Posted on 30 Jan 2012
The 12-year old monopoly in hot-rolled coils (HRC) by Lion Group unit Megasteel Sdn Bhd in Malaysia is likely to be broken with the emergence of at least two potential HRC and hot-rolled plate players within the next two years.
A source close to the local steel industry said the Competition Act 2010 taken effect early this month would post as a challenge and opportunity for the local steel industry players.
“There will be fairly good competition among local steel players which can lead to the possibility of consolidation as well as mergers and acquisitions within the sector,” the source told StarBiz recently.
He expects the era of Megasteel's monopoly in HRC to end soon with the Act which will enable both local and foreign steel players to venture into similar operations in Malaysia.
Despite five HRC licences being issued since 1980, Megasteel is currently the only company in production.
HRC is widely used as base material in various industries such as automotive, construction, electric and electronics, fabrication, engineering and manufacturing.
Steel companies with the potential to produce HRC and HR plates include Eastern Steel Sdn Bhd and Ann Joo Resources Bhd, said the source.
Eastern Steel is setting up a RM1.5bil integrated steel complex in two phases, Phase one with investment value of RM754mil will result in the production of 700,000 tonnes per year in Kemaman, Trengganu to produce steel slabs in mid-2013.
“The production of steel slabs is just one step behind the actual production of HRC and HR plates,” the source said.
Also, Eastern Steel has the advantage of iron ore supply following the recent award of a 600ha iron ore mining concession at Bukit Besi by the Trengganu state government.
Eastern Steel is 55% owned by Malaysia-based Hiap Teck Ventures Bhd, 40% owned by China Shougang Group and 5% held by Chinaco Investment Pte Ltd.
Eastern Steel is China Shougang's first investment in a steel mill outside China and touted to be the biggest Chinese foreign direct investment in steel in Malaysia to date.
Another potential HRC player is Ann Joo Resources Bhd, one of Malaysia's top five steel millers.
The source said: “The successful commissioning of its long overdue RM650mil blast furnace in October last year will see Ann Joo optimising its operation in the integrated iron and steel production.”
“I believe it will just be a matter of time before Ann Joo will consider venturing into HR plates and HRC production.”
Meanwhile, Malaysia Iron and Steel Industry Federation (MISIF) president Chow Chong Long is of the view that consolidation within the local steel industry is long overdue.
He said the Competition Act 2010 would see local steel players having to adjust to the new landscape and strive to be more competitive.
“While it will be difficult to ask our players to consolidate, consolidation will enable Malaysia to have better and efficient steel players that will be able to compete on a level playing field with overseas players,” explained Chow.
Also, further liberalisation by the Goverment through free trade areas (FTAs) to gain more market access can only be taken advantage of by “our steel players if they are strong and competitive.”
Chow said strategic alliance and/or consolidation among local and Asean steel players were critical especially when the Asean Free Trade Area (Afta) and China-Asean FTA were already in place.
“Although Afta in general has proceeded well and benefited Malaysian steel players, there is a need to review the steel sector in the China-Asean FTA since it has only benefited China and not Asean.
In the case of Megasteel's HRC monopoly, Chow said: “The timeframe of 12 years is just too long for a company to benefit from continued protection in the form of high import duties.”
He said there can only be a win-win situation for the flat steel product industry if “the players within the entire value chain are prepared to compromise.”
Chow noted that there was already an understanding in MISIF among all flat steel players (upstream, midstream and downstream) on the time schedule to bring import duties down from 20% in 2012 to 0%-10% by 2018.
This, in fact, was already conveyed to and accepted by the International Trade and Industry Ministry.
“So, either this schedule is maintained or if it were to be accelerated, there must be dialogue to find a compromise duty structure or time schedule,” he said.
In late-October last year, Megasteel made a second attempt seeking the Government to consider reducing the import duty on flat-steel products to 15% from 25%.
This was after its first proposal for a safeguard petition to impose an additional 35% import duty on HRC on top of the existing 25% was gunned down by the Government last August.
On another note, Chow described the general performance of steel consumption in 2011 as flat and slightly lower than 2010.
He said: “The first half year had been quite strong, but the last quarter was rather weak mainly due to the eurozone financial woes, slow recovery in the US and slowdown in China economy and the slow implementation of ETP projects.”
Chow also expects the first half of 2012 to be still weak but anticipates better performance in the second half when implementation of ETP projects finally kicks in.
He said local steel prices had stabilised, although they were still low when compared with international steel prices, which were expected to firm up gradually from the second quarter of 2012 onwards when “stocks are low, demand gradually improving and higher cost of raw material and energy.”
Local steel is currently trading at an average of RM2,300 per tonne compared with the average international price of US$740 (RM2,331) per tonne.
In 2011, the average local steel bar price is RM2,300 per tonne against RM2,100 per tonne in 2010.
