IT will be interesting to gauge the feedback from the local steel players based on the recommendations made by the Boston Consulting Group (BCG) which has completed a comprehensive study on the strategic RM40bil steel industry.
Hired by International Trade and Industry Ministry (Miti) in late February, BCG has put forth recommendations for the ministry to formulate an effective mechanism for the local players to stay competitive and be on par with other regional players amid the influx of cheaper imported goods, increasing protection measures as well as the volatility in the prices of raw materials.
One of the recommendations is for the country's sole hot-rolled coil (HRC) producer Megasteel Sdn Bhd, a unit of the Lion Group, be given a deadline till mid-2013 to record positive cash flow by forming strategic collaborations with foreign parties and improving operational efficiency.
While Megasteel may be elated over the recommendation, some quarters expect the time extension given could be strongly challenged by those in the midstream and downstream steel sector.
To them, Megasteel had been given enough “protection” by the Government for the past 13 years and it was time for Megasteel's monopoly to end by way of duty exemption on imported HRCs.
BCG is also said to be proposing a more stringent monitor on imported steel products.
BCG has recommended to Miti to formulate an effective mechanism for the local players to stay competitive and be on par with other regional players.
Imports from the major steel producing countries, especially China had become a major threat. The full implementation of the Asean-China Free Trade Agreement in January 2010 had resulted in a huge surge of imports of various steel products from China into the Asean region.
Many steel players feel that most of the steel exports from China, unlike Japan, are competing with similar products produced in the Asean countries including Malaysia.
On the other hand, there has been very little export of steel products from Asean into China. Thus the steel trade is basically a one-way traffic. There is also an increasing trend to institute protective measures among Asean countries to insulate their domestic industry from external threats.
For Malaysia, about four petitions have been submitted to Miti so far. Megasteel in June last year has put up a safeguard petition seeking the imposition of an additional 35% duty on imported HRC, which currently attracts an import duty of 25%.
The petition was terminated by Miti in August but Megasteel had in October asked Miti to consider reducing the import duty on flat-steel products to 15% from 25%. The latest petition, however, remains status quo.
Cold-rolled coils producer Mycron Steel Bhd has also sought for duty-free iron-ore based HRCs import into Malaysia early this year, while last month, an unnamed domestic steel producer has sought for the imposition of anti-dumping duty on steel wire rod imports.
It is a well known fact that Asean is not self-sufficient in raw material supplies for its iron and steel sector. In Malaysia, raw materials constitute about 65% to 70% of the cost of production of steel. The high volatility in the prices of such materials poses a great challenge to the steel players in managing cost and price of their finished products.
Asean is also one of the few regions in the world that are still experiencing healthy growth in steel demand which has attracted keen interest from major global steel players to increase their investments in the region.
While this will bring about the much needed upgrade of technology for the industry, it could also lead to the crowding out of the domestic players who might not be in a good position to compete with the big boys.
Ultimately, the Malaysian steel players would want to see that the recommendations made by BCG could convince Miti to review the existing iron and steel policy made effective in August 2009.