Posted by murali > 2016-09-12 16:44 | Report Abuse

Steelman-WealthWizard

Posted by probability > 2016-09-12 17:01 | Report Abuse

Hmm...interesting 'artificial price':

http://www.thesundaily.my/news/1783203

http://www.thesundaily.my/news/1620419

Steel industry bodies explain supply squeeze
Posted on 29 April 2016 - 05:37am
Print
PETALING JAYA: The Malaysian Iron and Steel Industry Federation (Misif) and the Malaysia Steel Association (MSA) have put the current tight steel supply situation domestically and internationally to the recent cancellation of steel supply contracts by Chinese sellers.

MSA said over-reliance of imports of steel products into Malaysia at artificially unsustainable low prices over the past few years has undermined the viability of the Malaysian steel industry by decimating its strategic role to buffer against international steel shortages.

“As steel users continued to rely excessively on artificially cheap imports of steel products from China, it caught everyone by surprise that the Chinese steel prices skyrocketed beginning this year,” Misif said in a statement yesterday.

“With China preferring to meet its local demand, given the recovery in domestic prices rather than export, China suppliers cancelled a large number of steel contracts signed prior to the price surge, thus resulting in shortage for those who rely on them for their regular supply,” it added.

Posted by ronnietan > 2016-09-12 17:02 | Report Abuse

You noticed that while CRC price increased 17% in China since July, HRC rose just 8%? These figures from your charts above. That shows an increased margin spread for CRC producers.
There are reports of record spread between HRC and CRC in the US.
For some reason, this appears to be a global trend now.

Posted by moneySIFU > 2016-09-12 17:08 | Report Abuse

Another fantastic & well written article from new steel man, WealthWizard, thank you for sharing your hard works. Thumbs Up!!!

Posted by probability > 2016-09-12 17:09 | Report Abuse

If RM continuously drop against Renminbi...how to rely on imports from China?

http://www.xe.com/currencycharts/?from=MYR&to=CNY&view=1W

Posted by moneySIFU > 2016-09-12 17:14 | Report Abuse

haha, good say, probability

Posted by soojinhou > 2016-09-12 17:19 | Report Abuse

Thank you for the 3 part series. Very well done. I have a doubt I can't find a satisfactory answer. According to Mycron's annual report, which I have also corroborated using Megasteel's website, Megasteel has the largest CRC capacity in Malaysia at 1.5m ton per annum. It was running at very low capacity. According to Mycron's report, in 2014, it was running at a mere 3.3% of capacity. Megasteel's capacity is almost 3x Cscsteel's and almost 7x Mcron's. If CRC is so lucrative, why isn't Megasteel ramping up CRC utilization, instead of closing down its plant? It can theoretically shut off just its HRC segment, and just import cheap HRC from China like what the rest of the CRC players are doing now. Why need to shut everything down if CRC is so lucrative?

Posted by probability > 2016-09-12 17:31 | Report Abuse

i think the reason is probably the same reason why Cscsteel not running at its full capacity....
it has something to do with efficiency.

Posted by WealthWizard > 2016-09-12 17:32 | Report Abuse

I have been trying to look for the answer for the same question as highlighted by you, soojinhou, but just couldn't get it from everywhere.

Since it's utilisation was so low for the past few years, I guess it was due to technical issues that they just couldn't resolve.

Posted by yfchong > 2016-09-12 17:33 | Report Abuse

Steel........,

Posted by probability > 2016-09-12 17:36 | Report Abuse

large through put with a volatile price is like a double edged sword...

Posted by Unicorn_park > 2016-09-12 18:03 | Report Abuse

Now Dow ka ka chau chau.

Posted by probability > 2016-09-12 20:01 | Report Abuse

November 1, 2013: MyCC issues proposed decision on Megasteel

MyCC issued its Proposed Decision on Megasteel Steel Sdn Bhd (Megasteel), as the Commission found it infringing the Competition Act 2010 by abusing its dominant position. A financial penalty amounting RM4.5 million is being proposed.

The MyCC finds that Megasteel’s practice of charging or imposing a price for its Hot Rolled Coil (HRC) that is disproportionate to the selling price of its Cold Rolled Coil (CRC), amounts to a margin squeeze that produces anti-competitive effects in the market, and is an infringement of section 10(1) of the Act.

“Margin squeeze is also regarded as abusive means by a dominant enterprise to leverage its market power in the upstream market so as to drive out the enterprise’s rivals in the downstream market,” said Shila.

The MyCC takes into account the nature of the product, the structure of the market, the market share of the enterprise, entry barriers and the effects of Megasteel’s margin squeeze on its downstream competitors as well as the seriousness of the infringement in determining the basic amount of financial penalty.

