Leon Fuat upbeat about steel industry
23 Aug 2021
Steel prices are expected to rise in the near term due to increased demand and strengthening the global economy, as well as the Malaysian government’s continued investment in large-scale infrastructure projects.
Leon Fuat Bhd executive director Calvin Ooi said that the revision of the iron and steel policy is also expected to benefit steel products across the value chain.
“We expect the global steel demand to grow in 2021/2022 on the faster pace of economic recovery of major steel users such as China, the United States and the European Union (EU).
“For the short-term, the domestic demand situation is mixed due to the uncertainties from the Covid-19 lockdown.
“However, in the longer term, domestic steel demand will continue to be supported by large infrastructure projects. The expected growth in steel demand is also backed by the increased orders from customers from the manufacturing, construction and infrastructure sectors,” Calvin told The New Straits Times.
According to The World Steel Association’s Short Range Outlook (SRO) report for 2021 and 2022, the agency forecasts that steel demand will grow by 5.8 per cent in 2021 to reach 1,874.0 million tonnes (mt) after declining 0.2 per cent in 2020.
In 2022 steel demand will see further growth of 2.7 per cent to reach 1,924.6 mt.
Calvin said due to the soaring demand overseas, prices of steel material in Malaysia have increased even though the non-essential sectors was not allowed to operate, and essential sectors operate at less than full capacity.
“Furthermore, our customers, who come from a variety of industries, are concerned with completing their projects with the materials they require.
“Overall, steel prices are being affected by the global trend, and even with the lockdown in Malaysia, the price of steel has continued to fluctuate and change,” he said.
When asked about the impact of MCO 3.0 on Leon Fuat earnings, Calvin said the company has been well-prepared for the recent lockdowns compared to MCO 1.0 that came to effect last year.
“Based on the improved financial performance since last year, we believe the impact will remain relatively minimal at this juncture.
“We have seen revenue for the first quarter (Q1) financial year ended 31 March 2021 (FY21) increased by 76.2 per cent or RM91.44 million to RM211.48 million.
“Our performance was supported by the 87.5 per cent increase in revenue from trading of steel products to RM74.29 million while revenue from the processing of steel products increased by 70.7 per cent to RM137.11 million,” Calvin said.
Moving ahead, Calvin said the company is focused on business expansion plans.
He said in line with efforts to broaden product offerings, the company began construction on a three-phase steel pipe manufacturing plant in 2018.
The facility is located at Kawasan Perusahaan Bandar Sultan Suleiman in Port Klang.
Calvin said the company is utilising funds raised from a private placement exercise initiated on 13 April 2021 and completed on 7 May 2021, as well as bank borrowings.
The exercise entails an issuance of 31.0 million shares at RM0.85 sen per share, representing up to 10 per cent of the total number of issued shares, and managed to raise RM26.35 million.
Phase 1 of the project commenced operations in the second half of 2019 for welded steel pipes manufacturing.
The manufacturing plant in Phase 1 has a maximum production capacity of approximately 5,000 tonnes of steel pipes per month.
“We are currently in the process of completing Phase 2 of the project, which will include the construction of two additional buildings for factory and warehouse space, as well as the installation of machinery and equipment, including new pipe forming machinery, welding equipment, and slitting equipment for the production of welded steel pipes with a larger size range,” Calvin said.
The estimated costs to purchase pipe forming machinery, welding machine and slitting machine is approximately RM53 million.