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 2022 (“FY2022”).
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").
MCRC is involved in the mid-stream sector of the steel industry, converting Hot Rolled Coil ("HRC") steel sheets into thinner gauge Cold Rolled Coil ("CRC") steel sheets. MST is involved in the down-stream sector, in the manufacture of Steel Tubes and Pipes ("Steel Tube") which are made from HRC or CRC.
A smaller subsidiary, Silver Victory Sdn Bhd ("SV"), is involved in the trading of steel related products.
The Group’s performance for FY2022 has been strong, supported by the continuation of buoyant market conditions. For the financial year ended 30 June 2022, the Group generated revenue of RM746 million (FY2021: RM737 million), and net profit of RM52.7 million (FY2021: RM53.8 million), despite the higher COVID-19 shutdown cost in FY2022.
The Group's performance has been consistently strong for the past two fiscal years. Our improved financial position has enabled us to return value and reward our esteemed shareholders.
I take great pleasure in announcing that during the financial year, the Company declared a dividend of 3.0 sen per share.
The COVID-19 pandemic has caused the largest economic shock the global economy has witnessed in decades. Governments and societies, including those of Malaysia, have been grappling between economic and public health priorities.
Historically, the steel industry has been highly cyclical. Economic conditions as well as fluctuations in global production capacities, have a significant impact on the industry, owing to the cyclical nature of the construction, machinery, equipment, transportation, and manufacturing industries, which are core consumers of steel products.
During its initial phase in 2020, the COVID-19 pandemic caused an unprecedented, sharp decline in economic activity and steel consumption. Malaysia was not spared, and the Group’s performance in FY2020 was significantly impacted by the fallout.
The first half of 2021 was a race between the spread of new COVID-19 variants, and Malaysia’s vaccination progress. From April 2021 onwards, the sharp resurgence of COVID-19 cases, hospitalisations, and deaths weighed heavily on Malaysia’s healthcare system and economic recovery. Because of the rapidly increasing number of cases and hospitalisations, Malaysia’s government imposed a full mandatory nationwide lockdown on 1 June 2021, which was extended through September 2021.
The impact of a long, hard national lockdown during June, July, August and sweeping into September 2021, had a significant negative effect on output, across major steel-consuming industries. Manufacturing activity declined sharply during this period.
Post the hard national lockdown, the rebound in manufacturing in Malaysia, was held back by a chronic labour shortage, and a lack of available shipping containers, due to global supply chain bottlenecks. Domestically, underlying steel demand was impacted by the fallout of the government’s hard lockdown.
Global steel prices rose to historic highs in FY2021, owing to increased demand and a slower increase in supply. In FY2022, however, the opposite occurred.
The global economic recovery lost momentum during the second half of 2021 and became increasingly imbalanced. Advanced economies rebounded faster due to vaccine availability supported by strong fiscal stimulus. This led to stronger demand for goods. Meanwhile, developing economies risked falling behind because of low vaccination rates and demand had yet to fully recover.
Steel demand dynamics in China significantly affect the global steel industry. Despite a rise in steel demand in China in 2020, policy support was eliminated in 2021 and in the second half of 2022, steel demand weakened precipitously.
In China, COVID Zero Tolerance preventive measures remained in place to curb the spread of the virus. These included hard localised lockdowns, mass testing, and strict isolation protocols, such as the two-month Shanghai lockdown.
Zero Tolerance Lockdowns and closures, which have affected several Chinese provinces, continue to have an effect on the Chinese economy.
Real estate accounts for about a quarter of China’s GDP. In 2022, regulations to rein in on real estate speculation, tightened financial conditions for developers alongside declining sales, contributed to large-scale developers defaulting on their debts. Weakness in this sector, as well as a decline in residential investment, have had a significant impact on Chinese steel exports to foreign markets, sending Global Steel Prices into a downward spiral.
A series of economic shocks continue to afflict the global economy. Following the COVID-19 pandemic in 2020 which led to supply chain constraints and disruption caused by lockdowns, the world is now experiencing yet another major negative shock, as a result of the Russia-Ukraine war, in early 2022.