The MyCC viewed that Megasteel is dominant in the HRC market (upstream segment) and had found it is also involved in CRC production (downstream segment). HRC is an essential input for the downstream manufacturers of CRC and at present, Megasteel is the only domestic manufacturer of HRC. The MyCC also notes that the barriers to entry into the HRC market are high.

These factors place Megasteel in a very special position in the market over all the other CRC producers. Although Megasteel’s monthly prices for its CRC were all lower than those charged by its competitors in the downstream market, they cannot be considered competitive prices.

The reason is the monthly margins (between CRC and HRC prices) earned by Megasteel were all insufficient for the recovery of its monthly costs of transforming HRC into CRC.

The artificial lower CRC prices that were charged by Megasteel have the effect of hindering, if not lessening, competition in the downstream market, making this type of pricing practice a serious breach of competition law.

Posted by probability > 2016-09-12 20:10 | Report Abuse

If Megasteel is to run their CRC plant and sell with a higher pricing now...despite a low priced HRC sourced externally...that would clearly prove they are guilty beyond doubt.

When a thief got caught by police for one small mistake such as driving beyond the speed limit...they might as well admit and give in to the fine instead of fighting it....to permanently cover up a much bigger mistake they have done.

Posted by moneySIFU > 2016-09-12 20:24 | Report Abuse

Thanks, probability, I think Megasteel was not running efficiently, every ringgit sale make more losses, less sale less loss, no sale no loss, that's interesting.

Posted by probability > 2016-09-12 20:37 | Report Abuse

ust giving a plausible reason to Soojinhou query earlier:

they were selling HRC at price they can cover the costs (via an inefficient process) and they were selling the CRC with artificially low pricing (unrealistic margins) to kill of competitors...

Now if they sell CRC at the same level of price with outsourced HRC...or with the same 'unrealistic margin'...they cannot survive.

If they hike up the margin..MyCC can clearly know they were selling at bullshit margin before to kill competitors....and will never entertain supporting this HRC producer via an import duty.

In any case Megasteel will be killed...and they wont be able to pay the electricity bills or pay the workers in the near term...so best choice is to close down complete production line including CRC at least for the near term.

Posted by moneySIFU > 2016-09-12 20:39 | Report Abuse

Very fair say & easily to understand, thank you, probability.

Posted by moneySIFU > 2016-09-12 20:40 | Report Abuse

I agree with you on the point that the Malaysia Government will not support Megasteel any more if Megasteel was to play out all other CRC players unfairly.

Posted by moneySIFU > 2016-09-12 20:41 | Report Abuse

Or taking advantage on its position as producer of both CRC & HRC.

Posted by soojinhou > 2016-09-12 20:48 | Report Abuse

Thank you probability. That's indeed a point to ponder.

Posted by lenglui > 2016-09-12 20:52 | Report Abuse

Weakening in ringgit affect steel company?

Posted by moneySIFU > 2016-09-12 21:08 | Report Abuse

It's double edged sword, lenglui, but seem CSCSteel benefited most from weakening RM while Mycron has been actively hedged its currency exposure, no so much gain or loss last year.

See table 6
http://klse.i3investor.com/blogs/wealth123/103812.jsp

Posted by lenglui > 2016-09-12 21:13 | Report Abuse

Thanks sifu

Posted by WealthWizard > 2016-09-12 22:25 | Report Abuse

Thanks everyone for great discussion & sharing

Posted by ronnietan > 2016-09-12 22:52 | Report Abuse

The reason Megasteel didn't ramp up production of CRC could be due to no money.
The same reason Kinsteel couldn't increase production, and Perwaja stayed at 0 output, of HRC. Steel price recovery came too late for them. Creative destruction.
In contrast, Ann Joo had surplus inventory to sell into the high prices.

Posted by probability > 2016-09-13 01:57 | Report Abuse

ha ha..glad to have the update comparing the CRC manufacturers...those PE used seems so conservative. Thanks WealthWizard :)

Posted by WealthWizard > 2016-09-13 08:00 | Report Abuse

haha, probability, the CRC industry is merely at the stage of turning up, no many appreciate what's coming, so better conservatively set. :)

Posted by WealthWizard > 2016-09-13 08:02 | Report Abuse

Most countries have imposed Anti-Dumping Duties for Cold Rolled Steel Coils (CRC), not for rebar yet. So the first wave should be CRC.

Posted by WealthWizard > 2016-09-13 08:05 | Report Abuse

I never worry on Dow Jones performance, there are always individual stocks shining during bad time.

