SOUTHERN STEEL BHD plans to fully utilise its production capacity to hit a yearly maximum output of 1.3 million tonnes by the end of this year.
Corporate financial controller Koay Chong Beng told StarBiz that Southern Steel was very close to achieving its target, as it was utilising almost all of its production capacity.
“To achieve the goal, we will focus on improving production efficiency, resolving bottlenecks and expand the technical staff workforce. Beyond 2004, our target is to produce over 1.3 million tonnes per year,” he said.
Koay said the group would still retain a 60:40 ratio for the respective production of wire rods and billets/bars.
“We want to maintain such a ratio because bars can only be used in the construction and infrastructure sectors, whereas wire rods have a wider application in construction and industrial applications such as in the making of fasteners, engineering ropes and other wire products.
“This is to ensure that the group, in the long run, is not overly dependent upon the construction and infrastructure industries for business,” he said.
Koay said business outlook appeared bright for Southern Steel, as its activities were well diversified into the manufacturing of non-construction related steel products.
“For example, over the past seven years, we have invested about RM50mil into research and development to produce high grade wire rods. Due to the investment, we now have a well established downstream business involved in the manufacturing of wire mesh and industrial wires for use in construction and non-construction sectors,” he said.
Koay said this diversification had provided the shield to Southern Steel from the plunge in prices of steel products as a result of China slowing down its construction activities.
“Southern Steel is also well represented in the region by its associate companies in Sabah, Singapore, Vietnam, and China, which will enable the group to source for revenue from outside Malaysia.
“Last year, the associate companies contributed a total RM17mil to the group’s pre-tax profit of RM71mil.
“They are expected to continue contributing positively again this year from the sales of bars and rods used in their construction sectors,” he said.
Southern Steel holds a 47% stake in Southern Natsteel (Xiamen) Limited in China, Natseel Trade International Pte Ltd in Singapore (40%), NatSteelVina Company Limited in Vietnam (23%), and Steel Industries (Sabah) Sdn Bhd (28%).
Koay also confirmed that the group was in the process of obtaining a US$85mil loan from a consortium of banks led by DBS Singapore to refinance its existing US dollar term-loan.
“The reason to refinance the loan is to take advantage of the lower interest rates and to remove those restrictive covenants in the existing US dollar term-loan,” he said.
Founded in 1963 by a group of Penang businessmen, Southern Steel, then known as Southern Iron & Steel Works, started off producing galvanised iron sheet plant and commercial grade round bars.
Subsequently, the company ventured into the production of welded steel pipes and later galvanized pipes.
In 1980, the company invited Natsteel Ltd of Singapore to be a major shareholder and technical partner to help implement a 200,000 tonne per year bar rolling mill then.
Subsequently, Hong Leong Group also became a shareholder of the company.
In 1989, Southern Steel embarked on a major expansion drive to upgrade its plant to a 300,000 tonne wire rod mill. A second 300,000 tonne rolling mill for bars was also added together with the construction of a state-of-the-art electric arc furnace to produce billets.
Southern Steel was the first steel company in Asia outside Japan to install the arc furnace. To date, it has invested RM955mil in the 1.3 million tonne per annum of billet making and 1.2 million tonne per annum of bars and wire rod rolling facilities.
Presently, Southern Steel's major shareholders are Hong Leong with a 40.75% stake and Natsteel Ltd Singapore with 27.03%.
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