On behalf of the Board of Directors, I am pleased to present the Annual Report of Mycron Steel Berhad and its group of companies (“the Group” or “Mycron”) for the financial year ended 30 June 2015.


The year under review saw the steel industry in the doldrums, due to the influx of cheap duty exempted imports, and dumping activities of China, which has suppressed sales price, to near zero profit margins. Despite this, the Group achieved total revenue of RM518 million compared to RM448 million in the previous year, representing an increase of RM70 million or 16%.

Sales volume of Cold Rolled Coils (“CRC”) was 203,000 tonnes compared to 186,000 tonnes in the previous year, representing an increase of 9.1%. This growth, under an intensely competitive market, was achieved due to the committed and dedicated efforts of the Group’s staff, who have maintained a strong, decade-long relationship, with the Group’s clients. Based on the total production capacity of 260,000 tonnes per annum of CRC, the sales volume of 203,000 tonnes represented a utilisation rate of 78%, an increase of 9% over the previous year. The Group’s higher revenue for the current financial year is also attributed to post-acquisition contribution from the newly acquired Steel Tube subsidiary of around RM57.8 million.

Performance wise, the Group recorded an After Tax Profit of RM11.7 million largely due to the RM21.3 million ‘Gain on Bargain Purchase’ on the acquisition of the Steel Tube operation from Melewar Industrial Group Berhad (“MIG”).

It is important to note that the After Tax Profit for the financial year was achieved after taking into account a net foreign exchange loss of RM5.5 million, caused by the continued decline of the Ringgit during the year, and an impairment loss on plant and equipment of RM3.5 million.


Given that the steel industry remains extremely competitive, the cash flow position of the Group remains tight. The Directors therefore do not recommend the payment of any Dividend for the financial year ended 30 June 2015.


Table 1 below shows the quarter by quarter performance of the CRC Division.

During the first financial quarter, revenue was at RM108 million, compared to RM99 million in the previous quarter, representing an increase of RM9 million or 9%. Sales tonnage of 45,793 was 10% higher too. Even though both revenue and sales tonnage were higher, it is still considered a relatively low quarter, due to the fewer working days brought about by the Hari Raya holidays.

The second financial quarter saw revenue increasing to RM135 million, an increase of 25%. Sales volume jumped to 58,100 tonnes, reflecting the better performance given the longer working period compared to the previous quarter. Despite the stronger sales for the quarter, a loss of RM4.6 million before tax was incurred, due to net foreign exchange losses of RM2.0 million as the Ringgit declined 6.8% during the quarter.

For the third financial quarter, revenue dipped 13.6% to RM117 million while sales tonnage also dropped to 50,856 tonnes, a decrease of 12.5%. Historically, this period has always been the slowest period, considering the shutdown during the Chinese New Year holidays. Also contributing to the slower sales, was the road use limitations imposed for heavy vehicles, which had affected deliveries for the period.

The fourth quarter saw revenue declining further to RM108 million, with sales deliveries dipping slightly to 48,172 tonnes in a softer post GST market. Despite the lower revenue and sales deliveries compared to the previous quarter, the CRC Division registered a Profit Before Tax of RM1.8 million due to higher spreads and margins obtained during the quarter.

It should be noted that the steel industry has been under stress for much of the year under review, caused by oversupply in the international market, which led to pricing imbalances in the steel value chain. Dumping practices remain unchecked, causing substantial disruption to the pricing of CRC globally.

Countries like China, that pay "rebates" for CRC exports, are directly subsidising Chinese steel manufacturers, at the expense of the global steel industry. This, in any other word, is "dumping", that is, when an exported product is priced lower than its domestic price.

The first half of the calendar year 2015 witnessed a full blown depressed market for CRC, in an over supplied market, made worse by an increase in legitimate and illegitimate CRC imports into the country. In addition, the weak market sentiment had adversely affected the operations of local steel manufacturers.