The negative effects of the war, have exacerbated existing pandemic strains, and have caused significant increases in commodity prices. Hot Rolled steel prices increased in March and April 2022, driven by the effects of the Russia-Ukraine war, but the trend reversed in May 2022, due to uncertainty caused by the war, China’s Hard Lockdown on Shanghai, and elevated inflation levels.
The war in Ukraine has led to significantly higher energy prices. As a result of widespread sanctions against Russia, the price of Crude Oil and Natural Gas rose sharply during the first half of 2022.
Elevated energy costs and high inflation pose a downside risk to the Global Economy and to steel demand. During 2022, steel demand started to stagnate and steel supply continued to increase. As a result, steel prices declined faster than raw material costs, causing spread compression and lower profitability, as lower-priced steel orders were delivered.
MALAYSIAN IRON AND STEEL INDUSTRY PERFORMANCE
The nation's steel consumption was impacted significantly due to the COVID-19 pandemic. In 2020, Malaysia’s Apparent Steel Consumption (ASC) declined to 6.81 million tonnes. This was the single largest decrease in the past five years. In 2021, ASC rebounded slightly to 7.03 million tonnes.
The decrease was primarily due to slowdown in the domestic economy as prolonged movement control orders, and strict operating conditions meant that domestic consumption trickled down to a bare minimum.
Nevertheless, the industry managed to somewhat compensate for the loss thanks to its channels to markets abroad, which it has managed to successfully keep open despite the pandemic.
Total iron and steel exports increased an additional 12.8% from the previous high of 6.64 million tonnes in 2019 to 7.49
million tonnes in 2020. In 2021, exports grew further to 9.38 million tonnes.
On the other hand, total iron and steel imports continued to downtrend in 2020, declining 20.2% from 7.51 million tonnes in 2019 to 5.99 million tonnes. In 2021, imports increased slightly to 6.52 million tonnes.
In 2021, Malaysia’s Apparent Steel Consumption (ASC) percentage share of flat products exceeded long products for the first time in five years (64.0% to 36.0%). In 2020, the percentage share of long and flat products was approximately equal (50.2% to 49.8%). Malaysia consumed 3.32 million tonnes of long finished steel products and 5.90 million tonnes of flat finished steel products in 2021.
The Malaysian Iron and Steel Industry Policy for 2021-2030
In 2019, the Malaysian Iron and Steel Industry submitted a White Paper to the Ministry of International Trade and Industry.
It was a culmination of efforts by the industry, for the industry. The objectives of the White Paper were:
Malaysia Industry Government Group for High Technology’s (MIGHT) Foresight Study on the Iron and Steel Industry
in 2022 carries on the objectives of the White Paper for the formulation of iron and steel policies for Malaysia in the
CRC OPERATIONS REVIEW
For FY2022, the CRC division’s sales revenue decreased marginally by 0.6% to RM496.6 million and sales tonnage reduced by 33.1% to 121,023 tonnes. The CRC division registered a Profit Before Tax (PBT) of RM37.13 million for FY2022 even though sales tonnage decreased due to higher spreads achieved during the financial year.
During the first financial quarter (Q1), sales revenue of RM105.2 million was 1.8% higher than the previous quarter, while sales tonnage of 25,638 tonnes was 15.6% lower than the previous quarter. The lower sales tonnage was attributed to the nationwide mandatory lockdown, which limited the Q1 operations to only one and half months. Despite the other one and a half irrecoverable months of operations, high selling prices and margin spreads buoyed a profitable quarter, and the CRC division registered a PBT of RM4.92 million.
For the second financial quarter (Q2), revenue increased significantly by 81.2% to RM190.6 million and sales tonnage increased in tandem by 78.5% to 45,760 tonnes. The robust improvement was contributed by full resumption of the economy and manufacturing sector, coupled with a healthy order book carried forward. These collectively contributed to a PBT of RM20.05 million for the quarter.
