Lee Metal Group

[Greenrookie]

"Steel" news??

MEPS Expects World Steel Production To Rise By 3.1 Percent In 2013

http://www.hellenicshippingnews.com/News...d454ea4d1c

--------------------------------

It seems CHina is the only major producer bucking the trend, the rest, like north america and europe are already cutting down supplies.

China produce about 50% of world steel.

China has talk about consolidating several sectors, such as steel, shipping and properties, etc.

Just my thoughts:
Shipping going through a consolidation by market forces, lesser yards did not get orders, so they will go the way of the dodo. Ship building and property development are both steel-intensive industries, curbing property demands and reduces sources of supply to shipyards, that will effectively curb demand of steel, will the lesser millers then go the way of the dodo too??

[Clement]

"Steel" news??

MEPS Expects World Steel Production To Rise By 3.1 Percent In 2013

http://www.hellenicshippingnews.com/News...d454ea4d1c

--------------------------------

It seems CHina is the only major producer bucking the trend, the rest, like north america and europe are already cutting down supplies.

China produce about 50% of world steel.

China has talk about consolidating several sectors, such as steel, shipping and properties, etc.

Just my thoughts:
Shipping going through a consolidation by market forces, lesser yards did not get orders, so they will go the way of the dodo. Ship building and property development are both steel-intensive industries, curbing property demands and reduces sources of supply to shipyards, that will effectively curb demand of steel, will the lesser millers then go the way of the dodo too??

It really depends on what you meant by lesser mills. There are 2 main different types of mills. Integrated steel mills which use iron ore or mini mills which get the iron from scrap, they face different cost structures. Integrated steel mills with uncompetitive cost structures will be squeezed by global competition and regional mini mills. The consolidation of shipyards has little impact as, like you've said, the smaller yards were not getting orders anyways so they were not consuming much steel.

[Greenrookie]

http://www.hellenicshippingnews.com/News...26859c8d5b

Why steel prices could influence dry bulk shippers’ outlook

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[Clement]

Did some historical checks of the operation revenue profits for Lee Metal.

Their Steel Merchandising had been on the decline since 2007. Revenue and profit had been dropping, as well as the margin. For the latest FY, the profit from this division is a mere $3.7M, with a margin of just 1%.

Their Fabrication & Manufacturing had been doing well though. Revenue and profit generally on a up trend, except for 2010. However the gross margin is also compression from 11.5% to 8.3% from 2009 to 2012. Steel price went up and peaked around 2011 before falling, and this division experienced the lowest gross margin in 2011 at 6.3%.

Looking at their Competitor, the revenue and profit were also on a uptrend, except for 2010. Gross margin for the same period dropped from 10.9% to 9.6%. Surprisingly, the profit margin didn't drop in 2011.

Will continue to study the 2 companies and post my findings as and when I can.

Hi NTL,

Can you share where you derived the Lee Metals F&M gross margins from? It seems like you are comparing their operating profit margins with the BRC gross margins.

If I compute operating margins for BRC Asia, i get 5.3% for 2012 and 6.6% for 2011. (Using pbt add back finance costs and less share from JV)

[NTL]

Did some historical checks of the operation revenue profits for Lee Metal.

Their Steel Merchandising had been on the decline since 2007. Revenue and profit had been dropping, as well as the margin. For the latest FY, the profit from this division is a mere $3.7M, with a margin of just 1%.

Their Fabrication & Manufacturing had been doing well though. Revenue and profit generally on a up trend, except for 2010. However the gross margin is also compression from 11.5% to 8.3% from 2009 to 2012. Steel price went up and peaked around 2011 before falling, and this division experienced the lowest gross margin in 2011 at 6.3%.

Looking at their Competitor, the revenue and profit were also on a uptrend, except for 2010. Gross margin for the same period dropped from 10.9% to 9.6%. Surprisingly, the profit margin didn't drop in 2011.

Will continue to study the 2 companies and post my findings as and when I can.

Hi NTL,

Can you share where you derived the Lee Metals F&M gross margins from? It seems like you are comparing their operating profit margins with the BRC gross margins.

If I compute operating margins for BRC Asia, i get 5.3% for 2012 and 6.6% for 2011. (Using pbt add back finance costs and less share from JV)

You are right. Sorry, my error.

[Greenrookie]

The following statement from BRC Q3 announcement makes me believe that steel price do make a difference. It should affect Lee Metal too.

"Margins were relatively higher in 9M13 and 3Q13 due to lower steel costs as compared to the corresponding period in the previous financial year as the average cost of inventory was lowered by cheaper purchases due to declining steel costs while sales orders were secured at better prices."

