Rollout of big projects to drive steel industry in 2018

Posted on 24 April 2018
 

Source: The Star Online

Steel miller Ann Joo Resources Bhd  expects 2018 to be a better year for the local steel industry. 

According to its group managing director Datuk Lim Hong Thye, higher steel demand in Malaysia would be driven mainly by the full rollout of several big infrastructure and property projects.

Ann Joo Resources is Malaysia’s largest steel company by market capitalisation at RM1.67bil.

The ongoing steel sector reform by China would augur well for local steel millers, Lim said adding that the world’s largest steel exporter is planning to reduce another 30 million tonnes of its capacity this year. 

 

In addition, the current trade war between the United States and China with the former slapping tariffs on imported steel from China, is creating uncertainties in the market leading to volatile trading in global steel prices.

“The domestic apparent steel consumption (ASC) would likely climb back to around 10 million tonnes in 2018, given the full rollout of several big infrastructure and property development projects here,” Lim told StarBiz.

The domestic ASC had been on a flat mode between 2013 and 2016.

In 2017, domestic ASC fell by almost one million tonnes to about 9.15 million tonnes from a year earlier due to the slowdown in the property development sector and the slower-than-expected rollout of large infrastructure projects.

There was also a slowdown in the manufacturing and fabrication sectors last year, added Lim.

Despite better demand outlook this year, Lim, however, warned that there were several key challenges that would threaten the performance of the industry.

“This will include higher raw material costs, especially for those middle and downstream players where their raw materials i.e. the semi and finished steel products, are generally priced much higher than last year.

“Other challenges will involve a higher fuel cost, especially the natural gas price; a worldwide shortage in electrodes, a key consumable used by electric arc furnaces to melt scraps that caused the spot price of electrode to increase by more than eight times; startup/resumption of new steel mills in Malaysia, especially those owned by foreigners, which may cause an overcapacity situation in Malaysia if the original commitment to our government on product mix and export ratio is not strictly adhered to; increasing number of trade actions against Malaysian steel products which will affect the export volume; and lastly, the indirect impact of s232 imposed by the US and the subsequent trade wars between the US and China,” explained Lim.

On steel bars, which is the most consumed steel product in Malaysia, Lim said the domestic rebar price is expected to increase due to higher local demand from the full rollout of infrastructure and big property projects here.

He also expects regional demand to be strong for construction steel products.

“The continued steel industry reform in China would further ‘normalise’ international steel prices, as the dumping activities would then be substantially reduced.

“The shortage of electrode means the supply of rebars would be constrained, as most of the steel mills outside China are using electric arc furnaces to produce rebars,” added Lim.

According to the Ministry of International Trade and Industry, which publishes the weekly rebar price, the domestic price stood at RM2,530 per tonne as at April 17.

The China domestic rebar price ranges from 4,000 yuan to 4,500 yuan per tonne, depending on the region and grade of the rebars.

On the continued volatile trading of steel companies’ share prices, given the heightened risk of a US-China trade war, Lim said: “Share prices (of local public-listed steel millers) would be highly volatile as the market is full of uncertainty now.

“Any news flow would affect the share prices. But fundamentally, I don’t foresee much of a direct impact on local steel players on the trade wars, but the indirect impact is very hard to assess now, thus the high uncertainty.”

Meanwhile, UOB Kay Hian in its latest report said the outlook for the steel sector was promising, given the sustainably high local steel prices which are supported by industry consolidation in China.

It also expects local steel demand to gradually improve on the back of the commencement of various mega and infrastructure projects.

The research unit is maintaining a “buy” call on Ann Joo Resources, which is a prime beneficiary of rising demand for long steel products, given its hybrid manufacturing facility and effective capital management.

 



«  Back

Copyright © 2016 SEASI Site. All Rights Reserved.