For the third financial quarter (Q3), revenue declined by 42.8% to RM109.0 million and sales tonnage decreased by 39.9% to 27,516 tonnes. The decline was due to weak domestic demand where factors such as labour shortage, resurgence of domestic COVID-19 infections, and exorbitant freight and export costs placed significant downward pressure on steel consumption. However, the low sales tonnage was counterpoised by high spreads, resulting in a PBT of RM15.77 million for the quarter.
For the fourth financial quarter (Q4), sales revenue declined by 15.8% to RM91.8 million. Sales tonnage decreased by 19.7% to 22,109 tonnes. The decline was attributed to weakened domestic demand due to significant dip in steel prices, resulting primarily from Russia’s supply surplus, as well as waning demand from China due to COVID-19 outbreaks. The CRC division maintained its margins at a healthy level, and the quarter would have remained profitable, if not for inventory impairment provisions, resulting from the steep steel price drop.
DOMESTIC CRC INDUSTRY STRUCTURE
Hot Rolled Coil (“HRC”) steel sheets are the basic raw material used in the production of Cold Rolled Coils (“CRC”) steel sheets. CRC manufacturers, in general, produce two types of CRC, namely:
Scrap Based CRC is regarded as inferior in metallurgical quality as it contains impurities derived from the scrap used
to manufacture the Scrap Based HRC. Manufactured from lower quality HRC, Scrap Based CRC is typically used by
downstream customers, mainly in the Steel Tube and Furniture sectors, which do not require high quality CRC.
Conversely, due to its higher quality, the Iron Ore Based CRC is used by a different group of customers, primarily involved in the production of Steel Drums for the palm oil and petroleum sectors, in the production of Colour Coated and Galvanised CRC (usually for the manufacture of roof sheet), in the production of Electrical Appliances mostly comprising of white goods such as washing machines, refrigerators, microwaves ovens and rice cookers, and also in the production of components and parts for the automotive industry.
Historically, all HRC and CRC Steel Manufacturers in Malaysia were Malaysian owned. However, the mills have been either shutdown or taken over by foreign-owned steel mills.
Mycron is one of the few fully operational Malaysian-owned and managed flat steel mills in the nation. As a forerunner in the industry, Mycron is proud to be part of the nation’s journey and goal in achieving a fully developed nation status. Thankfully, the government is gradually recognising the contribution of the Malaysian Steel Industry and is working towards safeguarding local steel mills such as Mycron against unfair trade. To play its part in this measure, Mycron continues to engage with the Government to push for immediate actions to protect and ensure the sustainability of the steel industry.
Exhibit 7 provides details of utilisation rates and total capacity for the domestic CRC industry. Despite the increase of domestic CRC production by 7.9%, from 508,033 tonnes in 2020 to 548,032 tonnes in 2021, Malaysia’s domestic CRC producers continue to face substantial under-utilisation of production capacity at 51.7% in 2021. The aforementioned scenario was influenced by both government-imposed lockdowns and extensive CRC imports in the year 2021.
Exhibit 8 shows a summary of flat steel imports into Malaysia. Imports of CRC sheets and strips are 835,492 tonnes,
while the combined imports of CRC and CRC Related Products are 1,695,138 tonnes. Fear of a supply shortage and
subsequent price increase led to material hoarding in the first half of 2021. However, there was a surplus of material in the
Asian region during the second half of the year, which resulted in material dumping into Malaysia.
To ensure a level playing field for domestic CRC producers, Mycron continues to lead the CRC industry in efforts to address dumped and subsidised steel imports that injure the domestic industry and the welfare of its workers and investors. Mycron will continue to engage relevant government ministries, agencies, and industry associations, to address the impact of unscrupulous imports on the domestic steel industry, and to emphasise the importance of protecting the domestic steel industry.
Exhibit 9 depicts the cold-rolled carbon steel trend from 2017 to 2021. The ASC (Apparent Steel Consumption) of
cold-rolled carbon steel increased by 32.5% from 1.06 million tonnes in 2020 to 1.40 million tonnes in 2021. Production
and imports both increased by 39.8% and 22.4% respectively, while exports fell by 34.3%. The improved market
recovery following the lockdown contributed to the normalisation of domestic consumption.