I would consider those to be volatility related, ie change in prices. In this case, they benefitted from the volatility. I think even margins are a shortcut method to measuring competitiveness, think cost and gross profit per ton are better. Alas, I don't think such measures are provided thus we have to use margins.

I also believe sharp rise or fall are more detrimental to the business than absolute high or low price.Like shipping, such cyclical will survive normal market cycles as long as there is no prolonged fall in prices. I think the best situation is gentle increase in price, and ocassional corrections.

btw, to share a steel news:


Steel price on the downside as oversupply continues in China

http://www.steelguru.com/international_n...27202.html

---------------------------

Wonder when the demand returns to pre2008 levels?

I don't think it is going to happen any time soon. The steel situation in China is one of the reasons i still prefer arcelormittal. Rising shipping rates lowers the competitiveness of China's steel exports to the west. However, I think Lee Metal is experiencing a nice upsurge of demand for it's products. Will this last long enough for the investments in new capacity to pay off?

Looking at the private housing data,

http://www.ura.gov.sg/uol/media-room/new...-65e3.ashx

The number are going strong until 2016, total figure does not include a potential supply of 10,025 units from awarded Government Land Sales (GLS) sites that have not been granted planning approvals
yet as at 3Q2013, as well as Confirmed List sites from the 2H2013 GLS Programmes that have not been awarded yet.

HDB supply ramp up will taper off also after 2016.

The pie is there, and is not getting smaller at least till 2016, the question is competitors increasing??

The steel demand doldrum effective starts in 2009, and never really recovers since, it has been almost 5 years... will 2014 or 2015 be a golden year whereby Lee metals can fire on both cyclinders??

Just dreaming...
(Vested)

[Clement]

The following statement from BRC Q3 announcement makes me believe that steel price do make a difference. It should affect Lee Metal too.

"Margins were relatively higher in 9M13 and 3Q13 due to lower steel costs as compared to the corresponding period in the previous financial year as the average cost of inventory was lowered by cheaper purchases due to declining steel costs while sales orders were secured at better prices."

I would consider those to be volatility related, ie change in prices. In this case, they benefitted from the volatility. I think even margins are a shortcut method to measuring competitiveness, think cost and gross profit per ton are better. Alas, I don't think such measures are provided thus we have to use margins.

I also believe sharp rise or fall are more detrimental to the business than absolute high or low price.Like shipping, such cyclical will survive normal market cycles as long as there is no prolonged fall in prices. I think the best situation is gentle increase in price, and ocassional corrections.

btw, to share a steel news:


Steel price on the downside as oversupply continues in China

http://www.steelguru.com/international_n...27202.html

---------------------------

Wonder when the demand returns to pre2008 levels?

I don't think it is going to happen any time soon. The steel situation in China is one of the reasons i still prefer arcelormittal. Rising shipping rates lowers the competitiveness of China's steel exports to the west. However, I think Lee Metal is experiencing a nice upsurge of demand for it's products. Will this last long enough for the investments in new capacity to pay off?

Looking at the private housing data,

http://www.ura.gov.sg/uol/media-room/new...-65e3.ashx

The number are going strong until 2016, total figure does not include a potential supply of 10,025 units from awarded Government Land Sales (GLS) sites that have not been granted planning approvals
yet as at 3Q2013, as well as Confirmed List sites from the 2H2013 GLS Programmes that have not been awarded yet.

HDB supply ramp up will taper off also after 2016.

The pie is there, and is not getting smaller at least till 2016, the question is competitors increasing??

The steel demand doldrum effective starts in 2009, and never really recovers since, it has been almost 5 years... will 2014 or 2015 be a golden year whereby Lee metals can fire on both cyclinders??

Just dreaming...
(Vested)

I would not place much hopes on it's trading arm. I think regionally, there will always be the huge capacity in China to keep crude steel prices low. (I would value this company solely based on the F&M arm.) The F&M arm is the main driver to watch. You mentioned them being in the process of expanding their F&M capacity. This investment in new capacity will be the primary growth driver, provided management's assumptions of robust demand hold up.

[NTL]

I agree. As the Merchandising arm is having an operating profit of close to just 1% for last year, basically its profit can be ignored. I would suspect that it make incur a loss this year due to the even lower volume.

[Greenrookie]

I agree. As the Merchandising arm is having an operating profit of close to just 1% for last year, basically its profit can be ignored. I would suspect that it make incur a loss this year due to the even lower volume.

At its height, the trading arm is doing revenue of 1.4 billion. Margin is between 1 to 1.7%

I am not saying it will reach this level anytime soon, or will it ever, but I will not brush aside 20 million earnings,which about 4 cents EPS...

[NTL]

Which 20million earning you referring to?