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Malaysia Metals Report Q4 2011
Business Monitor International, Nov 2011, Pages: 48
Business Monitor International's 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.
The Malaysian steel industry is being assisted by protectionist policies, but output will struggle as the domestic construction industry – a major consumer of local steel – experiences a moderation in growth and Chinese demand weakens, according to BMI’s latest Malaysia Metals Report.
Recently published data from the World Steel Association (WSA) show that Malaysian crude steel output grew 6.4% to 5.69mn tonnes in 2010, which was less than the 8.0% growth BMI estimated and reflected the sluggish nature of the industry’s recovery. At the same time, hot-rolled production fell 3.0% to 4.95mn tonnes, although output was still 0.53mn tonnes above the level BMI estimated.
BMI has revised down Malaysia’s crude output growth from 8.9% to 8.0% in light of a slowdown in Chinese growth, which will have a significant impact on the country’s exports of steel products and manufactured goods. However,BMI anticipates a faster rebound in hot-rolled production, assisted by the country’s 25% import duty on hot-rolled coil; the government has refused a request by Malaysian flat steel producer Megasteel for a rise to 35%.
Hot rolled production should rise 9.0% to 5.39mn tonnes, but this will still be considerably below the levels achieved in 2007 before the global economic crisis. At the same time, imports will remain subdued due to the high tariff barrier, falling 1.7% to 4.95mn tonnes in 2011 and rising slowly to 5.64mn tonnes by 2015.
In 2011, growth in Malaysian steel consumption will be determined by the speed at which infrastructure projects are implemented under the Economic Transformation Programme. The construction sector is vital to the recovery of the Malaysian steel market as it represents 71% of the country’s steel consumption. Construction activity in the first half of 2011 moderated significantly, but BMI believes that the sizeable influx of public infrastructure projects being implemented in the latter half of 2011 could boost construction activity.
Accordingly, BMI is are maintaining its 2011 full-year forecasts for the Malaysian construction sector, with real growth reaching 5.6% year-on-year (y-o-y). However, beyond 2011, construction activity is expecteed to decline due to a lack of financing from both the private and public sectors, pulling down construction real growth to 4.6% per annum between 2012 and 2015. This will limit growth in the Malaysian steel market.
Chinese steel demand, which is crucial to Malaysia’s export markets, will hold up due to the ongoing processes of industrialisation and urbanisation, but the pace of growth will be slower over the medium term. However, the market is in danger of short-term saturation, with capacities growing at a faster rate than the market can absorb.
While the Chinese government is starting to tackle the problem by ordering the closure of small blast furnaces, removing electricity subsidies and placing a moratorium on new projects, it may not be enough to deter over-capacity in 2011. This will drive down prices as well as demand for steel from Association of Southeast Asian Nations (ASEAN) producers such as Malaysia.
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