STEEL TUBE OPERATIONS REVIEW
For FY2022, the Steel Tube division’s sales revenue rose by 8.0% to RM294.6 million. However, sales tonnage reduced
by 23.7% to 65,981 tonnes. The Steel Tube division registered a Profit Before Tax (PBT) of RM27.1 million for FY2022
even though sales tonnage had dropped due to higher spreads achieved during the financial year.
For the first financial quarter (Q1), sales revenue was RM51.6 million. Sales tonnage of 12,472 tonnes was 20.5% lower than the preceding quarter (Q4, FY2021). Deliveries were affected by the FMCO and EMCO lockdowns during the quarter. The steel tube division remained profitable with a PBT of RM5.36 million for the quarter.
For the second financial quarter (Q2), total sales revenue improved by 49.2% to RM77.0 million. Sales tonnage similarly rose by 40.8% due to recovery in domestic demand of steel pipes and tubes after the lifting of Malaysia’s COVID-19 lockdown. PBT for the quarter increased to RM9.87 million.
For the third financial quarter (Q3), total sales revenue was RM76.3 million. Sales tonnage for the quarter was flat at 16,963 tonnes. PBT of RM6.01 million for the quarter was 39.4% lower due to reduced spreads and steel industry shutdown due to seasonal Chinese New Year holidays.
The fourth financial quarter saw sales revenue rise by 17.6% to RM89.7 million. Similarly, sales tonnage increased by 11.9% to 18,980 tonnes. The Steel Tube division registered a PBT of RM5.86 million for the quarter due to improved sales deliveries and steel spreads, as the Russian-Ukraine war had caused steel prices to spike.
DOMESTIC FLAT STEEL INDUSTRY SUMMARY
In 2021, Malaysia’s overall flat steel consumption increased to 5.37 million tonnes from 4.92 million tonnes in the previous year, an increase of 9.17%. Exhibit 11 provides a breakdown of the domestic flat steel consumption for the past five years.
The domestic consumption of HRC increased by 3.88% to 1.66 million tonnes. The consumption of Welded Pipes & Tubes on the other hand, increased by 26.48% to 0.58 million tonnes. On the CRC front, domestic consumption increased by 37.88% to 1.51 million tonnes from the previous year of 1.10 million tonnes.
Exhibit 12 provides a summary of the overall movement of flat steel in Malaysia for the calendar year 2021. In general, the
flat steel industry performed moderately, with domestic consumption increased by 9.2% to 5.37 million tonnes, compared
to 4.92 million tonnes in the previous year.
It is noted that for CRC, of the 1.51 million tonnes consumed in 2021, 0.84 million tonnes were imported CRC compared to only 0.70 million tonnes which was manufactured in Malaysia. CRC Related Products increased slightly by 0.69% to 1.28 million tonnes. Although this seems to be an indication of improvement, Malaysian CRC manufacturers continue to operate at only half capacity utilisation. There is enormous opportunity for domestic CRC producers to supply the demand for domestic consumption, and should be given priority.
GLOBAL AND DOMESTIC FLAT STEEL REVIEW
The global and domestic steel industries proved extremely challenging throughout the financial year under review, ascribed to sluggish global economic recovery following lockdowns, drastic steel consumption reduction in China, and ensuing consequences of the Russia-Ukraine war.
The third wave of COVID-19, which occurred from July 2021 to August 2021, halted economic activity in Asian countries and had a significant impact on key steel-consuming industries such as automotive, manufacturing, and construction. Steel prices have fallen in lockstep with demand, and HRC prices have fallen below the USD1,000-USD1,150+ high.
When the lockdown measures were lifted in September 2021, the domestic economy’s resumption was constrained by the national COVID-19 inoculation rate. Steel demand failed to gain traction globally as the automotive industry was hit hard by chronic chip shortages, which were exacerbated by China’s property crackdown. By January 2022, the price of HRC had fallen to USD760 per tonne.
