Published January 1, 2009

M'sia steel industry sees recovery in 2nd half of 2009

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(PETALING JAYA) A recovery in the local steel sector is likely to happen in the second half of 2009 once the current high inventory level subsides, reports StarBiz quoting Malaysian Iron and Steel Industry Federation (Misif) president Chow Chong Long.

Builders' take: The growth of the steel industry will depend on construction projects from the government and the private sector

'The cut in worldwide steel inventory and production will help the steel sector to recover, although total demand for steel hasn't gone back to the level before August this year,' he told StarBiz.

He anticipated the government would soon announce more stimulus packages, which were expected to focus on infrastructure development, and said this was supposed to boost the construction and steel industries.

'By that time, local steel prices will improve in line with the international steel price movement, strongly supported by the stimulus packages announced by various countries worldwide,' he added.

Mr Chow said Misif members had cut down their production since October and most of the plants were currently running at less than 50 per cent of their production capacity.

'The cutting down of production will probably last until the end of February or March,' he said, adding that the slowdown in demand and high inventory had contributed to the cut in production.

Mr Chow did not see any major improvement in steel demand currently.

Master Builders Association Malaysia president Ng Kee Leen told the paper that the demand for steel was up recently due to the revival of projects by some contractors as most material prices had stabilised recently.

'The normal consumption for steel was about 200,000 tonnes per month but it was below 100,000 tonnes over the last four months,' he said, adding that demand was expected to pick up gradually once the construction projects come on stream.

He said the government would spend RM700 million (S$290 million) to build homes to spur economic activities starting January, but the impact was expected to be minimal as the amount was relatively small.

'We are still waiting for further allocation from the government as about RM4 billion is expected to be spent on the construction sector,' he said.

The RM4 billion was part of the government's RM7 billion stimulus package aimed at preventing the economy from contracting amid the global financial crisis, he said.

'The growth of the steel industry will depend on construction projects from the government and the private sector, but projects seem to be few currently,' he said, adding that there might be a construction industry crisis if the projects did not come on time next year.

Mr Ng said the prices of steel bars and rod products - the major raw materials for construction projects - were expected to drop further in the short term.

'The price for steel bars should drop further as it is RM200-RM300 per tonne higher than the regional price level,' he said, adding that the price was below RM2,000 recently and it peaked at around RM4,000 per tonne in July.

He said the price of rods was expected to drop after the liberalisation in rod supply.

The current rod price at RM2,100-RM2,200 is RM400-RM500 higher than the international price.

Ann Joo executive director Lim Hong Thye said there had been a slight rebound in steel prices.

'We can only see a clear picture on steel prices by the first quarter next year, especially in the global market,' he said, adding that domestic steel prices would follow changes in the international market.

'One thing that excites me is the implementation of the stimulus packages by China and the US next year,' Mr Lim added. 'However, I can't say what's going to happen when the stimulus packages announced by the government are implemented later. We have to wait and see.'

He added that the positive effect on steel prices would be felt after the Chinese New Year.

'Our strategy is to monitor the international market closely as we feel that the domestic market may not pick up as fast,' he said.

Mycron Steel Bhd chief executive officer Azlan Abdullah said the current market was quite weak as a result of customers keeping low inventory.

'At the moment, they prefer to adopt a wait-and-see strategy,' he said, adding that Mycron did not keep too much steel in its inventory.

He said the future steel outlook was set to soften but 'I cannot predict much as the steel market is quite volatile'.