YUNKONG ... Aug10

Yung Kong Galvanising Industries Bhd (YGKI) has forged a strategic partnership with Japan’s Nippon Steel Corp (NSC), which will guarantees it with a long-term supply of raw materials.

NSC would supply up to 50% of steel substrate required by the group in its downstream manufacturing activities. The tie-up will also enable YGKI to get technical assistance by tapping into NSC’s research and development.

YGKI is Malaysia’s second largest producer of galvanised and coated steel products, which has invested some RM350mil in three plants in the Klang Valley. Its fourth factory is in Demak Laut Industrial Park, Malaysia.

Listed on the Tokyo Stock Exchange, NSC, which is principally involved in steel-making and steel fabrication business, has taken up a stake in YGKI through the acquisition of more than 21.7 million redeemable convertible preference shares (RCPS).

NSC paid about RM13mil for the RCPS priced at 60 sen a piece. It could convert the RCPS into YGKI shares anytime within a 10-year period. Another Japanese firm Marubeni-Itochu Steel Inc, a YGKI joint-venture partner since 1983, has a 18.4% stake in YGKI. The conversion of the RCPS by NSC would raise the combined stakes of Japanese investors in YKGI to between 27% and 28%.

Sourcing raw materials at competitive prices from NSC on a long-term basis would help YGKI to plan its manufacturing operations, which was adversely affected by the extreme price volatility of the raw materials two years ago.

The prices of hot-rolled coils (HRC), which YGKI used to process into pickled and oiled HRC and cold-rolled coils (CRC), soared to US$1,150 per tonne in late 2008, only to crash to US$400 per tonne nine months later. The CRC is mainly used as the feed material for the galvanising line to produce galvanised iron coils (GIC).The GIC is then processed into colour coated coils or other downstream products, like roofing sheets and plain sheets.

YKGI group’s other products are furniture hardware and accessories, tubes and steel products. About 6% of its products are exported.

YGKI had invested some RM100mil in the past three years in its diversification into downstream activities carried out by subsidiary firms under the Star Shine Group.

YGKI posted a strong group pre-tax profit of RM7.75mil on a turnover of RM124.9mil for the second quarter ended June 30,2010, up from RM2.74mil and RM82.3mil respectively during the same period last year.