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Malaysia Metals Report Q1 2010
Business Monitor International, Dec 2009, Pages: 46
The Malaysia Metals Report provides industry professionals and strategists, corporate analysts, metals associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Malaysia's metals industry.
Steel demand in Malaysia showed signs of recovery in the last quarter of 2009, making mills cautiously optimistic about the future as prices became firmer. With the economy probably over the worst, the latest Malaysia Metals Report forecasts a strong recovery from 2010 as state-financed infrastructural projects begin to have a positive impact on the industry. Following a pickup in East Asian demand, capacity utilisation rates recovered from 35-50% to around 75% in H209. With prices trending upwards, the Malaysian steel industry is expected to return to full capacity in 2010. Indeed, the report forecasts that steel production will reach 6.02mn tonnes in 2010, representing an increase of 15.1% year-on-year (y-o-y), compared with our 2009 sector forecast of a 23% contraction.
According to the South East Asia Iron and Steel Institute, Malaysia’s steel demand slumped to 2.8mn tonnes in H109, a 41% drop y-o-y. Production fell 26% y-o-y to 2.37mn tonnes, despite a small pick-up in Q2. Imports, which have been falling since H208, continued to tumble and reached 1.58mn tonnes in H109. However, exports picked up in the first six months of 2009 to reach 1.1mn tonnes, an 8.4% increase y-o-y, after jumping 63% from the previous quarter. Meanwhile, although the steel bar market recovered towards the end of 2009, prices were only returning to levels seen in August of just over MYR2,000 per tonne. Prices are expected to remain firm in early Q110 when seasonal demand returns after the traditional festive period. Billet prices bottomed out in Q4, but with the prices of scrap imports hardening, there could be an opportunity for domestic producers to raise prices in Q1.
Meanwhile, sales of cold rolled material also picked up towards the end of 2009, although prices remained unchanged with the approach of the festive season. The improved mood in the Malaysian steel industry has been helped by some mills managing to move back into the black in Q309, albeit on reduced profits and revenues compared with the corresponding period in 2008. However, the sustainability of recovery may be dependent on the government’s economic stimulus packages giving further momentum to the construction sector, steelmakers warn. The construction sector is vital to the recovery of the Malaysian steel market as it represents 71% of the country’s steel consumption.
There is still a great deal of uncertainty in the domestic longs market, with producers warning that an increase in sales could be attributed to restocking to avoid the cost of future price rises, rather than an actual increase in demand. In November 2009, the government of Malaysia announced that the country is about to conclude its Free Trade Area (FTA) agreement with Chile, following the visit of the Chilean President Michelle Bachelet Jeria to the country. This should boost Malaysia’s steel exports to the country – which is its core export area to the South American nation along with electronics – and will also have a positive effect on copper sales coming the other way. Chile is the largest producer of copper in the world. Malaysia is also in the process of agreeing an FTA with Australia, which should help the country’s steel production sector as it will increase access to Australia’s large supplies of iron ore.
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