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Consolidation among steel players a way to mitigate challenging environment

Posted on May 7, 2014, Wednesday

KUCHING: Steel industry players have been urged to consolidate and mitigate a challenging operating environment in view of the continued oversupply of steel capacity that mainly comes from China.

“By extension, there has been a rising influx of steel round bars. Imports of the material into Malaysia rose by more than ten times to 447,212 tonnes in 2013 from 40,393 tonnes in 2009,” noted analysts at AmResearch Sdn Bhd (AmResearch) yesterday.

According to a report by the Malaysian Iron and Steel Industry Federation (MISIF) in mid-April, five MMBtu (million metric British Thermal Units) to seven MMBtu of natural gas consumed for each tonne of steel making/rolling activity will translate to an additional cost of RM130 million per annum or a four per cent increase in total production cost.

Meanwhile, the imposition of goods andservices tax (GST) of six per cent will result in an estimated 10 to 20 per cent hike in total operating costs.

“Amid a still sticky cost structure, we acknowledge that Chinese imports represent a major challenge for the local steel industry,” AmResearch opined.

“Hence, the move to consolidate and create larger entities among the domestic steel supply chain is one way to mitigate the challenging operating environment. This may include tie-ups with foreign partners to produce higher-end products.”

AmResearch affirmed that there were some M&A prospects emerging in Malaysia, which has among the largest capacity for semi-finished steel within Asean along with a developed distribution network and relatively attractive power rates.

 

 

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