OUR BUSINESS AND OPERATIONS
Mycron Steel Berhad encompasses the combined operations of two main subsidiaries, namely Mycron Steel CRC Sdn Bhd
("MCRC") and Melewar Steel Tube Sdn Bhd ("MST")
A smaller subsidiary, Silver Victory Sdn Bhd ("SV"), is involved in the trading of steel related products.
FINANCIAL YEAR OVERVIEW
For the financial year ended 30 June 2023, the Group
generated revenue of RM540 million (FY2022: RM746
million) and a pre-tax loss of RM13.8 million (FY2022: pre-tax profit RM64.5 million).
With weaker steel demand and downward pressure on
global steel prices, the Group's performance was flat in the
first quarter of FY2023 with a revenue of RM120 million.
Chronic manpower shortages and disrupted supply chains
had a substantial impact on steel consumption, leading to
a steep decline in output across major steel consuming
industries during this time. The Russian-Ukrainian conflict
continued to severely impact the global economy and led
to significantly high energy costs. The global economy and
steel demand were vulnerable to the negative effects of
rising energy prices and excessive inflation. Steel prices
fell more rapidly than raw material costs, resulting in a
narrowing of the profit margin and a contraction of the
spread.
Weak domestic steel demand, increased dumping of CRC
Steel imports into Malaysia, and persistent downward
pressure on global steel prices contributed to the Group's
negative performance in the second quarter, with a
revenue of RM134 million and pre-tax loss of RM16.4
million. After nine consecutive profitable quarters, this is
the first quarter to end in a deficit.
Uncertainty surrounding the 15th General Elections
also had a chilling effect on consumer confidence. Steel
demand and consumption were low across major steel-consuming
industries due to labour shortages and a
generally sluggish global economy. As a result, the steel
industry saw severe customer destocking in the second
half of calendar year 2022.
The Group's decline in revenue to RM127 million in the
third quarter was attributed to lower unit selling price
corresponding to lower market steel prices for both the
CRC and Steel Tube divisions. Lower price-spreads (from
higher carrying inventory value) and higher unit production
cost (from lower throughput volume) caused the Group to
record a marginal pre-tax profit of RM0.15 million for the
quarter.
The Group's revenue for the fourth financial quarter of
RM159 million was around 26% higher than the preceding
quarter mainly due to higher sales volume for both the CRC
and Steel Tube divisions. Both divisions contributed to
stronger gross profit performance for the quarter. However,
the performance for the quarter narrowed to a pre-tax loss
of RM0.45 million after incurring an impairment charge on
property, plant, and equipment of RM6.8 million.
ECONOMIC LANDSCAPE
Historically, the steel industry has been very cyclical and sensitive to
economic conditions, consumptions trends, as well as global steel
production capacities, and fluctuations in international steel trade and
tariffs.
The lingering effects of the pandemic, the Russian invasion of Ukraine,
and the sharp tightening of monetary policy to contain high inflation and
economic downturn in China, have all harmed the Global Economy. All
these shockwaves, weighed on the Group’s performance, during the
financial year.
Steel prices in 2022 were highly volatile, spiking at the end of March
following the Russian invasion of Ukraine and then decreasing in
the second half, as a result of the Chinese government’s repeated
lockdowns due to its “Zero Covid” policy, and a weak Chinese real
estate sector. The dramatic drop in underlying real demand, along with a
smaller reduction in steel production, pushed for greater steel exports to
foreign markets, driving down global steel prices. Because of the earlier
than expected re-opening of China’s economy, the country’s growth
accelerated to 4.5% during the first quarter of 2023 fuelled by the
transportation, retail, and hospitality industries. However, the reopening
resurgence was stymied by a continuing collapse in the Chinese real
estate market during the second quarter of 2023, underscoring the need
for further policy support, from the Chinese Government.
Steel prices are vulnerable to global economic swings, which are
influenced by a variety of factors ranging from trade and geopolitical
tensions to global/regional monetary policies. Steel prices fall because
of excess supply relative to demand for steel. Steel stocking and
destocking cycles, which have been widespread over the last 18 months,
have also had an impact on apparent demand and consumption. Steel
price decreases, on the other hand, are hastened when customers
adopt a “wait-and-see” approach and destock in anticipation of further
price increases.
