Steel in Malaysia – a hot issue

Steel in Malaysia – a hot issue.

Saddled with an unbalanced domestic liberalised steel sector and the unfavourable bilateral Free Trade Agreements (FTAs) between Asean and China, Malaysian steel players appear to be operating in an increasingly uncompetitive environment, exacerbated by hikes in electricity tariffs, natural gas prices and sub-standard products in the market. Mid and downstream steel manufacturers as well as foreign steel companies are also crying foul over a petition by Lion Group's unit Megasteel Sdn Bhd, the country's sole hot-rolled coils (HRC) producer seeking a safeguard measure on HRC. Many players say the petition will benefit and continue to protect only one segment of the industry's value chain. Interestingly, these developments are happening in the thick of a split in the country's steel fratenity, which has resulted in two camps - the 30-year-old Malaysia Iron and Steel Industry Federation (MISIF) and the barely one-year-old Malaysia Steel Association (MSA). “The current developments engulfing the local steel sector will likely restrict the overall positive growth this year,” MISIF president Chow Chong Long tells StarBizWeek recently.
In terms of the liberalisation policy and FTAs, Chow laments that the Government has overlooked the entire value-chain of the steel industry.
“MISIF was not consulted when the Asean-China FTA (ACFTA was the first FTA) was signed.
“Subsequent FTAs signed mainly replicate ACFTA whereby the Government offered materials/products produced by upstream players (particularly HRC) into Highly Sensitive (HS)/Sensitive (SL) lists with high duties reducing at longer timeframe, meaning slower liberalisation as compared with downstream players who had to contend with normal track or fast track.”
He adds that MISIF would prefer a cap of 5% instead of zero for all steel products that are produced locally in view of more favourable logistic and payment terms as compared with imports. As a result of faster liberalisation for downstream finished steel products in contrast to slower liberalisation for the upstream steel products, Chow also claims that downstream activities are facing stiff competition from China which have larger economies of scale. “This way of liberalisation is illogical as protection is granted to only upstream company. “In contrast, it should be granted to value-added midstream and downstream companies, or that liberalisation should be applied evenly across the whole value chain.” He also says the market monopoly and local availability policy with high import duties for flat steel products have made it an arduous task for steel players to defend the domestic market from cheaper imports of finished products. In Malaysia, locally manufactured finished steel products are unable to compete against similar imported finished products, which have either zero or low import duty. According to Chow, MISIF may need to review downward its local steel sector growth forecast at 5% to 7.5% this year given the recent hike in electricity, gas and proliferation of the sub-standard steel products. “The production cost of steel product manufacturers will increase by 2% to 5% with the hike in electricity tariffs and natural gas prices by an average of 7.1% and 28% effective June 1,” says Chow.