INDUSTRY - Steel Industry in Malaysia
Steel is the key pillars of economic development. It is the essential raw material used in the manufacturing sector, machinery and engineering industries, transportation equipment (automotive, railway and shipping) as well as the major ingredient for infrastructure projects.
STRUCTURE
OF STEEL INDUSTRY
The
structure of iron and steel sub-sector can be classified into two major product
groups:
1. Flat Products
Product: Hard Rolled Coils (HRC), Cold Rolled Coils
(CRC), pipes, tubes and coated coils.
Sector: Electrical and Electronic (E&E),
automotive parts and components, oil and gas, furniture, machinery and
equipment and fabricated products
2. Long products
Product: Billets, steel bars, wire products, angles and sections
Sector: Construction and civil engineering industry.
MAJOR
PRODUCER OF LONG STEEL IN MALAYSIA
1. Alliance Steel
2. Amsteel Mills Sdn Bhd [LIONIND (4235)]
3. Southern Steel Berhad [SSTEEL (5665)]
4. Ann Joo Steel Berhad [ANNJOO (6556)]
5. Malaysia Steel Works (KL) Berhad [MASTEEL(5098)]
2. Amsteel Mills Sdn Bhd [LIONIND (4235)]
3. Southern Steel Berhad [SSTEEL (5665)]
4. Ann Joo Steel Berhad [ANNJOO (6556)]
5. Malaysia Steel Works (KL) Berhad [MASTEEL(5098)]
-----------------------------------------------------------------------------------------------------------------------------------------------------------------
Steel industry is known for being cyclical as it is sensitive to economic cycles, which makes them very volatile. The industry prospers in times of economic growth and stagnate in times in recession.
It's very risky to invest in cyclical stock as the financial performance and stock price is quite volatile. But investors who know the profit drivers of the industry, will obtain abnormal return (sometimes 300% to 500% within 2 years!) by just purchasing the share of one company.
Hence, it is important to analyse drivers and catalysts of cyclical industry to identify its turnaround point.
1. Construction, Property and Mega Infrastructure Projects
The customers of long steel company in Malaysia are mainly involving in construction, property and mega infrastructure projects. Hence, if government implement expansionary fiscal policy, include increase government spending on infrastructure improvement, this will greatly benefit the building material industry, include steel industry.
On 2016, our ex-Prime Minister, Datuk Seri Najib has announced the launching of infrastructure project, which include East Coast Rail Line (ECRL), the East Klang Valley Expressway, the Penang Light Rail Transit (LRT) & Monorail, the Sarawak Coastal and the Second Trunk Road, and Bandar Malaysia projects. The announcement had boosted the demand on steel as well as earnings and share price of steel companies.
2. Dumping of Imported Steel (Safeguard Duties)
Towards the end of 2014, the supply-demand balance was tipped by an oversupply of steel by China. On one hand, due to over production, the export market of China grew substantially and resulted in it dumping its excess inventory in all other countries. The oversupply had cause collapse in steel price.
On April 2017, Malaysia government had imposed safeguard duties of up to 13.9% on imported rebar, steel wire rods, and deformed barin coils until April 2020.
3. Rising of Raw Material and Fuel Costs
The key raw materials for steel industry are iron ore and scrap. Besides, another key cost component for steel-making process are coking coal, coke, UHP graphite electrode, electricity and natural gas. The fluctuation of components price will also greatly affect steel companies’ profitability. Other than this, wages is an essential cost for manufacturing company, include steel company.
Masteel’s managing director had urged government to reduce the cost of steel business, such as imposing the minimum wages for foreign workers and freezing the increase of electricity tariffs and natural gas prices for the next two years.
4. Entrance of Alliance Steel
Masteel’s managing director had urged government to reduce the cost of steel business, such as imposing the minimum wages for foreign workers and freezing the increase of electricity tariffs and natural gas prices for the next two years.
4. Entrance of Alliance Steel
Alliance Steel is a state-owned-joint-stock foreign investment enterprise jointly invested by Guangxi Beibu Gulf Port International Group Co., Ltd. and Guangxi Shenglong Metallugical Co., Ltd., driven by head of state of the two countries, China and Malaysia. It was founded in April 2014.
Alliance had set up the country’s largest steel mill in Gebeng, Kuantan, which has an annual capacity of 3.5 million tonnes producing long steel products, while local players were already suffering low utilisation rates.
Noted that most of the production is exported to Asean. However, there is no restrictions were put in place for Alliance Steel to sell domestically. Although there is only 10% of the production is slated for the local market, the entrance of Alliance will result in an oversupply as existing local production is enough to cater for local demand.
Some of the steel companies had urged the government to freeze the issuance of new manufacturing licences, especially to foreign steel companies, to reduce the squeeze of margin.
5. U.S. Steel Tariff
In early 2018, U.S.’s president, Donald Trump had announced the impose of 25% steel tariff on import steel. This will affect the companies that have exported their steel products to U.S.
Some of the steel companies had urged the government to freeze the issuance of new manufacturing licences, especially to foreign steel companies, to reduce the squeeze of margin.
5. U.S. Steel Tariff
In early 2018, U.S.’s president, Donald Trump had announced the impose of 25% steel tariff on import steel. This will affect the companies that have exported their steel products to U.S.
Most steel production here are absorbed by local demand and exports are very minimal. Below is the proportion of revenue (2019) based on geographical segment for each long steel company:
|
Company |
Malaysia |
Outside Malaysia |
|
ANNJOO |
94% |
6% |
|
LIONIND |
68% |
32% |
|
MASTEEL |
97% |
3% |
|
SSTEEL |
84% |
16% |
Source: Quarterly Report As At 31 December 2019
The impact of U.S. steel tariff is deemed insignificant to the 4 long steel companies. However, the imposition of tariff by U.S. may increase the supply of long steel in the market. As the long steel supplier may tend to supply long steel to country other than U.S, and this may cause oversupply in market and drop in steel price.
6. FOREX
The drastic weakening of the MYR versus major foreign currencies posed additional cost challenges, as the domestic steel industry relies substantially on imported raw materials such as high grade scrap metal and other products.
7. China's Cut Production Policy
In line with China’s continuing anti-pollution campaign to deal with its environmental issues, China had announced that the country will continue its plan to further phase out its steel production in 2018 in line with the original plan to reduce 150 million MT of steel production capacity by 2020. As China’s steel production and exports continue to decline, we expect stable steel prices for the year ahead and the domestic steel demand to remain firm.
The drastic weakening of the MYR versus major foreign currencies posed additional cost challenges, as the domestic steel industry relies substantially on imported raw materials such as high grade scrap metal and other products.
7. China's Cut Production Policy
In line with China’s continuing anti-pollution campaign to deal with its environmental issues, China had announced that the country will continue its plan to further phase out its steel production in 2018 in line with the original plan to reduce 150 million MT of steel production capacity by 2020. As China’s steel production and exports continue to decline, we expect stable steel prices for the year ahead and the domestic steel demand to remain firm.
Comments
Post a Comment