Steel sector hurt by dwindling demand

Changes in the global trade policies and tepid global demand, as well as local steel mill cost structure will also continue to impede any positive demand

By SHAHEERA AZNAM SHAH / Pic By MUHD AMIN NAHARUL

Malaysia’s steel sector is expected to face further headwinds amid the persisting global trade tension, as well as the shaky demand from China’s construction industry that is currently facing a slump.

According to a research report released by MIDF Amanah Investment Bank Bhd, the demand from China’s manufacturing sector reaches up to 360 million metric tonnes (MT) annually, close to 60% of its annual consumption.

“We view that the steel sector will be affected negatively in 2018 and 2019. At present, Wall Street has priced in the risk from trade wars such as tariff impositions and duty orders from local steel exporter for products bound for the US and Europe,” the report stated.

MIDF Research added that the changes in the global trade policies and tepid global demand, as well as local steel mill cost structure will also continue to impede any positive demand.

“The steel demand is expected to shudder due to China’s environmental health and occupational safety policies,” it said.

According to the research house, six steel counters under its observation, namely Ann Joo Resources Bhd, Lysaght Galvanised Steel Bhd, Southern Steel Bhd, CSC Steel Holdings Bhd, Mycron Steel Bhd and Choo Bee Metal Industries Bhd have previously posted negative reactions to the news on trade wars and tariff impositions by the US and European Union (EU).

“We reckon that this trend will persist as the global steel demand is expected to grow 1.8% year-on-year to 1.62 billion MT in 2018, and tepid growth will be plagued by low demand in 2019, growing 0.7% to 1.63 billion MT,” it said.

In addition, MIDF Research said most of the local companies are affected by the unwavering overhead costs and operating expenditure that are making the sector unattractive.

However, the research house stated that the Sales and Services Tax (SST) may just give a breather to the construction and steel sectors as the government has excluded building materials from any tax.

“If it takes place, the construction sector is expected to take a breather from the grim outlook that impacts the industry from project cuts. The steel and construction sectors are interconnected as the former relies heavily on the building material demand from the latter’s project activities.

“SST will enable steel sector to maintain its product supply to construction sector without any additional cost,” it said.

The US slapped steep tariffs on steel and aluminium imports from countries like Canada, Mexico and theEU.

The action to add 25% and 10% additional tariff on steel and aluminum imports respectively has caused fury among the three economies.

China, which produces half of the world’s steel, has been grappling with oversupply.

Malaysia is already investigating a possible steel dumping from China and Vietnam into the local market, which will hurt local manufacturers.

China’s economy is also going through a tough period as rising trade tensions with the US may slow the growth in the world’s second-largest economy.