Abstract
While the outlook for the Malaysian steel industry was poor in 2009, tentative signs of recovery in
demand in Q2 have created a sense of optimism and BMI's latest Malaysia Metals Report forecasts a
strong recovery from 2010 as state-financed infrastructural projects begin to have a positive impact on the
industry.
In H109, many steel plants were running at 35-50% of nameplate capacity, according to the Malaysian
Iron and Steel Industry Federation. Nevertheless, steelmakers reported that demand for steel bar picked
up in Q2, boosted by the government's first MYR7bn stimulus package which had by August been
mostly disbursed. However, statistical sources showed that the situation was far from good. In June 2009,
Malaysia's manufacturing sales fell 25.5% y-o-y, led by a large fall in the iron and steel sector. This
followed a similar decline in the previous month.
The Ninth Malaysia Plan is likely to have a positive impact on demand in H209, particularly following
the awarding of the contract for the Penang bridge project. The construction sector is vital to the recovery
of the Malaysian steel market as it represents 71% of the country's steel consumption. Longs prices were
expected to rise over H209 as steel mills track the rising international market, although in Q209 they were
still much lower than the MYR2,850-3,000 per tonne recorded in October. There is still a great deal of
uncertainty in the domestic longs market, with producers warning that an increase in sales could be
attributed to restocking to avoid the cost of future price rises rather than an increase in actual demand.
Despite the signs that the domestic longs market may have passed its low point, BMI believes that for
2009 as a whole Malaysian demand will be well down on 2008. Sales are still likely to be down by 19%
by the year-end, with major infrastructural projects likely to take time to plan and implement, with
finished steel consumption falling to 8.64mn tonnes, crude output down 24% to 5.15mn tonnes and hot
rolled production down 27% to 4.17mn tonnes.
BMI believes that the Malaysian steel industry will rebound strongly in 2010 and by 2013 should have
reached or exceeded pre-recession levels. Over the medium-term, the industry's development will be
determined by trade liberalisation, with the move towards the reduction of duties on imported flat
products from August 1, 2009. This should improve the competitiveness of cold rolled mills, whose
capacity far exceeds domestic consumption and are therefore reliant on export markets for growth. While
domestic flats producers have voiced concerns over the measures, their anxieties should be allayed by the
government's pledge to enforce rigorous quality standards on both imports and domestically produced
steel products to prevent the market from being flooded with substandard material.
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