Malaysia's steel industry cools
down By Bernard Lim
Malaysia's steel industry is likely to
slow down but achieve sustainable growth this year
due to a downturn in the domestic construction
sector and moderate growth in the manufacturing
industry. Starting from 2005, the industry is
likely to book an average 10% growth annually for
the next six years.
This is in stark
contrast to the steel industry's heyday in the
mid-1990s, when it chalked up 20-30% growth
annually. The iron and steel products sector has
seen significant developments during the last
three decades, in step with the overall growth of
the Malaysian economy. The iron and steel products subsector
covers the manufacture of
primary steel products such as direct reduced
iron, hot briqueted iron, blooms/slabs and steel
billets and a wide range of downstream flat and
long products such as hot rolled coils, cold
rolled coils, steel pipes and sections, steel
billets, steel bars and wire rods.
Malaysian Iron and Steel Industries
Federation (MISIF) deputy chairman Datuk Lew Chin
Hoi said steel consumption is expected to be weak
this year. He expects consumption to improve
marginally next year before picking up again from
2007-2009 in line with the implementation of
infrastructure development under the 9th Malaysia
Plan and industrial activities under the 3rd
Industrial Master Plan.
Steel consumption
in 2004 jumped 16% to 7.7 million tons from 6.6
million tons a year earlier. Both long and flat
products grew by 15% and 18% respectively in 2004,
Lew said. "We do not expect 2005 to experience
such a phenomenal growth as the market demand has
slowed since the second quarter in view of the
slowdown in the construction industry," he said.
Major players agreed, with one official
saying, "I personally do not foresee such strong
growth this year." Amid the gloomy scenario,
domestic steelmakers are bracing for lower profit
margins this year due to increasing cost pressure
and slowing demand from China. Local steel
manufacturers do not expect significant growth
this year as market demand had slowed down since
the second quarter due to the weak construction
sector. Industry players are likely to report an
average of 20-30% reduction in their profit
margins.
The business climate seems bleak
for the industry, which currently comprises about
290 companies employing about 29,400 workers. The
firms' combined annual output is valued at RM18.8
billion (US$4.95 billion). According to MISIF's
Lew, the way forward for the industry players is
to seriously venture into downstream activities.
"We are of the view that the local steel industry
has to build downstream capacity and strengthen
the export value-added capability to better serve
the domestic market and weather greater
competition in the international arena," he said.
Downstream activities include lightweight
steel for the residential construction sector. Lew
said the construction sector, the largest market
for steel, provides the greatest opportunities for
growth, particularly as concerns about supplies of
wood keep increasing. Lew also said steelmaking in
Malaysia relies heavily on supplies of scrap from
imports and domestic sources. With the turnaround
in the steel industry, steelmakers - like other
scrap users - have been subject to supply and
pricing problems.
Major
players Among the major long product makers
in Malaysia are Malayawata Steel Bhd, Lion
Industries Corp Bhd, Kinsteel Bhd and Southern
Steel Bhd. Flat steel product manufacturers
include Hiap Teck Venture Bhd, Choo Bee Metal
Industries Bhd, and Mycron Steel Bhd, a subsidiary
of Melewar Industrial Group Bhd.
Malayawata expects to increase output by
40% to 900,000 tons within the next three years
without having to invest heavily in new equipment.
Its president Datuk Lim Hong Thye said this was
possible with the research and development
(R&D) agreement on electric ARC furnace
operations with Germany's Badische
Stahl-Engineering GmbH (BSE).
Kinsteel
expects to be transformed into a fully integrated
steel producer by the end of next year. Managing
director Datuk Pheng Yin Huah said the group's
expansion, particularly the setting up of an RM80
million wire rod plant and over RM100 million
electric arc furnace facility in Gebeng, Pahang
would enable Kinsteel to be placed among the top
five steel producers in Malaysia.
Kinsteel, which has a total production
capacity of 800,000 tons per annum, is located at
the Gebeng Industrial Zone near Kuantan in Pahang.
It operates seven steel mills. Melewar Industrial
Group (MIG) expects to book higher profit after
completing a RM120 million expansion program to
bolster production of cold-rolled coil (CRC) to
keep pace with rising demand. CRC is produced by
its 54%-owned subsidiary, Mycron Steel Bhd, in
Shah Alam. Mycron's annual capacity will increase
by about 45% to 260,000 tons from the existing
180,000 tons. The expansion will upgrade product
quality to meet rising demand for high-grade CRC,
which gives better margins.
Government
policy To ensure adequate supply for the
domestic construction industry, the government has
introduced export controls and relaxation on
imports of steel bars and billets. Restrictions on
exports and relaxation on imports of steel bars
and billets have stabilized the supply of this raw
material for the construction industry.
Lew said one of the major issues
confronting the local steel industry is the
government policy on imports of flat steel
products. While other countries have removed their
safeguard measures in 2003 and both steel prices
and supply have moved to higher levels, Malaysia's
import restrictions remained in place. This has
caused some dislocations between the upstream and
downstream sectors of the steel industry, apart
from curtailing downstream activities, he added.