Steel stockists and distributors, for example, may accumulate (stock)
considerable steel inventories during periods of low prices and then sell
(destock) as prices improve, thereby disrupting steel price increases.
As a result, steel prices fluctuate substantially, and have come under
pressure during recent periods.
DOMESTIC FLAT STEEL CONSUMPTION
Domestic Flat Steel Consumption by Calendar Year – 5 years
(Source: Malaysia Iron and Steel Industry Federation, MISIF)
In 2022, Malaysia’s overall flat steel consumption decreased to 5.0 million tonnes from
5.4 million tonnes in 2021, a decrease of 6.8%. When compared to Malaysia’s steel
consumption in 2016 (6.67 million tonnes), this represents a 25% drop in consumption.
Flat steel, specifically CRC steel demand, is sensitive to trends in cyclical industries
(such as automotive, construction, white goods, and machinery) that have seen
contractions in 2022, due to raging inflation, the Russia-Ukraine war, and hard
Chinese Zero-Covid Policy lockdowns.
OUR COMMITMENT TO
Governance
The Board of Directors of the Group recognises that
corporate governance principles are the foundation upon
which stakeholder confidence is built. In addition, we
acknowledge the importance of conducting business
with integrity and in accordance with generally accepted
corporate governance principles. Our board members and
senior executives will continue to focus on upholding the
highest standards of corporate governance and business
ethics, in the operations of the Group. The Governance
model for the Group includes, among others, the Board
Charter, Terms of Reference of Board Committees, Anti-Fraud/ Anti-Corruption Policy, Fit and Proper Policy,
Communication Policy, Conflict of Interest Policy, and
Corporate Disclosure Policies and Procedures.
Sustainability
We value the importance of operating sustainably, and
we are putting forth our best effort to attain sustainability
objectives and targets in conformity with global reporting
standards. The Group's sustainability agenda is driven
by our Chief Executive Officer and supported by senior
executives. We endeavour to incorporate sustainable
practices into our operations in the areas of Governance,
Climate Change, the Environment, our People, and the
Community. Since the commencement of our sustainability
journey, we have achieved some notable milestones, which
are further elaborated in the appended Sustainability
Report.
National Energy Transition Roadmap
The Malaysian Government released a detailed National
Energy Transition Roadmap (NETR), outlining the measures
the government plans to take to achieve its net-zero
emissions target by 2050. Our country is demonstrating its
commitment to this target and the domestic steel industry is
fully supportive of the government's roadmap.
DIVIDEND
FY2023 was a challenging year for Mycron. In view of the
Group’s financial position, the Board of Directors do not
recommend the payment of any dividend for the financial
year ended 30 June 2023.
PROSPECTS AND OUTLOOK
The future poses huge risks to the global economy and
obstacles for us to overcome. Several factors make it
difficult to predict future steel demand and prices, which
include the ongoing conflict in Ukraine, the possibility of a
U.S. recession in 2024 due to the delayed impact of tighter
credit conditions and high interest rates on consumer
demand, as well as steel demand dynamics in China.
The global steel sector is highly sensitive to the trend
of China's steel exports. Net Chinese flat steel exports
increased from 3.8 million tonnes per month in January and
February 2023, to 5.7 million tonnes per month in April and
May 2023. There is no sign that this trend will abate anytime
soon, due to the current weakness of China’s domestic
steel demand.
As far as the Group is concerned, steel consumption in
China will continue to decline. There will be an adverse
effect on global steel prices, and an increase in Chinese
steel exports, if the decline in demand, does not correspond
with renewed steel capacity reduction. While interest rate
cuts will likely benefit China’s construction industry, the
Group does not anticipate a growth in China’s domestic
steel demand, unless the Chinese government announces
further policy support.
On the domestic front, the formation of a new unity
government in Malaysia paves the way for the continuation
and progression, of multiple development plans, one being
the New Industrial Master Plan.
ACKNOWLEDGMENT AND APPRECIATION
On behalf of the Board, I would like to express my heartfelt appreciation to the management team and staff for their
commitment, dedication, and contributions to Mycron. To our valued business associates, customers, and shareholders;
thank you for your continued invaluable support, confidence, and trust, that you have placed in us.
Tunku Dato' Yaacob Khyra
Executive Chairman