Abstract
The outlook for the Malaysian steel industry looks poor over 2009, but
China’s retreat from the Southeast
Asian regional market opens up
some opportunities that could ameliorate an otherwise disastrous
situation, according to BMI’s latest Malaysia Metals Report.
Q109
appeared to be the low-point for Malaysian metals industries, with domestic
consumption and
output falling by at least 50% y-o-y. BMI believes the
market has reached its nadir, with signs of
resumption in construction
activity and a general expectation that overall demand will stabilise in
H209.
The positive trend will be boosted by the government’s
economic stimulus packages, which are aimed at
large infrastructural
projects. An ambitious US$16.2bn stimulus package passed by Malaysia in
March,
on top of the US$1.9bn billion package passed at the end of 2008,
should assist a recovery. The recovery
in demand is expected to begin in
2010, but will be slow. The Malaysian Iron and Steel Industry
Federation
(MISIF) forecasts a 25% contraction in Malaysian steel demand in 2009, after
falling 10.7%
to 7.8mn tonnes in 2008. However, poor performance early on
in the year will weigh heavily on full-year
figures.
The construction
sector is vital to the recovery of the Malaysian steel market as it represents
71% of the
country’s steel consumption. Overall longs consumption
has recovered as a result of a stabilisation in the
construction sector,
with a gradual improvement over Q209 leading to a rise in prices. 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.
With the domestic market in contraction, Malaysian
steelmakers will be looking abroad to sustain and
revive output. The
slowdown in Chinese steel billet output growth is likely to benefit
Malaysia’s share of
the Southeast Asian market. With Chinese
production likely to be more domestically-oriented over the
short to
medium term, and its export tax on steel longs set to remain at 25%,
China’s market share is
expected to drop. The retreat of Chinese
producers will benefit local billet producers such as Amsteel,
Perwaja and
Southern Steel, which have combined billet production capacities of 3.7mn
tonnes per
annum (tpa).
While longs may benefit from uplift in
regional demand and the retreat of Chinese competition, flats
suppliers
are facing major setbacks and will take longer to recover due to a lack of
demand for cars and
electronic goods. The stimulus programmes in Malaysia
and the rest of Southeast Asia are not likely to
have an impact on flats
demand, which will be a setback to Malaysian flats producer Megasteel,
which
has a production capacity of 2mn tpa. Moreover, there is a risk that
the market will be flooded with cheap
imports, particularly from China,
although reports suggest Malaysian flats imports from China were down
69%
year-on-year (y-o-y) in Q109.
Bearing in mind the gradual uplift in prices
in H109 amid signs of recovering demand, BMI has revised
its crude steel
output forecast for the year with production likely to fall 26% instead of the
39% we
predicted in the previous quarterly report. This will bring output
down to 5.03mn tonnes. Our revision is
based on a less pessimistic outlook
for steel exports, which we now expect to decline by 23% instead of
37.5%
we forecast in the previous quarter, falling to 2.18mn tonnes.
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