by the sole domestic HRC manufacturer, Megasteel Sdn Bhd (“Megasteel”), was used to manufacture lower grade CRC, steel pipes and tubes.

While Iron Ore Based HRC were imported to manufacture of high grade CRC. Although Iron Ore Based HRC is of a higher grade, the cost of the HRC supplied by Megasteel (i.e. lower grade Scrap Based HRC) is HIGHER.

Megasteel had abruptly halted production and supply in February 2016 reportedly due to unpaid electric bills. Megasteel had on 1 April 2016 laid off half of its workers.

According to some unconfirmed reports, CRC producers can now (Sept 2016) import much lower priced but yet better quality HRC from oversea with additional saving of at least RM400 per tonnes if compared to those previously sourced from Megasteel.

Megasteel = continue ceasation of operations as in 22 August 2016.

Southern Steel had also provided impairment loss of RM140m for the invested capital over the HRC production facility. As such, Malaysia does not have any HRC producer at this moment of time (Still Sept )

Kenanga Investment Bank