AmInvestment Bank Research remains sanguine on the domestic steel industry, largely underpinned by the expected strong demand for steel moving forward.
The research house, which maintained its “overweight” stance on the steel sector, expects local demand to pick up following the roll-out of mega infrastructure projects such as rail-related projects and township development.
Apart from that, steel price is also projected to improve, mainly due to economic growth in some regions particularly in emerging market.
However, steel demand from China is expected to slow down from the financial year of 2018 (FY18) onwards, given the expected deceleration in its economic growth.
“Based on the World Steel Association’s October 2017 short-range outlook, the global steel demand is expected to grow by 2.8% and 1.6% to 1.62 billion tonnes and 1.65 billion in FY17 and FY18 respectively, driven mainly from China, India and the Asean market.
“On the domestic front, Malaysia’s historical steel demand consumption has remained range-bound, about 10 million tonnes for the past four years. Demand is expected to grow marginally by 1% to 2%, with a stronger demand for long products compared to flat products, according to the South East Asia Iron and Steel Institute.
“We expect local steel volume to grow modestly at 1% and 3% in FY17 and FY18, driven by domestic demand particularly infrastructure projects which are expected to kick off by the second half of FY17,” stated the research house in a note.
Apart from infrastructure projects, AmInvestment Bank Research said that the stable steel demand in the country was supported by both local production and imports.
“Imported steel remains important for local industrial consumers, as the supply from abroad has filled the shortfall in recent times. The global excess supply in FY14-15 has hit Malaysia steel players badly due to China dumping its excess supply in the Malaysian market, which forced local steel players to lower their production or shut down after facing huge losses.
“The shortfall in steel volume has been filled largely by imports and partially by reduced exports by local steel players.
“With regard to local steel production, domestic players are expected to increase their utilisation capacity to an optimum level. This was following the imposition of safeguard duties till April 2020 for steel reinforcement bar, steel wire rod and deformed bar in coil.
“The increase in local production would be able to cater to the local steel demand in the coming years,” it said.
AmInvestment Bank Research said the local steel industry would remain positive if China remains committed to reduce output capacity and steel export.
“In addition, the outlook for the steel sector will remain promising if the average selling price for steel is sustained or further improved while the escalating cost of doing business is addressed.
“Clear policy and enforcements must be imposed by the government such as safeguard duties and to require local buyers to procure locally steel products, to sustain the steel industry,” it said.