Demand and steel prices rebounded in February 2022, supported by production cuts during the Chinese New Year festive holiday, as well as strong positioning of key steel-making raw materials. Shortly thereafter, the onset of the RussiaUkraine war resulted in an abrupt deprivation of steel supply to the Europe region, and knee-jerk reactions caused steel prices to skyrocket to USD1,000 per tonne by April 2022.
China, the world’s largest steel consumer, imposed strict lockdowns in April 2022 in lieu of their Zero-COVID Policy, affecting the vast majority of its economic powerhouse. Globally, inflationary pressures and rate hikes have negatively impaired spending ability. Simultaneously, Russia, which was under economic sanctions, depleted large inventories of steel in the Asian region. Steel prices fell as a result of a combination of weak demand and a supply surplus.
Overall, both global and domestic steel demand remained relatively muted throughout the past year. However, with global post-pandemic recovery and supply chain easing, demand is expected to gradually resume. Steel prices are expected to correct towards a new low, supported by the new price positions of key commodity items.
HOT ROLLED COIL (HRC) SUPPLY
Hot Rolled Coil (“HRC”) is the key raw material used by the Group, for both its CRC and Steel Tube business segments.
Throughout FY2022, HRC price has been volatile due to recurring lockdowns, slow economic recovery post COVID-19 lockdowns, supply chain disruption and the Russia-Ukraine war, China’s Zero-COVID Policy lockdowns, rising inflationary pressures, and interest rate hikes.
ELECTRICITY AND NATURAL GAS SUPPLY
Apart from HRC, which is the core raw material used in the production of CRC and steel tubes, the industry consumes a considerable amount of electricity for its rolling plants and natural gas for the annealing process and steam generation. Domestic CRC producers have experienced significant price increases in these two inputs over the last decade, contributing to significant margin squeeze.
The total payable amount for gas has increased significantly since liberalisation. One of the reasons for the increase is the
rise of Liquefied Natural Gas (LNG) export average price, which is used by the Department of Statistics Malaysia (DOSM)
to determine the Malaysia Reference Price (MRP) on a quarterly basis. The MRP rose from MYR33.97/mmbtu in January
2022 to MYR35.25/mmbtu in April 2022, and then to MYR40.17/mmbtu in the month of July 2022.
The negotiated parameter between MCRC and Gas Malaysia Energy and Services (GMES), namely beta, which is fixed throughout the contract period, is another factor determining the gas usage. Besides that, one of the major contributing factors in determining the natural gas pricing formula is the transportation tariff established by transporters.
Apart from MRP, a fixed monthly charged capacity based on the contracted reserved capacity quantity submitted against the distribution tariff is now in place. In a way, there is a fixed distribution cost levied on consumers’ original committed volume, and any underutilised capacity is penalised by the fixed charge.
Although there are no longer excess gas charges and take-or-pay charges in place following liberalisation, the capacity charge has essentially substituted the take-or-pay charges, making it an obligation to pay without giving consumers the option to reduce the reserved capacity quantity once contracted. Furthermore, there will be capacity overrun charges if consumers’ taken quantity, exceeds the reserved capacity quantity. As a result, natural gas consumers are paying more, after liberalisation.
Moving forward, MCRC is exploring opportunities, with other natural gas suppliers, who offer greater flexibility or gas supply pricing, based on the international market rather than MRP.
In February 2022, Tenaga Nasional Berhad (TNB) revised the ICPT charges substantially from a rebate of RM0.02/kWh to
a surcharge of RM0.037/kWh. According to TNB, the increase in ICPT surcharge was caused by an increase in fuel costs
from July to December 2021, when coal prices reached US$200 (RM838) per tonne.
Following this adjustment, MCRC’s annual operating costs had risen by more than RM1 million, owing entirely to increased electricity costs.
TECHNOLOGICAL ADVANCEMENT AND FUTURE INVESTMENT
As Mycron enters the 4th Industrial Revolution, both the Steel Tube and CRC divisions are paving the way for digital transformation and the adoption of a “Lean Manufacturing” philosophy.
