The Steel Industry Performance & Outlook
The global steel industry is experiencing a very turbulent time due to weak economic recovery and cooling demand especially in European Union (EU) and China. World Steel Association (Worldsteel) report dated 25.01.2016 shows that the world crude steel production reached 1,622.8 million tonnes (Mt) for the year 2015, down by 2.8% compared to 2014. Crude steel production decreased in all regions except Oceania in 2015. The average capacity utilization in 2015 was 69.7% compared to 73.4% in 2014. Annual production for Asia was 1,113.8 Mt of crude steel in 2015, a decrease of 2.3% compared to 2014. Worldsteel forecasts that global steel demand will decrease by 1.7% to 1,513 Mt in 2015 following growth of 0.7% in 2014. In 2016, it is forecast that world steel demand will show growth of 0.7% and will reach 1,523 Mt. Malaysia is the fourth largest steel consuming country in ASEAN with a domestic steel consumption of more than 10 Mt in 2015. Malaysia’s steel demand is expected to grow at annual average rate of 4% until 2018, driven by the government approved mega infrastructure projects. However, the growth in consumption (2015) was mostly served by imports as domestic output stagnated and total imports increased by 11%, while exports surged by 31%. The local steel industry continues to be hampered by the influx of cheap imported Chinese steel products which has depressed the domestic selling prices. This is further compounded by the global oversupply situation and sagging demand spurred by China, the world’s largest steel producer, which has led to shrinking world steel prices. In addition, the implementation of GST with effect from 1st April 2015, the announcements on the electricity tariff hike and gas price increases have driven up operation costs of the steel industry. Under these challenging and sluggish market conditions, performance of domestic steel companies generally had declined. Most companies saw reduced sales volume, experienced margin erosion which led to net losses.
As we enter a new financial year 2016, the global economy continues to be fragile and uncertain especially with regard to the impact of the Chinese slowdown and the Eurozone crisis. The Malaysian economy is expected to grow between 4 and 4.5 per cent this year, down from an earlier forecast of between 4.5 and 5 per cent after taking into consideration the current economic scenario with slumping of oil and commodity prices.
In keeping with the Company’s vision of creating a strong and sustainable corporation; the Company’s management will continue its 3-Years Business Continuity Plan that focuses on 5 key areas:
- Focus on core manufactured coated products sales;
- Strengthen balance sheet to improve cashflow;
- Human resource rightsizing;
- Plant Operation improvement – to improve production yield, product quality and costs control; and
- Cost-effective procurement and inventory management.
YKGI went through a period of intense consolidation since 2013 in order to mitigate the effects of the downturn. It is timely for the Company to remove deficiencies through consolidation and streamlining which will offer the best development opportunities moving forward, in terms of competitiveness and performance to achieve profitable growth, enhance efficiency and optimize capital employed.
With the current changing dynamics, YKGI is focusing on offering high premium and value added coated products to rationalize its excess capacity and be more competitiveness in the market. YKGI fully understands that reliability of product delivery and quality are key factors and necessary for meeting its customers’ needs. Hence, YKGI has collaborated with its suppliers and customers in the early stages of product development via integrating R&D, manufacturing, sales and supply chain management. The focus is also on after-sales management and strategic value chain development.
In Year 2016, YKGI also aims to strengthen its financial position via capital raisings. To finance its growth, the Company will undertake asset right-sizing including disposing off unutilized and unproductive assets.
Last but not least, investments in the steel sector are highly capital intensive and long term in nature, where economic viability is dependent on the fundamental growth assumptions of the domestic economy. In order to provide a more conducive preposition to enable capital investment to be viable as well as creating value and reasonable returns to the shareholders, it is vital that the Government takes a proactive role in implementing business friendly regional policies including instituting appropriate trade measures where needed to facilitate a more level playing field and environment to enhance the ease of doing business. The Malaysian steel industry is recognized as an essential catalyst needed for the success of the 11th Malaysia Plan (RMK11) to help contribute to the development and strategic thrusts of the nation beyond 2020. It is therefore imperative that the steel industry be strengthened through the support by the policy makers to prevent unfair competition from abroad arising from the dumping of poor quality, low priced and Government subsidized imports on our shores.
Finally, I would like to thank all our management and staff of YKGI Group, shareholders, stakeholders, customers, suppliers, vendors, government and regulatory agencies for the support extended to us and I look forward to continue receiving your support and cooperation in the future.
Dato’ Soh Thian Lai
Group Managing Director/CEO
YKGI Holdings Berhad