Hot Rolled Coil (“HRC”) steel sheets are the basic raw material used for the production of the Group’s main product; 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.< br />
Currently, there are 5 domestic CRC manufacturers, producing a mixed supply of Scrap Based and Iron Ore Based CRC, with estimated utilisation rates, as shown in Table 2.

As mentioned earlier, the dumping of cheap imported CRC steel into the country, and in most cases, without having to pay the 15% import duty set by the Government, has continued to affect the domestic steel industry, as witnessed by the low capacity utilisation rate of the industry of 29.3%.


It will be noted from Table 3 that the domestic consumption of flat steel, had grown from 5.91 million tonnes in 2012 to 6.52 million tonnes in 2013, an increase of 10.3%. Of particular interest is the stagnation in the consumption of CRC at 1.56 million.

Table 3 shows the consumption of Flat Steel, comprising of both HRC and CRC and their related products, for the country.

It will be noted from the table, that Malaysian HRC consumption for 2014, had declined by 12.8% to 1.78 million tonnes from 2.04 million tonnes in the previous year. On the other hand, CRC consumption grew slightly, by 1% to 1.59 million tonnes, compared to 1.56 million tonnes the previous year. Although domestic demand for HRC has fallen, the demand for CRC has been steady.

Table 4 shows the level of imported Flat Steel into the country.

For 2014, HRC imports had increased by 13.4% to 1.06 million tonnes from 0.94 million tonnes the year previously. All HRC imports into the country are of the Iron Ore Based variety, reflecting the shift in domestic demand for HRC, from the low end Scrap Based HRC, toward the high end Iron Ore Based HRC.

On the other hand, CRC imports for 2014, had dropped by 4.3%, to 0.81 million tonnes compared to 0.85 million tonnes in 2013. This improvement was partially due to the formation, by the Ministry of International Trade and Industry (“MITI”), of the “Mesyuarat Mingguan Besi Keluli” (“MMBK”) which meets with, and vets, all duty exemption applicants for the import of CRC.

Although imports of CRC have declined marginally, its total size of 0.82 million tonnes is still sizeable, representing 51.3% of the country’s total CRC consumption of 1.59 million tonnes. With more than half of the country’s CRC consumption being imported, it is not surprising therefore to see, the domestic industry’s total production capacity utilisation, being as low as 29.3%.

Malaysian CRC manufacturers have been consistently asking the Government to undertake anti-dumping measures since 2014. In April 2015, CSC Steel Berhad formally filed for anti-dumping protection, for CRC being imported from Vietnam, China and Korea. Following that application, the Government issued a Gazette on 27 August 2015, giving itself 120 days to investigate and decide, whether or not there is a case to proceed. We are hopeful that the decision will be a positive one, as this will give the domestic CRC industry, a level playing field to operate within.

Table 5 analyses the overall Malaysian Flat Steel industry’s tonnage structure.

It will be noted in the table that of the 1.78 million tonnes of HRC consumed last year, 0.72 million tonnes were domestically produced, all of which was Scrap Based HRC. It is important to note that all of the imported HRC of 1.06 million tonnes is Iron Ore Based HRC, a product with substantially different metallurgical properties compared to the domestic Scrap Based HRC, for use by high end down-stream industries. The domestic HRC industry is, in that sense well protected, as Scrap Based HRC is not permitted to be imported into the country, without the 15% payment of import duties.

It is hoped that the Government will treat the CRC industry, with equal care and attention, as shown toward the HRC industry, to stop the issuance of duty exemption approvals for imported CRC that can be readily supplied by the domestic CRC industry.

It should be noted that apart from the basic CRC which is being imported of 0.82 million tonnes in 2014, the import of CRC Related Products (i.e. Cold-Rolled Electrical Sheets, Galvanized Zinc Sheets, Electro-Galvanized Sheets, Tin Plated Sheets, and Colour Coated Sheets) is also substantial, at 0.71 million tonnes a year. Curbing the import of CRC Related Products, through the restriction of duty exemption issuance, will increase the capacity utilisation of domestic manufacturers of CRC Related Products. When this occurs, demand by these manufacturers for the basic CRC raw material will increase, thereby improving the capacity utilisation of the domestic CRC industry.

