Newsbreak: Policy revisions a boon for steel industry

TheEdge Mon, Jan 18, 2021 04:00pm - 5 months ago

THE steel industry has reason to cheer this year as the government is making revisions to the iron and steel policy that are expected to benefit local players across the value chain in the long run.

The revisions come after a long wait by industry players who had submitted a White Paper in April 2019 at the request of the Ministry of International Trade and Industry (MITI) in 2018.

The White Paper was intended to form the basis for a holistic iron and steel policy for developing a more resilient, competitive and sustainable industry.

In a letter sighted by The Edge that was issued by MITI to the industry in December, the ministry outlined six revisions to the current policy:

i)     Tighter conditions for the issuance of new manufacturing licences;

ii)     An extension until Dec 31, 2021 of the current duty structure, including for long and flat products, ranging from 5% to 15%;

iii)     A 15% export duty on ferrous scrap with export licence mechanism;

iv)     Options for import duty exemption application or duty drawback facility for export purposes through licensed manufacturing warehouse and free zone;

v)     Stricter considerations for manufacturing licences for scrap metal recycling activities;

vi)     For metal scrap importation, manufacturing licence holders undertaking recycling activities are now allowed to import metal scrap for iron and steel, copper and aluminium while traders are not allowed to import metal scrap.

Notably, says MITI in the letter, these revisions will remain applicable until Dec 31, 2021, whereby any extension or further revision will be subject to the policy direction under the New Industrial Master Plan 2021-2030.

“In a nutshell, these revisions will benefit the entire industry in the long run and this time, they cover the entire value chain. In the past, a lot of help was given to the upstream players but now it is also extended to the downstream players,” says a senior executive in the steel industry.

A steel industry veteran said he was pleased that the government was taking action on the longstanding issue of manufacturing licences for the sector by tightening criteria for new ones in order to protect existing manufacturers.

Last February, the Malaysian Iron and Steel Industry Federation and Malaysia Steel Association publicly opposed the Chinese investor-backed Wenan steel project, which will be located in the Samalaju Industrial park within the Sarawak Corridor of Renewable Energy.

Their concern was that Wenan — which would be able to offer better prices for scrap metal in bigger volumes because of its size — would mop up the scrap metal on the market, causing local steel manufacturing plants to lose out.

“Now, with the updated Iron and Steel Policy, it seems like the new manufacturing licence issue may be addressed in the long run. Of course, it wasn’t stated very clearly that the Wenan steel project is off. It is not publicly known whether the manufacturing licence has already been issued to them or not, although I was told that they have gotten the licence,” says the industry veteran.

The extension of import duty for long and flat products is also welcomed by the industry as it addresses the dumping issue that it has been facing. An observer notes, however, that this could be less of a problem now as China has been buying and consuming steel instead of dumping it in the last two to three years.

“When China was dumping cheap steel, local players like Ann Joo [Resources Bhd], Southern Steel [Bhd], Kinsteel [Bhd] and Perwaja [Holdings Bhd] were affected. But today, the demand for finished products in China is so strong that they are starting to buy (steel) from overseas,” says the observer.

One steel industry executive notes that there is a “buy Malaysia” push encouraging steel players to purchase from local mills.

For the longest time, Megasteel Sdn Bhd, under the Lion group, was the only hot rolled coil maker in the country until it ceased operations in 2016 due to cash issues and sold its assets to sister company Lion Industries Corp Bhd (LICB).

Part of the plan in the White Paper is to revive Megasteel. It was reported previously that LICB was looking to build a blast furnace with the capacity to produce three million tonnes of hot metal a year.

An observer comments that the 15% export duty on ferrous scrap is being put in place to ensure that local scrap is not exported. The scrap is raw material that can be used in both electric-arc and blast furnaces in local mills.

“Steel makers (like Megasteel) need scrap for their own manufacturing. If foreign buyers are aggressively buying local scrap, the likes of Megasteel will have problems in pricing. Orders of steel are mostly advance orders. When you lock in the orders and you can’t source the raw material, it will cause havoc to your price mechanism,” explains a steel industry observer.

Some think that the policy revisions are timely given how the Covid-19 pandemic has shaken the economy, as it would help to excite the sector.

Steel players have been fortunate in recent times. Demand for iron ore has increased, pushing prices up. Observers say that the demand for white goods has increased with many people confined to their homes most of the time.

OCBC said in a report last December that it was expecting iron ore prices to trend higher this year, on account of the robust demand from China for its fiscal infrastructure projects.

“The pressure to replenish Chinese steel inventories in early 2021 may see increased demand for iron ore imports into China, which may drive iron ore to US$175 per tonne by late 1Q2021,” the report said.



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