Major focus on steel business


  • Business
  • Wednesday, 26 Mar 2003

BY YAP LENG KUEN & B.K. SIDHU

THE Lion Group’s major focus, post restructuring, will be on the steel business which is expected to contribute significantly to group earnings. 

The other core businesses will be pulp and paper and timber products; property development; Parkson retail and plantation assets; and the automotive and tyre business. 

The crown jewel in its steel business is its hot rolled flat sheet products plant in Banting under Megasteel Sdn Bhd, which is a subsidiary of Lion Corp Bhd

Apart from that, Lion Land also has stakes in Antara Steel Mills and Amsteel Mills which produces long steel products. 

Lion Group chairman and CEO Tan Sri William Cheng said improved productivity and yield, coupled with market demand, helped in the turnaround of its steel business. 

He said Megasteel turned in RM55mil in net profit for the first six months ending Dec 31, 2002 and he expects “profit to double over the next few months.” 

Asked if the imposition of tariff had helped in the turnaround, Cheng said similar measures by many other steel producing countries had helped stabilise the industry. 

Megasteel's products are exported to China, Australia, Spain and Italy. About 20%-25% of its output is exported directly and indirectly. 

The plant has a capacity of two million tonnes annually but is running at 65% capacity presently. 

Cheng said the company hopes to increase production to 2 million tonnes, as demand was slowly rising.  

The total hot rolled and cold rolled steel demand in the country was 4.1 million to 4.3 million tonnes in 1997, but it dropped to 2.5 million to 2.7 million tonnes in 1998. Now it is about 3 million tonnes. 

“Prices of scrap material have increased from US$100 to US$200 per tonne. We buy about 80% of our scrap for our plant and for every dollar (US) rise; our cost increases by 50 US cents. However, since we have hot briquetted iron, we can replace scrap and we can help control the cost by 10 US cents,” he said. 

There are plans for Megasteel to move into downstream activities. 

“At the moment the per capita steel consumption in Malaysia is 300 kgs, we hope to reach 600 to 700 kgs especially through downstream industries.” Cheng said. 

Asked if Megasteel was looking into acquiring companies in the downstream sector, Cheng said there were no plans for any additions. 

“Our dream is to be one of the most efficient companies. That may take 3 to 5 years but it is a continuous effort,” Cheng said, adding that he is personally overseeing the steel operations. 

“Our target is to further bring down cost, for example, the cost of labour to below 1% from the present 1.5%. In comparison, the cost of labour in Taiwan is 14%; Japan 18%; and South Korea 16%.” 

Similarly, every RM1 saving in overall cost could translate into RM5mil additional revenue for Megasteel, he said. 

Lion Group remains one of the top investors in the country's manufacturing sector. 

It invested RM3.5bil to set up two plants, of which RM2.3bil was for its Megasteel plant and RM800mil, the Amsteel mill. An additional RM100mil was invested in its timber complex in Sabah. 

Turning to its pulp and paper business, Cheng said the operations of Sabah Forest Industries was also profitable, giving a cash flow of RM80mil a year.  

The company has begun a replanting exercise. 

According to Cheng, the operations of its tyre business under Silverstone would also be able to maintain its profitability. 

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