Mohamed A. Moosa, Chairman, Al Jazeera Steel Product Co, on behalf of the Board of Directors, said that during the first quarter, HRC prices continued to soften due to prevalent economic recession and liquidity crisis, prompting buyers to refrain from new commitments.
“The level of demand destruction (over 50%) was not we expected and we had carried forward inventory from last year and refrained from any new orders. Due to industry practices in all firms including ours, we also marked our inventory / stocks to market prices, which amounted to a provision of OR2.3m which constituted over 77% of our losses for this quarter. With marginal improvements in demand we expect to consume our inventory by May and fresh material would be ordered for future production.”
In fact, steel prices have fallen from the peak in July/August, 2008, to one-third levels now. Current variations in prices are within a narrow band, as price has fallen below the present cost of manufacture in certain cases as steel mills try to keep their cash flow situation under control, even with around 50-60% capacity utilisation. The surplus inventory arising out of low worldwide demand in the last two quarters has resulted in drop in sales volume for all the steel producers and consequently put pressure on the prices during the last two quarters.
Moosa said that he believes corrective measures have already been implemented as most of the major steel manufacturers around the world have announced major cuts in production. These cuts were substantial enough to bring down the surplus inventory from the market in the last two quarters and thus it is expected that the prices have stabilized and will move in a narrow band, with more likelihood of going up by the end of second quarter in 2009.
He added that though the inventory prices affected the profitability of the company, it must be highlighted that the company was able to manage receivables and the borrowings very well. I would like to bring to your attention that the company’s balance sheet is in good shape, as compared to other steel companies, even after taking this loss.
There was huge fall in the construction and infrastructure activity and most of the projects are on hold in UAE due to the present liquidity crunch. In GCC, demand in Oman and KSA remained comparatively better, but prices were under pressure as too many traders / suppliers were chasing the same orders. With developed countries like USA, Canada and Europe being engulfed with recession there was very little export dispatches.
Moosa pointed out, “At present we are having a much better order position than the beginning of the year, when practically no orders were at hand. Your company has been able to slowly build up reasonable back log orders, including the North American and Australian export markets. With our excellent product and quality, we expect to improve our capacity utilization levels in the second quarter. Further the company is focusing on KSA, Yemen, Iraq and African markets so that the volumes lost in UAE can be compensated by these markets.”
“With inventories now slowly depleting at our consumer’s end, it is expected that in Q2 the demand for our products will improve. The challenge remains with us to be more vigilant and aggressive in converting the raw materials into finished products at the right price and time so as to meet the improved market demand. We are now expecting 100% capacity utilisation of our value-added galvanized pipes,” he said.
“The company has implemented various cost reduction measures in the form of salaries, logistic costs and procurement costs of raw materials and consumables. Furthermore on]going improvements in the plants’ operating efficiency is being undertaken which will result in further cost reductions in medium to long term basis At the present juncture, patience and support is required for all the stake holders. I would like to thank all the bankers who stood by the company management and helped them to overcome the present situation and we surely look forward to their continued support during the next two quarters, by which time we expect be in a much sounder position,” added Moosa.
The merchant bar mill will be commissioned early May for the trial runs, while the commercial production is expected in the third quarter of 2009. The plant will have the capacity of producing 300,000MTPA; thereby the total capacity of the two units will be 600,000MTPA. The Company, as a corporate policy, continuously invests in its human resources, provides on-the-job training to employees to upgrade skills at various levels. Local employment is encouraged and today Al Jazeera Steel Product has achieved over 37% Omanisation of their work force, he stated.
Finally, on behalf of the Company and the Board of Directors, Moosa said, “I would like to express my heartfelt gratitude to His Majesty Sultan Qaboos Bin Said for the encouragement and support given by his Government to the Industrial Development in Oman. Also, I take this opportunity to thank our Bankers, shareholders, investors and employees for the support and co-operation extended, which in turn reflects the confidence placed in the Company.”
Thursday, April 30- 2009 @ 11:11 UAE local time (GMT+4) Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Mediaquest FZ LLC.