The presence of too many players for a small nation has left the industry in a dire condition

by SULHI KHALID/ pic by BLOOMBERG

THE government is formulating ways to jump-start consolidating in the overcrowded steel sector that has been reeling due to overproduction, product dumping, high operational cost and thinning demand.

Steelmakers are critical to the country’s infrastructure development, but the presence of too many players for a small nation has left the industry in a dire condition.

Many of the steelmakers are majority-controlled firms, making consolidation an almost impossible task for these rich families unless there are worthwhile incentives.

The Ministry of International Trade and Industry (MITI) will present comprehensive proposals to the Ministry of Finance (MoF) on consolidation incentives to jumpstart mergers in the sector.

Deputy Minister Dr Ong Kian Ming said the ministry will work with MoF to present a win-win solution for all stakeholders.

“We are waiting to see what the details of these requests are and MITI is willing to undertake all mergers in the steel industry,” he said after a forum organised by the Malaysian Iron and Steel Industry Federation (MISIF) in Subang, Selangor, yesterday.

There are 40 listed firms under the metal category but the steelmakers have among the major casualties of excessive production.

Early this month, two major steel manufacturers, Ann Joo Resources Bhd and Southern Steel Bhd proposed to form a joint-venture (JV) company to capitalise on opportunities in the long product steel manufacturing business. The proposed JV is expected to promote business efficiency and obtain synergistic benefits.

“The proposal brings together the strengths of both Ann Joo and Southern Steel with a vision to create a highly competitive long product steel manufacturer in SouthEast Asia,” the companies said.

Malaysia still imports steel from abroad despite the presence of local makers.

According to MISIF, Malaysia imported 8.21 million metric tonnes (MT) of steel in 2018, from 8.01 million MT in 2017.

Ong said mergers exercises are typically complicated and there will be certain tax incentives and exemptions the parties are looking for.

“MITI will review consolidation incentives on a case-by-case basis,” he said.

MITI will also produce a White Paper on the local steel industry, largely to protect local players including imposing a moratorium on licences to foreign steel manufacturers who want to set up base in Malaysia.

“The steel sector is a particular concern to MITI because of the existing overcapacity and its underutilisation,” he said.

An industry expert said the lack of construction activities and property launches recently had contributed to overcapacity and underutilisation of steel assets.

“Currently, construction activities require approximately six to seven million MT of steel annually. The lack of demand for steel is due to the bleak outlook for the construction industry,” the industry insider told The Malaysian Reserve.

Presently manufacturing licences and tax incentives are issued by Malaysian Investment Development Authority.