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  4 June 2007 - Top steel millers want solution

TOP steel millers in Malaysia want to see an effective solution to bring the local sector back on par with its counterparts regionally in terms of pricing. An interim solution given the current conditions would be to adopt the automatic price mechanism (APM) while a long-term one would be the lifting of the Government-controlled price on steel bars and billets, steel millers said.

Steel millers contacted by StarBiz felt that many countries in the Asia-Pacific region had no control policy on steel prices. Thus the prices of steel bars can quickly be adjusted to the record prices of scrap, the principal raw material used in South-East Asian mills.

The Lion group, which has three mills (Megasteel Sdn Bhd, Amsteel Mills Sdn Bhd and Antara Steel Mills Sdn Bhd), views the recent 20% hike in the ceiling price of steel bars and billets as “insufficient” to cover the production costs of steel mills as the cost of the raw material - scrap - had risen by 36% to US$380 per tonne currently from US$280 per tonne in 2004. Steel division marketing director Anthony Chin said: “The increase in steel bar price from an average of RM1,500 to RM1,800 per tonne is not reflective of international bar prices currently around US$600 or RM2,100 per tonne.”

The benefit of the recent price increase for billets and steel bars were mitigated by rising costs of scrap, consumables and utilities, he added. Chin said Amsteel and Antara Steel mills had been operating at 60% to 70% capacity similar to the other steel mills in Malaysia. Megasteel has been running at about 80% to 90% capacity utilisation while Antara's hot briquetted iron plant in Labuan, Sabah, has been producing at full capacity.

In terms of capital expenditure, Chin said Megasteel was upgrading its facilities to increase its capacity from two million tonnes to 3.2 million tonnes per annum. He said new investments by the Lion group included a RM1bil direct reduced iron (DRI) plant in Banting, Selangor, with an annual capacity of 1.54 million tonnes of DRI, which is similar to hot briquetted iron as feedstock for steel-making.

Southern Steel Bhd financial controller C.B. Koay said APM should benefit the industry in the long run, as it allowed local steel prices to follow the upward or downward trend of international prices.

“Local steel millers will have to be efficient to tackle steel prices when they come down, and contractors will have to be able to handle the situation when steel prices rise,” he said.

Koay said: “We have laid down plans to increase production output over the next few years.”

Effective this month, China is imposing export duties on certain steel products coming out of the country.

“Such a move would discourage exports and raise the price of Chinese steel products in overseas. This will reduce the competition that we face from Chinese steel products,” he added. Koay said Chinese exporters of certain steel products such as steel bars and wire rods also no longer enjoy “subsidies” such as the export rebate on value-added tax.

“This should enable regional steel producers like Southern Steel to compete with Chinese products on more equal footing,” he added.

Ann Joo Resources Bhd executive director Datuk Lim Hong Thye said the revised prices of steel bars and billets were lower than the international steel prices.

He said: “I believe steel bars represent just a small fraction – about 5% to 8% – of the construction cost (excluding land).” Lim said the steel bar price was not something that steel millers planned to artificially jack up. “Despite the volatile international steel prices, local millers had to wait for almost three years before the Government revised ceiling price last month.”

While contractors and developers were allowed to import, he said, “many are reluctant and prefer to take advantage of the lower steel prices in Malaysia.”

To date, 70% of Malaysia's scrap metal requirement for steel was fully imported, Lim added.

Choo Bee Metal Industries Bhd group general manager Au Hah Chye said the general consensus was that steel prices had peaked and were stabilising. He said price movements, if any, were likely to be marginal in the short term. Outlook for the mid-term is that prices should still be firm, especially with China's reduction in export tax rebate. Choo Bee plans to increase exports to Singapore while exploring opportunities in Australia and West Asia.

Amalgamated Industrial Steel Bhd chief operating offer Allen Tee said the Ninth Malaysia Plan would spur business activities but with the Asean Free Trade Area and World Trade Organisation in place, the whole scenario and business landscape had altered, introducing more competition locally. The risks for steel pipe manufacturers include no alternative supply source, competition within the country, price cutting given too many producers and external competition in the form of influx of imported pipes at prices lower than local steel pipe makers' costs.


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