Southern Steel results in the black for 1QFY13

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KUCHING: The recent drop in steel prices has resulted in a price/cost mismatch that is affecting steel players, although Southern Steel Bhd (Southern Steel) managed to stay in the black, posting a net profit of RM7.1 million in the first quarter of financial year 2013 (1QFY13).

According to a research report by OSK Research Sdn Bhd (OSK Research), “Southern Steel managed to stay in the black after returning to profit in 4QFY12. The results was just slightly better than the research house’s initial project.”

The lacklustre result was attributable to the steeper plunge in steel prices than that of its key material scrap metal, with the delivery lag resulting in the typical price-cost mismatch.

HwangDBS Vickers Research Sdn Bhd (HwangDBS Vickers) concurred, noting that the “1QFY13 net profit was dragged down by lower selling prices as the rebound in local steel prices in the previous quarter was not sustainable.”

It further highlighted that revenue fell by eight per cent quarter-on-quarter while gross profit margin fell to seven per cent from nine per cent the preceding quarter.

Back in October, the Ministry of International Trade and Industry (Miti) announced that the government had completed preliminary anti-dumping investigations on steel wire rods imports.

“While it may need more time to conclude the study, we welcome the provisional measures that now require importers of wire rods to pay a provisional anti-dumping duty ranging for zero to 33.62 per cent.

“We believe this will deter non-genuine imports of wire rods as importers face the risk of their deposits being forfeited should the government find sufficient evidence of dumping activities,” OSK Research explained.

While OSK Research was positive on the implementation of provisional measures expected to be able to curb imports, the research house noted that wire rods imports had declined since the petition was submitted to the government earlier.

As such, it saw limited impact from the new duty. It also expected limited recovery in steel prices despite a rebound in international prices over the past few weeks.

HwangDBS Vickers cut its FY13 to FY14 forecasted earnings by 36 to 41 per cent as steel prices remained volatile. It expected average selling prices to remain soft in the near term as it cut assumptions by six to eight per cent for the next two years.