Scrap metal tops list of woes afflicting Jordan Steel

AMMAN — Jordan Steel Group has all options on the table for a solution to its meltshop, shareholders were told in the 21st annual report disclosed to the Amman Stock Exchange.

"The board of directors realises the size of investment and the importance of the meltshop in the production process, and is fully convinced that the current conditions are only transitory due to the regional situation and other business constraints," Chairman Mudar Badran wrote in a foreword.

"As such, all the options are open to find a solution for its status, whether to restart operations should the conditions change or lease the meltshop for a limited period as a temporary solution," he said.

The meltshop, operated by the Consolidated Jordanian Co. for Steel Industry Ltd. which is wholly owned by Jordan Steel Group, was idled in January 2015 and all its workers laid off  to avoid incurring additional operational losses.

The Consolidated Jordanian Co. for Steel Industry Ltd. registered a JD2.6 million loss in 2014 on top of JD2.4 million in accumulated losses from previous years. 

Faced with a labour dispute, the company opted to shoulder extra losses and agreed to compensate the workers whose services were terminated and help them by more than what they are legally entitled to.

According to the annual report, JD700,000 were deducted from the  2014 income statement as an end-of -service indemnity expense related to the  dismissal of around 200 workers.   

Badran indicated that the meltshop closure was the last option for the board of directors which considered moving it abroad and the possibility of finding investors who would contribute to relocating and operating it.

Noting that regional conditions did not help moving in such direction, Badran said negotiations were also held with several companies outside Jordan with the intention of selling the meltshop to investors abroad, but prices offered were low and no deal could be reached with any. 

"Consequently, efforts are continuing in this venue to obtain the best prices that would safeguard the interests of the company and shareholders," he added.

The chairman listed several factors, including higher costs for electrical power, that led to losses at the mother company and almost all subsidiaries.

Besides the regional turbulence that negatively affected local economic and business activities and caused a relative decline in the construction sector, especially mega infrastructure and investment projects, Badran mentioned scrap metal as a dilemma for the company.

He said that due to the drop in the quantities of scrap metal in local market, competition sharpened domestically and negatively impacted the results of the group.

Badran added that it was impossible to import scrap metal from abroad in a realistic way because of the complexities imposed for such purchases in addition to the lack of means for handling and unloading at the Aqaba port.

Based on the aforementioned shortcomings, and with insufficient quantities of scrap metal in the local market and the unfeasibility of competing with imported billet at present, the chairman revealed that a number of firms opted in 2014 to shutter operations and dismiss workers.

He wondered why Jordan has no controls to protect the local industry from dumping policies just like other countries.

The chairman went on to explain the circumstances that put Jordan Steel Group in a bind pointing in the foreword to the crisis in Ukraine, the slowdown in China's economy and the steep decline in oil prices as reasons that caused a sharp fall in the international prices of steel.

"Due to the decline in prices, domestic competition became more acute as local steel firms scrambled to dispose of their accumulated inventory in a market  already facing lower demand as a result of diminished economic growth," Badran indicated, noting that this competition overburdened the company financially.

To minimise the impact of price volatility on the financial results, he said the company also moved to lower the stocks of finished products at its rolling mill stressing the management's keenness to bring down spending and raise production efficiency in the hope of overcoming the current difficulties and achieving better results in order to regain profitability.

Within this context, the group is considering an upgrading of rolling mill's production programmes and liquidating its subsidiary Jordan Steel Engineering Industries Company and transferring its production line to the mother company.

Jordan Steel Engineering Industries Company, with a cadre of 23 employees at the end of 2014,  posted a JD74,051 loss last year on top of JD7,744 in accumulated loss. 

Modern Wire Mesh Co., the third subsidiary with a cadre of 10 employees at the end of 2014, was also in the red last year with a JD92,517 loss and a JD47,743 of accumulated losses before 2014.

Ammoun Steel Trading Co., the fourth subsidiary tasked with marketing the output of Jordan Steel and construction materials and steel products in general besides representing local entities and foreign corporations in an attempt to diversify and improve the group's income resources, was slightly profitable generating JD6,797 profit in 2014. Its accumulated profit from previous years amounted to JD4,696.

According to the balance sheet as of December 31, 2014, Jordan Steel achieved JD102.2 million in sales last year, 8.1 per cent than the JD96.4 million recorded in 2013.

The highest sales figure was registered in 2011 when the amount peaked at JD118.5 million.

Noting that the company, employing some 200 workers, sells part of its output to Aqaba's free zone in addition to local traders, contractors and housing projects, the report estimated its domestic market share at around 31 per cent, despite fierce competition from about nine firms operating in the same sector, besides the imported steel quantities.        

The growth in sales could not sustain the high profitability of Jordan Steel whose gross profit fell noticeably due to the difficult circumstances plaguing the steel industry.

The consolidated statement of comprehensive income showed that gross profit tumbled from JD3.2 million in 2013 to JD1.1 million in 2014.

Taking into consideration various other revenues and expenses as well as finance cost, allowance for doubtful receivables, and end-of-service indemnity, the 2014 net result came at JD2.7 million loss compared to a JD216,000 profit in the previous year.

The highest net profit was registered in 2007 when it peaked at JD6.3 million.

The balance sheet's highlights include a drop in bank debts from JD29.3 million in 2013 to JD26.2 million last year, and a sharp drop in current assets from JD41 million to JD33.5 million due mainly to much lower inventory.

Financing costs, at JD1.3 million, puts a heavy burden on the company because the meltshop could not supply the rolling mill with the needed billet raw material and, thus, had to be imported.  

Fixed assets, mainly, property, plant and equipment totaled JD41 million, down from JD42.2 million in 2013. The amounts are also considered to be capital investments.  

The company attributed the rise in receivables from JD7.5 million at the end of 2013 to JD7.7 million at the end of last year to fervent sales and special facilities given to certain customers. 

The Social Security Corporation owned a 6.7 per cent stake in Jordan Steel at the end of last year as its equity stood at 2,355,071 shares.