MST employs Kaizen management, in which they commit to increasing productivity, efficiency, and quality. As such, many key and minor projects are planned and implemented each year. The Kaizen system serves as a strategic tool designed to meet and exceed the 53 company quality objectives outlined in the QMS 9001:2015.
MST completed several improvement projects in FY2022. The three-phase Manufacturing Execution System (MES) had been fully implemented in all three factories. The MES project which began in the middle of 2018 was completed in three phases; Phase 1 in May 2019, Phase 2 in February 2020, and Phase 3 in December 2021. Through MES digitisation, MST is able to optimise its manufacturing process, with real-time feedback on the behaviour and performance of its machines, according to production specifications. Additionally, monitoring data for Overall Equipment Effectiveness (OEE) has further enhanced machine and operation management.
A total of 18 projects involving maintenance and upgrading have been planned for FY2023. These include major upgrades such as the flux filter system, fire alarm control system, electrical control system, Eddy current tester, and HF welder.
MCRC on other hand, has continued to fulfil its pledge to be efficient and effective, and has undertaken a few significant upgrading projects, with the goal of providing the highest quality products, for its customers. The two major projects undertaken in FY2022 include the RCL Automation and Control System Upgrade, as well as revamping of the Compressed Air System.
MCRC's investment in the state-of-the-art pickling and acid recovery technology, aimed to improve the overall conversation cost, expand into new market segments, and reduce environmental impact through a close loop acidrecycling system
The country's repeated lockdowns significantly impacted the ARP (Acid Regeneration Plant) installation progress. The forced shutdown, limited number of contractors and employees onsite, and multiple MCOs were major contributors to the project's delays. Despite all the challenges posed by pandemic-related constraints, the project team was able to make substantial progress. The plant’s testing and commissioning were completed on 2 July 2021, just one day before EMCO 3.0. Since September 2021, the ARP has been fully operational. After an 18-month delay, the project was successfully completed.
MCRC's CPL (Continuous Pickling Line) revamp project produced its first prime coil in February 2020. The Provisional Acceptance Cert was issued in September 2021 and Final Acceptance Cert was issued in July 2022. Benchmarking energy consumption (natural gas and electricity) prior to the CPL revamp, the total energy avoided by the CPL revamp was 16,045 MWh from April 2020 to June 2021. This equates to a total cost savings of approximately RM4.68 million and a CO2 avoided of 9,386 tCO2 within the specified period. Notes:
TOWARD A SUSTAINABLE FUTURE
On the sustainability front, both divisions are constantly striving for a more sustainable future and have begun to fully embrace the concept of Environmental, Social and Governance (ESG) in all aspects of the Group’s operations.
The Group has made significant commitments to reduce its carbon footprint, scheduled waste, and energy consumption. These pledges were fulfilled through several noteworthy projects, such as the implementation of a solar panel roofing system, and machinery upgrade to recycle and reduce scheduled waste.
Both MCRC and MST are eco-labelled certified companies, who take pride in being the first Malaysian producers of cold rolled coil and steel tubes, to receive such an accreditation. Both MCRC’s and MST’s products now formally bear the Eco-Label and MyHIJAU Markings, as part of Malaysia’s official green recognition scheme, which is endorsed by the Government of Malaysia. Additionally, MCRC is also being certified for ISO 14024 Type 1 under the Green Label Certification.
MCRC was named the winner of the National Energy Awards (NEA) 2021 in the category of ‘Energy Management in Large Industries’. The NEA is one of Malaysia’s most prestigious awards, recognising local organisations’ outstanding achievements and best practises, in driving the sustainable energy agenda. Achieving this accolade symbolises the Group's organisational commitment and unwavering effort to reduce its carbon footprint.
The CRC division had also been awarded with a conditional grant of RM100,000 from the Sustainable Energy Development Authority to conduct an independent energy audit on its plant, which the Group believes will aid in further enhancing its sustainability efforts.
