The domestic sector is turning around after years in the doldrums
LOCAL steel millers have plenty to cheer about nowadays after being stuck in the doldrums for over five years.
The recovery in global steel prices and the Government’s latest safeguard measures on imported steel, starting Sept 26, certainly bodes well for the survival of the RM41bil domestic steel sector.
In recent years, aggressive dumping of imported steel products, mostly from China, has rendered many local steel millers uncompetitive with widening losses and their operations almost at a standstill.
Between 2013 and 2015, local players were seen raking up losses of up to RM2bil from the global tin slump and cheaper China steel imports.
The turnaround in steel prices this year is also well reflected in the trading of most steel counters, which have risen sharply in the past three months.
Mycron Steel Bhd tops the list surging over 100% at 88 sen, Ann Joo Resources Bhd and YKGI Holdings Bhd gained 95% each, to RM2.07 and 35 sen respectively, Malaysia Steel Works (KL) Bhd firmed 94% to 95 sen and CSC Steel Holdings Bhd rose 50% to RM1.93
To date, domestic steel prices have gone up by over 10% year-on-year with steel bars trading at RM1,800-RM1,900 per tonne while wire rods at about RM1,900 per tonne respectively.
Malaysia Iron and Steel Industry Federation (Misif) president Datuk Soh Thian Lai says the Government’s latest provisional safeguard measures in the form of duties of 13.9% for imported steel coils and 13.4% for imported reinforced steel bars are certainly good news to local steel millers.
“Basically this safeguard measure is for the like steel products such as steel bars, wire rods, deformed bar in coils that local mills have already been producing for many years and in recent years severely affected by the influx of cheaper steel imports mostly from China.
“The latest safeguard measures would mean that China-like steel products with the imposition of around 13% duties plus MFN (most-favoured-nation) steel tariff rate of 5% totalling 18% will definitely deter cheaper China steel imports from entering Malaysia shores,” explains Soh.
However, those high grades wire rods like high carbon, and those grades for electronics and electrical, automotives, oil and gas, earthquake resistance wire rods are still allowed to be imported, which literally means that exports will not be affected.
Currently steel bars produced by local steel millers are mostly for domestic consumption, says Soh while adding that “the new safeguard measures especially against the cheaper below cost imported steel products from China augurs well for local steel players.”
“It could also create a stabilised price mechanism which can generate reasonable profits for local steel millers.”
Misif is a 42-year-old umbrella organisation for the local steel sector with 132 members mostly in the midstream and downstream level with several upstream steel players, which in turn represents almost the entire steel value chain.
Meanwhile, Kenanga Research points out that the additional safeguard rate on top of the existing 5% MFN import duty would balance out the playing field between local steel millers and China players thus effectively shifting local prices higher against China-based steel prices.
Currently, local steel prices highly dictated by Chinese steel prices due to local steel industry having more than 50% imports.
The research unit says local steel prices has always carry a premium about RM150 over China steel prices due to local manufacturers providing better service and consistency in product quality in which local civil consultants do not query vis-à-vis Chinese steel bars.
“Due to this newly implemented safeguard measure, we believe this premium of local steel bars against China steel bars would decrease as purchasers (contractors) demand for lower premium in order to save on the escalating costs,” it adds.
On steel outlook, Kenanga Research is positive on the steel sector as steel prices are expected to remain stable if China’s depleting steel inventory indicating risingdomestic demand there, closure of loss-making steel mills in China, and China governments’ strong commitment in reducing steelproduction capacity through consolidation of steel groups coupled with financial support of 100 billion yuan for worker retrenchment schemes.
“Hence, we expect our steel-rebar average selling price assumptions to be sustainable due to these reasons,” adds the research unit. On the other hand, Master Builders Association Malaysia (MBAM) strongly opposed to the safeguard measures for steel coils and rebars.
Its president Foo Chek Lee says MBAM fears that it could lead to uncontrollable prices of steel bars due to the absence of the free flow of imported steel.
A few months earlier, the price of steel bars had increased from RM1,500 per tonne in January 2016 to a record high of RM2,700 per tonne.
“ We need to prevent a repeat of the 2008 artificial rebar shortage or manipulation from happening again.”
“MBAM is not against profit-making by the steel millers.
“However, MBAM hopes that they will not partake in excessive profiteering by taking advantage of the other industries,” adds Foo.
He points out that “the Government should look at a sustainable long-term plan on this issue, as the local producers are not supposed to be protected for their inability to be competitive even when the Government has provided the industry with numerous protection measures.
“We urge the Government to do a proper study on the potential impact of safeguard measures on imported steel products on the construction industry and other industries, which will directly or indirectly impact the public,” adds Foo.
To put into perspective, the provisional safeguard measures on steel wire rods and steel bars among others is actually “preliminary” which will last for 200 days.
The final determination will be made in April next year, which means once the determination is set, the safeguard measures could last for the next four to six years.