The global steel market, and the long product segment in particular, witnessed a surge in steel prices since the beginning of the second half of the year (“2H17”) given the China government’s continued efforts to curb steel capacity and, importantly, the elimination of induction furnaces.
For the remaining period of 2017, the Group remains optimistic about its prospects given the following fundamental drivers:
a. Global steel supply is expected to be affected by:
i. Potential output cuts by Chinese steel mills over winter; and
ii. Potential production constraints faced by electric arc furnace operators globally given shortages in graphite electrodes worldwide.
This expected demand-supply imbalance should enable the Group to be in an advantageous position as a hybrid Blast Furnace-Electric Arc Furnace (“BF-EAF”) operator with high degree of operational flexibility.
The Group’s cost competitiveness will continue to drive its cost-leadership in the construction steel sector.
b. The expected upturn in construction steel demand from infrastructure and large-scale property development projects in Malaysia and most of the ASEAN countries, which are expected to ramp up in the latter part of 2017.
Nevertheless, shortage of foreign labour remains a potential issue for the construction industry which may temporarily affect domestic demand for construction steel.
The Group remains highly responsive to market changes and agile in sales mix and, in event of temporary lulls in domestic demand, the Group is able to rapidly increase its exports to meet regional demand.
c. Decreased import tonnage of billets from China given high domestic prices and ample infrastructure-driven demand in China.
The Group is well positioned to capitalise on export market opportunities within Asean region given large regional demand, fluctuating China supply and prolonged lead time for supply from Middle East and other regions.
Given the fundamental drivers mentioned above and continued enhancements in operating efficiency, the Group’s performance is expected to remain satisfactory for the remaining period of 2017.