4Q numbers spring back into the black. As we anticipated, the prices of various steel products recovered in the June quarter, helping Southern Steel to return to the black in 4QFY12. The RM23.4m net profit achieved in 4QFY12, which came in slightly above our and consensus expectations, was enough to offset its earlier losses and pull the company back to a full year profit of RM8.7m. 

Short-term reprieve for steel prices. Scrap metal prices had tumbled by about 15% at the beginning of summer, thus clouding the outlook for steel demand. While scrap metal prices have returned to above USD400 a tonne after staying briefly below that level, we expect steel bars to continue to come under selling pressure as international prices are sliding and construction activities, and in turn steel demand, had shifted to low gear during the Ramadhan month. Although the market is still holding high hopes on the rollout of projects under the Government's Economic Transformation Programme (ETP) spurring steel demand, we think the momentum will only pick up after the widely anticipated General Election.

All eyes on dumping probe. The International Trade and Industry Ministry (MITI) has initiated preliminary investigations into the imports of steel wire rod after receiving a petition from domestic producers alleging possible dumping. In accordance with the Countervailing and Anti-Dumping Duties Act 1993 and its related regulations, preliminary determination will be made within 120 days from the date of initiation. If the final determination is affirmative, the Government might impose an anti-dumping duty at a rate that would rectify the situation. While we think MITI may take another month before the making the final decision, the imposition of any anti dumping duty may bring cheer to Southern Steel, by virtue of it being one of the key wire rods producers in the country.