Page 26 - MSM_AR2020

CHAIRMAN’S DELIVERING MSM MANAGEMENT DISCUSSION GROUP FINANCIAL
STATEMENT VALUE OVERVIEW & ANALYSIS REPORT

GROuP CHIEF EXECuTIVE OFFICER REVIEW

During the year, MSM also made good strides on
executing planned key strategic initiatives.
Raw sugar procurement through the Just-In-Time
method was set towards improving the Group’s cash
position from minimal raw sugar stockholding, lowering
Banker’s Acceptance (BA) interest cost and reducing
external warehouse rental expenses. The Board has
approved this initiative’s continuation through 2021 and
2022.
24 We completed MSM Johor’s LS and FS capacity upgrade
to 12,000 tonnes/month. The upgraded FS lines were
MSM MALAYSIA HOLDINGS BERHAD Annual Report 2020
successfully installed in November 2020 while LS lines
were completed in December 2020. The upgraded lines
are projected to contribute up to 14% utilisation factor
(UF) to MSM Johor. At present, the largest LS and FS
importer is China with Indonesia and Philippines also
identified as potential markets. Current existing world
suppliers are refiners in Thailand, Vietnam, UAE and NY11 RAW SUGAR PRICE 2020 AND 2021
Malaysia.
At macro level, global agricultural markets are stable as food
Another initiative that started in 2020 is to increase trade has remained more resilient than the overall trade. Despite
MSM Johor’s yield. The yield factor is critical to the sugar the pandemic, NY11 prices in 2020 has been generally favourable
refining process as it determines the amount of sugar for the Group, trending between USD11.00 – 15.00 cents/lb.
1
loss during the production. MSM Prai, being a mature The stable prices were a result of high production in Brazil
plant, has been recording a yield of 96.5% from minimal which balanced out the shortage caused by Thailand’s extreme
loss on sugar polarisation and molasses. At present, drought. MSM managed to close the year at an average price
MSM Johor’s yield hovers around 90% and management of USD12.70 cents/lb against the market average of USD12.89
has been rectifying this through spillage recovery cents/lb.
and re-melt of off-specs sugar into LS. We target to In 2021, global sugar trade flow is projected to be in deficit of
achieve a yield above 93% in 2021.
0.5 million tonnes with a more bullish price outlook ranging from
2
As part of the Group’s capacity rationalisation efforts, USD14.00 – 19.00 cents/lb as the dry-weather in Thailand is
operations at MSM Perlis refinery ceased in June 2020. expected to prolong to 2022, reducing the sugar supply in the
The production has been gradually transferred to MSM region and the world by about 7 million tonnes and shifting the
Johor to maximise the Johor plant’s UF by up to 12%, supply risk to Brazil as the single largest raw sugar exporter for
based on MSM Perlis’s previous production trends. Since 2021. The increase in crude oil prices will also have an impact on
the closure and subsequent capacity rationalisation, the Brazilian sugar production as millers will be motivated to produce
Group’s the Refining Cost (RC) reduced by 3% against more ethanol instead of sugar from the sugarcane crop. We also
the prior year. expect to see similar ethanol related influence similar to Brazil for
Indian producers.
Last but not least, the tender exercise for Trucking
Outsource by Refinery Location was concluded in 1. High raw sugar production in Brazil
due to low ethanol price, weak real
March 2020 and we expect distribution cost savings and good sugarcane crop
of up to 10% from this outsourcing initiative. 2. Source: Wilmar