Steel sustainability
UPSTREAM steel players, who are among the country’s top energy users could be affected by a potential hike in the new electricity tariff surcharge, amid the current high coal and gas prices.
The announcement on the next electricity surcharge bi-annual review for the second half of 2022, is slated by the end of this month.
For most steel millers, energy and raw material costs account for almost 90% of their total cost structure.
Back in 2018, a 1.2 sen increase in the electricity tariff could raise the iron and steel industry’s costs by RM148mil, based on its annual electricity cost in that year, according to the Malaysian Iron and Steel Industry Federation.
Hence, to ensure the sustainability and competitiveness of the steel industry at the local and international levels, the government must continue to provide a conducive environment for domestic steel players to operate.
For example, the recent announcement on the Mass Rapid Transit 3 circle line by the government is expected to spur construction activities.
This will lead to higher domestic demand for steel, which is projected to sustain the industry’s steady recovery.
At the same time, the International Trade and Industry Ministry is undertaking a foresight study on the iron and steel industry to assist in identifying future risks and opportunities.
This includes several recommendations towards a self-sufficient, sustainable, competitive and resilient steel industry by 2030.
Despite the current stiff challenges amid the global economic recovery and inflationary pressures, it is worth to note that some steel players are still able to export their products abroad.
Based on the Malaysia External Trade Development Corp’s latest data, the trade value of the iron and steel products rose by 23.5% to RM29.4bil from January to May compared with the previous year.
For May, exports were up 12.6% to RM6bil from the same month in 2021 with the top export destinations like Thailand, Indonesia and Hong Kong.
This reflects the big contribution of the local steel sector to the country’s economy and why it is still important to ensure the sustainability of this RM40bil industry.
The normal pain
WHEN Bank Negara raised interest rates by 25 basis points to 2.25%, there was once again a chorus of complaints from people who said higher interest rates would cut into their spending power.
It will for sure.
Higher interest rates will mean people having to pay more on the floating loan rates they have taken.
That will more likely be loans taken to buy houses.
Loans that are used to buy a car or for personal loans are usually on hire purchase terms that are fixed, so if interest rates go up, the repayments remain the same.
The harsh reality is that at a time when inflation is already biting into the spending power of people, higher interest rates will mean a lesser bang for the buck.
As harsh as it is, the upward movement of interest rates is a bid towards normalisation.
Interest rates were at 3% prior to the aggressive cuts that were made to deal with the economic damage brought by the onset of the Covid-19 pandemic.
Even at 3%, it is on the lower end of where interest rates have been on the historical scale.
The issue here has been the accumulation of debt.
People and government are not neck-deep in debt and any inching upward in borrowing costs are going to veer money away from other uses to repay debt.
But there is always an element of risk when people take on debt.
The question has always been about responsible borrowing and having the ability to pay for a living expenses even with the debt taken on.
In an arena where a host of countries all over the world is raising interest rates and the effect on take home pay is the same, the effect of higher rates will be the same in Malaysia.
The flipside is higher rates can offer some strength to the local currency. It is a question of trading off one negative for a positive.
Crypto and blockchain
IT is a given now that cryptocurrency is a bad investment idea. Since peaking late last year, cryptos are down about 70%. Equity markets are down by much less.
Some would argue that the two asset classes shouldn’t be compared.
Public companies are highly regulated, their books audited, and the good ones produce cash flows that turn into dividends.
There are some chilling similarities between the cryptocurrency craze and the dotCom bubble.
After publicly traded Internet companies peaked in early 2000, they crashed by 60% eight months later, the Financial Times reported recently. But out of those ashes grew the likes of Amazon and eBay.
Crypto enthusiasts see blockchain as a game-changing technology and hence maintain the claim that out of the current crash will come the survivors who will bring about a lasting technological revolution.
What exactly that revolution will be, is far from clear.
For now, cryptocurrencies have been used largely for financial speculation, criminal activity and the so called decentralised finance or DeFi, which lies outside the government regulation, the FT reports.
Not to forget non-fungible tokens which incidentally boggles the mind of most traditional investors.
What needs to happen is for blockchain technology to become easily usable, scalable and operate within the remits of the law.
So far, it is far from achieving any of that. What has helped spur on is mostly unfettered speculation.
And although crypto’s enthusiasts always claim that they are building a decentralised world in which the power would flow to the people, there is always the possibility that some large holders of certain cryptos are the ones that determine when prices are up and down and no one knows who they are.
This could even be the case with bitcoin, the main cryptocurrency.
The crypto and blockchain world needs to produce a network and application that works smoothly and brings real value to its users, sans speculation and criminal activity.
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