MSC (5916) MALAYSIA SMELTING CORP BHD in a sweet spot with record-high tin prices

MSC (5916) MALAYSIA SMELTING CORP BHD in a sweet spot with record-high tin prices

THE Covid-19 pandemic, along with the surge in demand for electronics, has led to a record rally in one of the world’s oldest commodities — tin.

The three-month contract for tin traded on the London Metal Exchange (LME) reached a record of US$42,292 per tonne last Wednesday, more than double the US$17,175 per tonne at the onset of the pandemic two years ago.

On the Kuala Lumpur Tin Market (KLTM), it surged to a new high of US$42,020 per tonne last week.

This bodes well for Malaysia Smelting Corp Bhd (MSC) — the world’s third-largest producer of refined tin. MSC group CEO Datuk Dr Patrick Yong Mian Thong says the group’s tin mining division has benefited strongly from record tin prices.

The group owns and operates the largest hard rock open-pit tin mine in Pengkalan Hulu, Perak, under its upstream division, while its downstream division undertakes smelting activities in Butterworth, Penang, and at its new facility in Pulau Indah, Port Klang.

“Net profit for the nine-month period ended Sept 30, 2021 (9MFY2021) from the tin mining division of RM65.2 million has already surpassed the tin mining division’s full-year net profit of RM20.6 million in the previous financial year ended Dec 31, 2020 (FY2020). As the income from smelting is not dependent on the tin price, [our smelting] division did not benefit much from the price hike,” he tells The Edge in an email response.

The current daily production of tin ore by its mining subsidiary, Rahman Hydraulic Tin Sdn Bhd (RHT), now stands at 11.5 tonnes. Plans to increase daily production to 12 tonnes by the end of last year were delayed because of the operational disruption arising from the pandemic. During the Movement Control Order (MCO) last year, the group had to temporarily suspend both its mining and smelting operations for 10 days from June 4 to 14.

“We expect tin ore production to reach 12 tonnes per day in 2022. Nonetheless, our current daily production level of 11.5 tonnes of tin ore per day has already surpassed our pre-pandemic output of 8.6 tonnes per day in 2019. The increase can be attributed to higher operational efficiencies, with the mechanisation of processes and introduction of new machinery,” says Yong.

The disruption in production also resulted in the group issuing a notice of force majeure to its customers, owing to a slowdown in the scheduled delivery of tin metal. The force majeure, which commenced on June 7 last year, was subsequently lifted on Dec 20 .

“With the lifting of the force majeure, MSC is already accepting tin ore from customers to smelt. We expect our refined tin production to near normalise in 2022 as we resume deliveries to customers. The confidence of customers is also boosted with the lifting [of the force majeure].

“We foresee our performance in FY2022 improving and normalising, with the resumption of operations with a high workforce capacity, following the lifting of the Full MCO. High tin prices would also positively contribute to our bottom line. We also expect higher recovery yields and cost savings when the Pulau Indah plant reaches full capacity,” says Yong.
Cost savings of 30% with commissioning of Pulau Indah plant

MSC is in the process of relocating its smelting operations in Butterworth to its more modern smelting facility in Pulau Indah.

“Currently, the Butterworth plant is smelting the backlog of tin ore accumulated over the pandemic and also extracting tin trapped in the intermediates over the years. We plan to gradually decommission the Butterworth plant over the next two to three years,” says Yong.

The group’s Pulau Indah plant has a smelting capacity of 60,000 tonnes of tin ore — 50% more than the capacity of its Butterworth plant — and is currently operating at a utilisation rate of 80%.

“Production would depend on the availability of tin ore, taking into consideration the Omicron variant of the Covid-19 virus, which may present logistical challenges. Keeping that in mind, we are monitoring the situation closely,” says Yong.

He adds that the group expects cost savings of about 30% by moving smelting operations to the Pulau Indah plant.

“The facility is equipped with the cutting-edge Top Submerged Lance (TSL) furnace that is expected to scale up our production capacity by 50% and enhance our extractive yield with the single-stage smelting process. The TSL furnace requires fewer workers to manage, further lowering the group’s manpower costs. Apart from that, we have access to piped natural gas for the smelting process, contributing to higher energy efficiency.

“We have installed solar photovoltaic panels on our facility’s rooftop and will be planning a waste heat recovery function, which would lower our electricity bills as well as shrink our carbon footprint. The Pulau Indah plant is also in proximity to the port and London Metal Exchange warehouses, which cuts down our transportation and distribution costs,” says Yong.

The relocation of smelting operations to Pulau Indah will free up 13.9 acres of land where the Butterworth smelter is located.

“This prime land, together with that of our parent company The Straits Trading Company Ltd’s (STC) plots of 26.2 acres (total of 40.1 acres), is slated for development, unlocking further value for MSC. The master plan for a mixed-use development has already been approved and, as the entire land parcel is large, it may take up to 10 years to fully develop the land,” says Yong.

For 9MFY2021, MSC reported a net profit of RM53.99 million, which was 220 times more than its net profit of RM244,000 a year ago, because of higher average tin prices. Revenue for the period surged 41% year on year to RM821.5 million.

On how long the tin rally is expected to last, Yong says, “We foresee tin prices to be sustained, with the continued supply shortage and increased demand for electronics that require tin solder. Tin consumption is also expected to grow, with growing demand from various industries, including the automotive and electronic industries.”

The International Tin Association (ITA), in a report published on Oct 11 last year, notes that solder still accounted for almost half of global tin use in 2020, followed by chemicals at 17% and tinplate at 12%. Tin use in both the tin-copper markets — which are driven largely by new technology markets such as electric vehicles and new electrical infrastructure — and lead-acid battery markets was at 7%. According to ITA, the major lead-acid battery tin use effect was in China, owing to the use of e-bikes there.

MSC shares hit a record high of RM3.57 on Dec 31 last year. Compared with a year ago, its share price has more than doubled to close at RM3.16 last Wednesday, which translates into a market capitalisation of RM1.4 billion. Tan Chin Tuan Pte Ltd, the ultimate holding company of STC, is the largest shareholder of MSC, with a 54.85% stake.

http://www.theedgemarkets.com/article/msc-sweet-spot-recordhigh-tin-prices