Tuesday, November 12

Long steel clouded by rising trade disputes, declining demand


KUCHING: The long steel is being clouded by rising uncertainties this time around with weak steel demand in China being the biggest concern right now for the local steel industry.

According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), the Malaysian steel industry is currently clouded by US President Donald Trump’s US tariffs, weak steel demand in China and entrance of Alliance Steel.

However, it believed Malaysian long steel players would be minimally impacted in terms of additional import threats and earnings.

“Based on publicly available stats, US imported 30 million metric tonnes (MT) of steel products in financial year 2016 (FY16) where seven million MT is long steel,” it said.

Post implementation of the Trump tariffs, the research arm opined that a portion of this seven million MT of long steel supply would possibly needed to be channelled outside US possibly causing heavier pricing competition outside US. However, Kenanga Research noted that this amount is small compared to China’s capacity (circa 1.1 billion MT of steel).

The research arm believed China’s commitment to cut down steel products further would easily net off the tariff impact on global supply dynamics ex-US.

Kenanga Research highlighted that China had slashed circa 120 million MT of steel in FY17 and targets a further 25 million to 35 million MT tonnes steel capacity reduction in FY18.

“Furthermore, we note that the current largest long steel exporter to US is Canada, which has little tendency to export to Malaysian shores.”

Beyond US and China’s trade disputes, on Malaysian shores, Kenanga Research pointed out that based on its channel checks, Alliance Steel, which is based in Kuantan has started production with capacity of one million tonnes for rebars and 600,000 tonnes for wire rod.

“Currently, we understand that Alliance Steel has built up inventories pending Sirim’s approvals before they can start selling to the local market.

“While we highlighted last quarter that the local market demand of circa six million tonnes per annum would be able to absorb this new supply without putting downward pressure on prices, we think that local steel prices moving forward might be capped from moving higher despite the gradual rise in construction activities stemming from mega infrastructures.”

Kenanga Research noted that China steel prices have come down sharply recently due to the slower-than-anticipated construction activities post Chinese New Year season; indicating weaker-than-expected Chinese steel demand.

The research arm believed that weak Chinese demand for steel products would be the most worrisome compared to the above two factors.

“Due to the weak Chinese real demand, current effective cost of importing Chinese rebars into Malaysia is circa RM2,400 per tonne after accounting for the safeguards (up 13 per cent), import duties (up five per cent) and shipping fees (up five per cent).”

“We are more cautious at this juncture as we note that current China prices are lower than local current rebar prices of RM2,600 to RM2,750 per tonne allowing for opportunities to import.

“The imports would typically take two to three months delivery time before they are reflected into our local prices here.”

Hence, the research arm chose to monitor the situation closely and review when necessary.

“If China steel prices are subdued for a longer term, we might see higher volumes of imports which would depress our local prices for the coming quarters in FY18.”