Steeling itself for change
Steel players call for mergers to overcome overcapacity
PETALING JAYA: The Malaysian steel industry has reached a stage where the only way to find a solution to the overcapacity is through consolidation.
Rather than just bringing any two companies together, Southern Steel Bhd managing director Chow Chong Long said there has to be an end aim to achieve and not just about increasing volume.
“One plus one becomes two doesn’t work if you’re producing the same products because you don’t get rid of your capacity overhang.
“It must come with synergies, what one has that the other doesn’t and vice versa.
“If you have a consolidation where two companies produce steel bars and they double up the capacity and go to the government to request for incentives, that’s not the right direction.
“It makes the situation worse. You will be spending public money from the incentives and in the end, you are in the same position that you were in,” he said.
Chow was speaking at the panel discussion entitled “Malaysian Steel Industry at the Crossroads of Change” during the Malaysian Iron and Steel Industry Trade Forum 2019.
It was recently announced that Ann Joo Resources Bhd and Southern Steel were setting up a 55:45 joint-venture (JV) company in a Rm1.65bil deal.
Chow also told the forum that a synergy also needs to be in line with what the country needs, such as improving on the value chain.
He added that almost every country in the region is facing a similar situation and it was a matter of Malaysia moving in the same direction.
“I think we should be excited to become one of the first home-grown JV companies which could potentially be a regional player.
“The first area of supply which we think can benefit the country is actually import substitution if we can produce whatever product we are importing.
“What is exciting is that we will see a breakthrough in the mindset of how the Malaysian steel industry is going to move forward, even for the region,” he said.
At the same panel, Federation of Malaysian Manufacturers president Tan Sri Soh Thian Lai said industry players in Malaysia over-emphasised long products, whereas in advanced countries, the growth is in flat products.
He noted that flat products have continuity such as in the ship-building and automotive industries, but Malaysia is far behind compared to other countries.
“Although Thailand’s steel consumption is stagnant, it is still hovering around 19 million to 20 million tonnes annually because flat product consumption is high,” he said, adding that steel has always been a policy-driven industry.
The largest steel consumer in the region is Vietnam at 22.3 million tonnes, followed by Thailand at 19.2 million, Indonesia at 15 million, the Philippines at 10.7 million, Malaysia at 9.7 million and Singapore at 2.89 million tonnes.
Steel consumption in Malaysia peaked from 2014 to 2016 after it crossed the 10-million-tonne threshold. It began to drop in 2017 and has been struggling to break the threshold since.