Posted by resilient911 > 2016-09-13 08:28 | Report Abuse

based on news is temporary shut down due to no fresh order since Jan ~ Aug causing 1 shift running…

steel mill HRC shd preferred 24 hours running for production effiency and energy cost wise

running for CRC not worth as compete with other CRC manufacturer… it will be better running HRC which is monopoly biz… in addition no infringement to LIONCOR for monopoly case…possible backdoor resolve with CRC miller? settle

Posted by ronnietan > 2016-09-13 10:07 | Report Abuse

Congrats, WealthWizard, enough investors are persuaded by your articles to buy into Mycron and CSCstel, both major gainers today.
Annjoo and Prestar there too.
A strong Steel Day.

Posted by WealthWizard > 2016-09-13 10:43 | Report Abuse

Thanks, resilient911 & ronnietan.

Posted by WealthWizard > 2016-09-13 10:45 | Report Abuse

A senior manager from Megasteel said they need miracle to revive. It's true as Megasteel has been trying to return to profit for so many years with full supports from government but yet couldn't make it.

See below news: http://www.thestar.com.my/business/business-news/2016/09/10/megasteel-closes-banting-plant/

However, despite the protection, Megasteel continued to record huge losses. As at Dec 31 last year, Megasteel had racked up RM2.43bil in accumulated losses.

So far, Megasteel has gone through four debt restructurings, the latest of which in 2014, when it only had consent from two of its seven US dollar term loan creditors.

As at Dec 31 last year, Megasteel owed RM895.7mil to secured creditors, while unsecured creditors and suppliers were owed RM3.28bil.

Posted by WealthWizard > 2016-09-13 10:49 | Report Abuse

I believe CSCSteel & Mycron will continue to shine due to their positions in CRC market.

Eonmetal has done very well in manufacturing of plant & machinery, need to catch up in their CRC division.

YKGI is doing ok, need more results to prove their potential.

Posted by WealthWizard > 2016-09-13 10:52 | Report Abuse

I received an email from one of i3 fellow member, where a famous remisier in i3 has a buy call to his subscribers on Mycron with target price of RM1.61, using 5 methods of calculation.

Posted by Vizhai > 2016-09-13 10:55 | Report Abuse

TP 1.61. Thank you for sharing.

Posted by murali > 2016-09-13 10:57 | Report Abuse

Sifu must be crazy...but i have yet to receive such info

Posted by WealthWizard > 2016-09-13 11:36 | Report Abuse

While all developments pointed to one good direction, the CRC market leaders such as CSCSteel & Mycon will be the natural choices for investors.

Posted by i4investor > 2016-09-13 13:09 | Report Abuse

this half year is steel stock performance...must hold one steel stock

Posted by paperplane2016 > 2016-09-13 13:15 | Report Abuse

agree

Posted by WealthWizard > 2016-09-13 14:46 | Report Abuse

Thank you, i4investor & paperplane

Posted by moneySIFU > 2016-09-13 14:56 | Report Abuse

hehe, paperplane is here

Posted by moneySIFU > 2016-09-13 15:48 | Report Abuse

Most people tends to sell profitable stocks & retain loss making stocks.

Reason: afraid of losing the profit & hope for the bleeding stock to overturn

Normal outcome: flying stock continue to fly & falling stock continue to fall

Posted by Albukhary > 2016-09-13 17:14 | Report Abuse

Very well said, money sifu. It took me 15 years in stock market to understand this theory.

Posted by MuttonCurry > 2016-09-13 17:15 | Report Abuse

esok jatoh ... loh

Posted by moneySIFU > 2016-09-13 17:27 | Report Abuse

Haha, MuttonCurry, yesterday you said today crash, now said tomorrow jatoh, it's fun to see you around.

Posted by moneySIFU > 2016-09-13 17:27 | Report Abuse

Oh, forgot you have said today designated.

Posted by moneySIFU > 2016-09-13 17:35 | Report Abuse

Ha, Albukhary, I am still learning.

Said is always easier than done, when come to making decision, every time have to struggle, do or not to do, that's the problem, haha

Posted by moneymoneycome > 2016-09-13 18:07 | Report Abuse

salute but I missed the boat, sob sob...

Posted by WealthWizard > 2016-09-13 21:38 | Report Abuse

You must know where is your destination when winning, surely you don't want to jump out of the bus at Tanjung Malim if you want to go Penang.

It's ok to get on board at Bidor, because it is only half way.

As long as you don't get to the wrong bus to Johor instead of Penang, that's still fine.

If you are not sure where the bus go, better take a deeper look & decide later. No make money but also won't lose money.