A responsible Government would naturally encourage the use of locally manufactured CRC and CRC Related Products, by imposing antidumping regulations on countries undertaking such practices, and by controlling its issuance of duty exemption certificates, which would bolster the country’s manufacturing capabilities, whilst limiting the drain on the national currency.


The Group uses HRC as its core raw material, not just for the manufacture of CRC, but also for the manufacture of steel tubes and pipes, a division that was recently set up, with the acquisition of Melewar Steel Tube Sdn Bhd (“MST”).

For the manufacture of steel pipes and tubes, the Group uses Scrap Based HRC, supplied exclusively by the sole domestic HRC manufacturer, Megasteel Sdn Bhd (“Megasteel”). For the manufacture of CRC, the Group also uses domestically supplied Scrap Based HRC for the manufacture of lower grade CRC, for the furniture and steel tube industry; but imports Iron Ore Based HRC for the manufacture of high grade CRC for its other clients.

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

The Ministry of International Trade and Industry (“MITI”) had in 2012, engaged the Boston Consulting Group (“BCG”) to conduct a study and to recommend solutions, to the issues faced by the steel industry in Malaysia, in particular to resolve the problems faced by Megasteel. The study culminated in the formation of the Malaysia Steel Council (“MSC”), the MSC Technical Committee and five working groups.

Megasteel was given a time frame of 24 to 36 months to improve its position, during which a pricing mechanism, to help them get back on their feet was implemented; based on the average price of HRC from 5 countries, namely Indonesia, India, Japan, Korea and Taiwan. This has allowed Megasteel to manage its HRC price in a more controlled manner.

Two years has already passed and the favorable steps adopted to aid Megasteel’s recovery are still in process.

With the recent entry of Southern Steel Berhad as a domestic manufacturer of HRC, also using scrap iron as feed material, Megasteel’s monopoly of the sector has effectively ended.

Megasteel had in August 2015 filed for “Safeguard” measures. In this respect, the Government had issued a Gazette on 10 September 2015, for the notice of initiation of investigation for the determination of safeguard measure, with regard to Hot Rolled Coils (“HRC”) products imported into Malaysia.

Megasteel is seeking to prevent the import of all grades of HRC (i.e. Scrap Based and Iron Ore Based HRC) by asking for higher additional import duties of 40%, in addition to the existing 15% import duty, bringing the country’s total duty to an internationally alarming 55%.

Mycron is of the view that this petition will see little daylight for the following reasons:

  1. As there is no domestic manufacturer of Iron Ore Based HRC, there is no point in setting high import duties for such materials, which if implemented, would backfire and damage Malaysia’s competitiveness; and

  2. As all Scrap Based HRC import are currently faced with an existing import duty of 15%, resulting in almost no Scrap Based HRC being imported into the country, further duty hikes will not have any effect on the import of Scrap Based HRC.

Implementing frivolous safeguards measures will most certainly tarnish Malaysia’s standing in the world economy, and will severely damage its industrial competitiveness, as other nations will naturally retaliate Malaysia’s actions, by imposing similar measures against Malaysian made products, not specifically to its steel products, but more painfully, to its palm oil, electronic and consumer goods products.


For the year under review, several corporate exercises were undertaken. They were as follows:

  1. Par Value Reduction,
  2. Amendment to Memorandum & Articles of Association ("M&A"), and
  3. Acquisition of Melewar Steel Tube Sdn Bhd ("MST").
1. Par Value Reduction

This exercise involved the cancellation of RM0.75 of the par value of each existing Mycron share, pursuant to Section 64(1) of the Act, which reduced the existing issued and paid-up share capital of Mycron, from RM179 million comprising 179 million Mycron shares of RM1.00 each, to RM44.75 million comprising 179 million new Mycron shares at RM0.25 each.

