Measures to help the industry in the pipeline

High cost: Lee says high energy cost is another issue in Malaysia.

MALAYSIA’S steel think tank, the Malaysia Steel Institute (MSI), which is supported and funded by the Ministry of International Trade and Industry (Miti) was set up as an intermediary Government agency for the country’s iron and steel industry. It plays an advisory role for the industry and also gives input to the Government on policy-setting. MSI CEO Tony Lee speaks to StarBizWeek about measures to support the industry, as well as the other challenges in the local steel industry.

The big problems

In the last two years, the private sector has been lamenting about high import volume predominantly from China and allege that there were elements of circumvention.

The Chinese authorities provide rebates for its exporters of alloy steel.

However, the definition of alloy steel is vague.

Just by adding in a minimum amount of boron or chromium, one can classify steel as alloy steel.

The Chinese firms can also avoid paying export tax when they declare their product as alloy steel.

If classified as carbon steel, they would have to pay a 15% export tax.

Having this advantage, they are able to sell the steel at a cheap prices globally, even below production cost.

Another issue is the high energy cost in Malaysia.

As the authorities have been reducing subsidies, the cost of energy has gone up.

Grey areas in the issuance of the Certificate of Approval (COA) is another concern.

All steel imports must have COAs from the authorities.

Due to some grey areas, some are bringing in steel, declaring it for industrial use but it ends up in the construction industry.

This is an example of circumvention.

Looking for solutions

During a recent lab session conducted by the Performance Management and Delivery Unit to identify the challenges in the industry, several recommendations were put forward by industry stakeholders.

It identified some of the prevailing problems. While the oversupply from China may not be something that can be resolved quickly, the country has to look forward.

One of the recommendations is that quarterly meetings for industry stakeholders be held to encourage them to support the local industry and iron out any dissatisfaction or complaints.

At the moment, not enough is being done to bring the suppliers and end users together.

Another move is by providing input to beef up enforcement, especially on circumvention issues.

For example, enforcement officers may not know the difference between an engineering bar and a construction steel bar.

He may be misled by irresponsible parties in order to get their products in, duty free.

On the increasing cost of electricity and gas, the Energy Commission is looking at offering lower rates during off-peak hours so millers can operate at a lower cost.

Lastly, we are trying to encourage the industry to consolidate. In order to be competitive, you must have the critical mass to achieve economies-of-scale.

This is something that is necessary for the local players be stronger, more resilient and competitive.

MSI’s role in supporting steel players

Local players come to us for consultation to file trade remedy action and if there is prima facie evidence, then we will help prepare the petition.

The Government will evaluate the matter fairly and take action to ensure a level playing field. This is allowed by the World Trade Organisation. The situation in China is such that it is producing steel for the sake of keeping its workers employed.

There is a chronic over-supply situation in China and they are making losses, but still producing.They are being given subsidies and tax rebates to continue production.

While they are selling steel in Malaysia for over RM2,000 per tonne, they are sometimes selling it for about RM1,900 domestically in China.

This is a problem with investigations on steel dumping.

If we investigate 10 Chinese companies, three of them may be selling their products at even lower prices in China than they are selling to Malaysia, thus there is no dumping margin.

These three companies can get a zero-rating on their anti-dumping duty and can continue to sell here.

What happens next is that the companies found to be dumping steel would continue to export their steel through the three companies. Sometimes, the anti-dumping petitions can also prove to be counter-productive. Trade remedy action has to be considered carefully.