PROSPECTS FOR THE NEW FINANCIAL YEAR
The Country’s GDP has rebounded since the COVID-19 restrictions upliftment, and transition into the endemic phase. However, the recovery has largely been consumption driven. Industrial and business growth remained uneven and thwarted by the multifront external shocks from the Russia-Ukraine conflict and sanctions, raging inflation, interest rate hikes, reverse capital flows, tightened liquidity, and global economic turmoil. The conditions are likely to persist into 2023 with the heightened geopolitical risks in Europe and East Asia.
The inability of steel consuming industries and users to raise manufacturing output due to ongoing supply chain issues, led to weaker real steel demand, and has caused steel inventories to increase throughout the supply chain. This elevated level of inventory, has weighed on pricing during 2022, despite the temporary support from supply disruption due to the Russia-Ukraine conflict.
On global demand dynamics, steel demand in China significantly affects the Global Steel Industry. The strict adherence to a Zero-COVID Policy has seen significant hard lockdowns in many cities, with Shanghai suffering a two-month city lockdown, in the months of April and May 2022. This not only has impacted China’s domestic supply chains, but also accelerated the downturn in the Chinese Real Estate Market. This sharp reduction in steel demand, coupled by a smaller reduction in steel production, led to a push for exports, causing Chinese Net Steel Exports to rise sharply from May 2022 onwards. A significant increase of Chinese exports, if continued, will lead to downward pressure on prices and spreads, negatively affecting sentiment, in the region.
In Europe, high energy cost and potential for gas rationing, are negatively impacting real demand, as the European economy is pushed close to a recession. The recent cuts of Russian gas flows through the Nord Stream, have restricted Europe’s ability to raise storage levels to meet its needs through winter, leading to record high gas prices, potential energy rationing, and lower consumption. These factors risk pushing the European economy into a recession.
In the United States (U.S.), the Federal Reserve’s aggressive interest rate hikes, to slow heightened inflationary pressure, risks pushing the U.S. into a recession. There is a risk that slower growth in China, Europe, and the U.S. will translate to a wider global economic downturn in 2023, which could potentially lead to weaker steel prices and lower steel demand. However, there is light over the horizon, which would offset these negative trends.
The increased stimulus in China in 2022, and its renewed steel capacity closures, is likely to lead to a rebound in steel demand in 2023. The Chinese government has implemented measures to soften decline in real estate and to stabilise GDP growth. The U.S. and European infrastructure stimulus plan, over the next few years, should result in the rise of steel consumption.
Specific to the domestic steel industry, the sullen market conditions will likely persist into 2023. Domestic steel demand will likely continue to be stymied by constrained industry activities (due to chronic labour shortages, supply chain disruptions, and falling durable goods export) amidst declining/weak steel prices and cautious consumer sentiment, due to inflation.
However, some comfort can be drawn on emerging signs that the ‘steel price decline’ is flattening and the Malaysian Government’s effort to resolve labour supply issue is progressing.
The second half of the next financial year may offer respite and upside potential of the existing tumultuous global situation starts to wear out.
For the longer term, the Group expects real steel demand to continue. This is expected to support further steel consumption growth, particularly if supply chain constraints ease. The medium- to longer-term fundamental outlook for steel is positive, as the global and domestic steel industry is expected to benefit from structural changes, that are occurring, which includes China’s focus on decarbonisation and steel capacity closures.
ANTI-CORRUPTION AND ANTI-FRAUD COMMITMENT
Mycron continues to pledge its commitment towards anti-corruption and anti-fraud. The Group reiterates its strict, zero-tolerance stance against corruption, bribery, and any form of abuse of power. In line with this, the Group revised its Whistleblowing Policy, Code of Conduct and Ethics, and implemented several new policies as part of its larger Anti-Corruption and Anti-Fraud Framework.
The Group also expects all of its business partners and associates to operate in full compliance with the Group’s policies and to adhere to the highest ethical, integrity, and professionalism standards. Suppliers, vendors, and contractors were made aware of the Group’s anti-corruption stance and pledged compliance in their respective declarations. The Group will continue to raise anti-corruption awareness amongst its internal and external stakeholders.
ACKNOWLEDGEMENT 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, shareholders; thank you for your continued invaluable support, confidence, and trust, you have placed in us.
Tunku Dato' Yaacob Khyra