This exercise was necessary as Myron’s shares had been trading below its par value of RM1.00 for the past one year, and it was not conducive for the Group to embark on any fund raising exercise and/or corporate exercise, involving new issuance of shares, without undertaking the Par Value Reduction. This exercise also enabled Mycron to eliminate accumulated losses at the Company level.

2. Amendment to Memorandum & Articles of Association (“M&A”)

The Amendment to M&A was necessary to facilitate:

  1. The change in the par value of Mycron's ordinary share from RM1.00 to RM0.25 as a result of the Par Value Reduction, and

  2. The issuance of the Consideration Shares to Melewar Industrial Group Berhad ("MIG") pursuant to the acquisition of Melewar Steel Tubes Sdn Bhd ("MST").

Following the above, Mycron changed its authorised share capital from RM500 million comprising 500 million Mycron shares, to RM500 million comprising 2,000 million new Mycron shares at RM0.25 each.

3. Acquisition of Melewar Steel Tube ("MST")

The acquisition of MST extends the Group’s steel value chain to include downstream steel pipe and tube manufacturing.

The acquisition of MST was expected to result in synergistic benefits to the enlarged Group in the following areas:

  1. Integration of the procurement function of MST and Mycron Steel CRC Sdn Bhd (“MSCRC”) which may enhance pricing and bargaining power given the enlarged procurement volume,

  2. Sharing and optimization of resources such as management expertise, information technology systems and human resource allocation, which are expected to result in operational and production efficiencies as well as cost savings, and

  3. The ability to offer different types of steel products to customers through collaborative marketing strategies between MST and MSCRC.


To sustain business on a long-term basis, Management will focus on a few key areas, namely:-

  1. To strengthen Mycron’s steel presence with the acquisition of Melewar Steel Tube (“MST”), the rationale of which was reported earlier. The corporate exercise also enables the Group to centralise its purchase of HRC, thus improving its negotiation capabilities to attain competitive pricing.

  2. Financial restructuring in order to maximise the Group’s assets and optimise its bank borrowings to finance its operations.

  3. To explore new export markets, using the Licensed Manufacturing Warehouse (“LMW”) status, recently obtained by the Group for the steel tube operation. This license permits the Group to operate under a “bonded” status, giving it a competitive edge, in pricing goods for export. The Group is currently exploring potential new export markets, especially within the ASEAN countries, taking advantage of the Asean Free Trade Agreement (“AFTA”).

  4. To re-engineer operational processes to be a more cost effective steel operator.

Given that the steel industry is currently not in the best of health, the Group retains a cautious outlook for the coming financial year. Global capacity continues to be in excess of demand, and dumping activities, especially by China, is still rampant, resulting in many countries filing anti-dumping measures against the country.

In addition to the competitive market, Malaysian steel manufacturers also have to contend with rising domestic operating costs, in terms of electricity, fuel, and natural gas cost, as well as SIRIM and CIDB fees. Starting in April this year, the Goods and Services Tax (“GST”) of 6% was implemented, adding further cost of doing business.

To cap all its problems, the volatility of the country’s currency, has also played a significant part, in curtailing the performance of the industry.

In summary, the coming year is expected to continue to be a tough one for the steel industry, in an environment where the country’s economy, will face challenges coming from short-term inflation, high household debt and the economic slowdown in China.

A great deal will depend on the Government’s decisions and actions, taken to protect the Malaysian CRC industry, especially in respect of the anti-dumping application against China, Vietnam and Korea. Also playing a significant role will be the outcome of the HRC safeguard petition filed by Megasteel.


On behalf of the Board, I would like to express my heartfelt gratitude and thanks, as well as sincere appreciation, to all members of the management team and their staff for their hard work and contribution to the Group.

Times may be hard, but by focusing our efforts in making excellent products, and delivering splendid services, Mycron will be a name to be recognised in the steel industry, for many years to come. Success always has humble beginnings.

Tunku Dato' Yaacob Khyra
Executive Chairman