Steel policy review surprises analysts (Malaysia)

Posted on 22 June 2009

Source: The Star, June 19, 2009

The opening up of the local steel sector not only creates a more level playing field in the industry but also exposes it to new challenges from overseas.


Some analysts are a bit surprised by the timing of the latest policy review, given the uncertainties in the global market.


CIMB Research said yesterday the review itself was largely expected by the market, which began in May last year with the price liberalisation of certain products.


“The timing was a slight surprise as we did not expect new policies until the economy recovers,’’ it said in an update yesterday.


AmResearch posted a question on whether this was a “pre-emptive move” to mitigate a potential steel supply shortage in the country.


“Our channel check with local contractors revealed prices of local steel bars could rise by RM300 a tonne in the next three months,’’ senior analyst Mak Hoy Ken wrote yesterday, while noting that steel millers like Ann Joo Bhd were ramping up their production capacity.


OSK Research believed the latest industry policy review announced by the Ministry of International Trade and Industry on Wednesday would benefit local flat steel producers.


Megasteel Sdn Bhd, the sole hot-rolled coils (HRC) producer in the country, would be the biggest winner. OSK predicted that local demand for HRC produced by Megasteel would improve with the new policy in place.


“We think the new tariff provides enough spread to protect the company from any influx of imported HRC,’’ it said yesterday.


Megasteel would also be free to determine its selling prices based on market supply and demand.


For Choo Bee Metal Industries Bhd, the latest liberalisation move in the steel industry meant it would have more options in sourcing for HRC needs.


“It will make the local steel industry more competitive and this will benefit everyone in the long run,’’ a senior executive at the Ipoh-based steel-pipe maker told StarBiz yesterday.


Under the new policy, all HRC imports meant for finished products destined for the export market will be exempted from duty.


The import of this raw material for local use will be slapped with a flat 25% duty, but will be further reduced in stages.


The official at Choo Bee said it was too early to say whether it would be cheaper for the company to import its requirement or to continue relying on a single domestic source.


“We will have to wait for the actual implementation to really see how the new policy will benefit us,’’ he said.


CIMB Research offered a contrarian view, saying the latest development was “negative for the sector’’ in the long term.


“The local steel players will now enjoy less protection and will have to compete with international players in terms of product variety and pricing,’’ it said.


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