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Malaysia Metals Report Q2 2010
Business Monitor International, March 2010, Pages: 54
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.
In the absence of strong Chinese demand for Malaysian steel products and within a poor domestic market, Malaysian crude steel output shrank by a third in 2009, with the country’s mills operating at an average of just 60-70% of 2008 levels. The latest Malaysia Metals Report forecasts a strong recovery in 2010, bolstered by trade liberalisation with China and domestic demand growth. We also project a return to trend growth in 2012. However, uncertainties plague the production of construction steel, which depends on progress in public infrastructure projects while the resumption of Chinese output growth and the threat of regional over-capacity will pose significant challenges in the short term.
The publisher is expecting a rocky recovery with uncertainties over profitability due to product price volatility and rising raw materials costs. We caution that the road to recovery is unlikely to be a smooth ride, with economic activity set to remain subdued through to the second half of 2010. Furthermore, doubts continue to surround the strength of key steel-consuming sectors such as construction, automotive and household appliance manufacturing. The situation affecting the automotive industry appears less bleak, with output growth of 4.0% following a decline of 5.0% in 2009 and a pre-empting a return to trend growth of 6.0% in 2011. Both domestic and external markets will help encourage growth in car production, bolstering flats output.
The main concerns facing the steel sector are trends in construction, which will be major determinants of longs production. The construction sector is vital to the recovery of the Malaysian steel market as it represents 71% of the country’s steel consumption. Malaysia is also benefiting from demand from several ongoing major public and private projects in Singapore. However, the outlook for Malaysia’s construction sector still remains extremely challenging. Fiscal constraints generate concern about the government’s ability to carry forward its infrastructure plans fully. These constraints are compounded by capacity related problems in the public sector, which considerably slowed the execution of projects in 2009. With up to a third of domestic steel consumption reliant on public projects, there is a pressing need to progress on schedule to ensure stability in Malaysia’s long steel market.
Despite the challenges ahead, the publisher believes the Malaysian steel industry will rebound strongly in 2010 and will reach or exceed pre-recession levels by 2012. Over the medium term, the industry’s development will be determined by trade liberalisation, with the free trade agreement (FTA) between China and the Association of Southeast Asian Nations (ASEAN) launched in January 2010 creating the world’s thirdlargest trade bloc. The new FTA will encompass a much greater array of goods and services than previous agreements, providing both participants with greater protection against subdued developed-world demand over the coming years. This should improve the competitiveness of cold rolled mills, whose capacity far exceeds domestic consumption and are therefore reliant on export markets for growth. While domestic flats producers have voiced concerns over the measures, their anxieties should be allayed by the government’s pledge to enforce rigorous quality standards on both imports and domestically-produced steel products to prevent the market from being flooded with substandard material. On the upside, finished product output should be stimulated by access to the Chinese market. On the downside, increased trade openness with China brings greater competition, especially in low-cost manufacturing, and Malaysian producers will need to maintain competitiveness and boost investment in high-end manufacturing and product specialisation in order to sustain growth.
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