Lee Metal Group

(27-10-2013, 11:02 PM)Greenrookie Wrote:

(27-10-2013, 10:55 PM)NTL Wrote: 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...

I look at it like this. As per the ipo prospectus, the company's business model is that of a mini-mill without a mill. They do all parts of that value chain except turning scrap into steel products. They have effectively outsourced that portion to regional mini-mills.

So their activities are along the lines of.
1) buy scrap from scrap yards and sell to mini-mills. According to the Business section of their website, this is the main activity of the trading arm.
2) buy crude steel from the mills which they can a) distribute or b) perform value added services ie fabrication and manufacturing.

I am doubtful that crude steel trading and merchandising is going to recover anytime soon as management has decided to deploy resources to the F&M segment to capture higher margins. Furthermore, for the trading section to perform well, it would imply high steel demand and therefore prices which might not be beneficial to the F&M arm.

Even in the current situation, the trading arm provides the company with 2 critical advantages. 1) Valuable market intel for it's F&M input markets. 2) A sort of hedge against rising steel prices in the region.

After reading through the prospectus again, I think there are a few adjustments I will make about some of my assumptions.

Most of the manufactured weld steel, are for construction of buildings, and although supply contracts are for 2 years, it will be fulfilled within a year of the initial phase of construction, unless there is a delay.

Assuming 3 years for the construction for HDB, and the order get filled in the first year, Lee metals market clarity will end in 2014, since most buildings will come online in 2016 will start constructions in 2014.

LTA has recently awarded 4 contracts for Thomson line and is expected to start work in 1Q2014, the demand for steel might give a boost to both merchandising and FM arm.

All assumptions based on Lee metals getting a pie of the contracts available, competitors are increasing...

Well, as least they still have the Austville story, and there is still no news on 1 and 2 Tuas Av 8 expansion...

Is LMG ever involved in LTA projects?

(28-10-2013, 02:21 PM)NTL Wrote: Is LMG ever involved in LTA projects?

From prospectus, they supply steel to north east line, and they list LTA as customer. Most prob under merchandising arm. Although fab arm has reinforcement steel for concrete slab use in tunnels. I email them qns, but went to the ocean haha

If merchandising arm is dealing with mills, very unlikely is that. More likely those steel bars from the Fab & Manu arm.

I guess they are actually selling to the contractors, instead of LTA. If that is the case, whether they will get any deal will depend on which supplier the contractors like to work with.

All these construction works going on will likely benefit quite a number of industry. I am putting my money in a few of them. Hope one or more of them will become a bigger fish than now,

[Image: overview-of-steelmaking-28-10-2013-ind.jpg]

wow.. dun know scrap is worth so much...

Warning: Technical Analysis

Not much difference between the share price performance before factoring in the dividend. BRC has a slight premium probably because it is a "free agent" unlike the tightly controlled LMG. To get exposure in BRC one can buy the higher risk HG Metal which share price has not performed in tandem with the other 2.

[Image: z?s=B03.SI&t=2y&q=m&l=on&z=l&c=593.SI,52...&region=SG]

(29-10-2013, 10:52 AM)Greenrookie Wrote: [Image: overview-of-steelmaking-28-10-2013-ind.jpg]

wow.. dun know scrap is worth so much...

Looking it another way, the price of scrap is so much close to the price of billet that there is very little profit for the mills... And little leeway for the scrap price to go up...

[Image: page1.gif]

The way I see it is Scrap is competing with ores and coke for the same pie. If scrap too ex, mills go for ores/coke. If ores/coke too ex, then they go for scraps. It's really a tough market there...

Maybe the only way for LMG to get better margin is to find cheap sources for scraps.

(29-10-2013, 01:48 PM)NTL Wrote:

(29-10-2013, 10:52 AM)Greenrookie Wrote: [Image: overview-of-steelmaking-28-10-2013-ind.jpg]

wow.. dun know scrap is worth so much...

Looking it another way, the price of scrap is so much close to the price of billet that there is very little profit for the mills... And little leeway for the scrap price to go up...

[Image: page1.gif]

The way I see it is Scrap is competing with ores and coke for the same pie. If scrap too ex, mills go for ores/coke. If ores/coke too ex, then they go for scraps. It's really a tough market there...

Maybe the only way for LMG to get better margin is to find cheap sources for scraps.

As you can see in your chart, a mill that uses recycled steel (mini-mill) has a totally different production process from the integrated steel mill. The decision whether to use scraps or ores and coke is usually made when the plant is built and the mill itself cannot really change between inputs after that. A mill that can process iron ore and coke will always use that process as it has better economics.

A mini-mill has much lower capital expenditure requirements so normally lower debt and fixed costs and therefore can be profitable even when not operating near full capacity. The downsides are limited product line and unit production costs are quite high.

An integrated steel mill can produce higher quality steel products and has better variable cost economics but at the cost of very high fixed costs, so they find it harder to stay profitable when not operating at near full capacity.

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Just to avoid confusion, the chart describes 3 different types of steel production. Recycled steel (mini-mills). Direct reduced iron (integrated mini-mills) and the long downward arrow shows the normal integrated steel mill.

Understand! Thank you!