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Malaysia Metals Report Q3 2012
Business Monitor International, August 2012, Pages: 35
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.
The Malaysian steel industry will likely face a challenging period in 2012, with margins and earnings facing a severe squeeze, amid a slowdown on both global and domestic markets. Input costs and electricity tariffs are set to rise and domestic steel prices will weaken. Meanwhile, the eurozone crisis and a slowdown in developing countries, particularly China, will lead to resistance towards increases in the local steel price beyond MYR2,300/tonne. Iron ore prices will be affected by a rise in India's export duty from 20% to 30% and supply disruptions from Australia and Brazil.
We expect steel production growth in 2012 to reach just 5.0% y-o-y, a sharp decline from the 2011 growth rate of 14.8%. We expect production to increase to 6.9mnt in 2012. Despite weakness in the regional market for steel due to the oversupply situation and overall weaker economic growth, demand will be underpinned by infrastructural activities from the country's Economic Transformation Programme.
Positive On Tin We are very positive on the prospects of refined tin production in Malaysia given strong preliminary production data from WBMS. January to April 2012 refined tin production has increased by 26.6% y-o-y to reach 16.2 thousand tonnes (kt). Still-elevated tin prices and tight tin supply in the market (at least until new concentrate production from Australia and other emerging economies comes online in 2013/2014) may mean that 2012 could be another growth year for Malaysian production.
Unlike our more conservative view on Malaysia's tin mining sector, we are positive on the production prospects of refined tin in the country. January to April 2012 production has increased by 26.6% to reach 16.2kt. Despite the mine's age, tight concentrate supply has pushed Malaysia Smelting Corporation (MSC) to invest heavily into the Rahman Hydraulic tin mine.With the Perak state government renewing MSC's mining lease in Rahman until 2030, the company is set to undertake the necessary additional investments in the mine, in order to achieve optimal production capacity. MSC has invested heavily in Rahman since the company acquired the mine in 2004 and was able to increase production from 753 tonnes in 2004 to 2kt in 2011. Our 8.5% forecast growth rate for 2012 is due to a new six-lane Palong structure in Rahman, which will increase production capacity by 300tonnes per annum (tpa). Beyond 2012 we do not expect substantial growth, with Malaysia's tin output to remain weak.
Potential In Aluminium? At the same time as the expansion in steel output, investment is being directed at the aluminium sector.
China's Ye Chiu Group is building a secondary aluminium smelter with capacity of 120,000tpa, which is due to start operations in H112, while Abu Dhabi's Mubadala Development Company is planning to invest US$7bn in Malaysia's aluminium sector as part of its strategic partnership deal with 1Malaysia Development Berhad (1MDB). Japan's Sumitomo Corporation has also acquired a 20% share in Press Metal Sarawak's new 120ktpa primary aluminium smelter. Started up in Sarawak in 2010, the smelter has potential for doubling capacity to 240,000tpa. However, the most significant expansion plans will be carried out by SALCO, which intends to commence production of 720ktpa at the Similajau refinery from 2014. Furthermore, the company expects output to reach 1.5mntpa, making it the largest refinery in the country and providing a further boon to output. The project is unlikely to be hit by infrastructure concerns as the refinery is expected to be completed as the operations begin at the Bakun hydroelectric dam and a deepwater port in Sarawak
Executive Summary 5
SWOT Analysis 7
Malaysia Business Environment SWOT 7
Industry Forecasts 8
Steel: Implementation Risks Abound 8
Table: Malaysia's Steel Consumption & Production 9
Tin: Strong Growth Potential In Refined Tin Production 10
Table: Malaysia's Tin Production & Consumption 11
Macroeconomic Outlook 12
Commodities Forecast 14
Steel To Average US$500/tonne In 2012 14
Table: BMI Steel Forecasts 14
Table: Steel Price Data, (US$/TONNE) 19
Commodity Strategy 20
Monthly Metals Update 20
Steel Prices Have Topped Out 21
Copper: Relative Outperformer But Still Weak 22
Tin To Outperform 22
Aluminium: Substantial Support Around US$1,900/tonne 23
Nickel: Oversupply Pushing Prices Lower 24
Break Of Support On The Cards For Lead 26
Zinc: Downward Trend Continues 26
Table: Select Commodities - Performance & BMI Forecasts 27
Competitive Landscape 28
Steel Companies Ramping Up Production 28
Regulatory Development 29
Company Profiles 31
Malaysia Smelting Corporation Berhad 31
Table: Malaysia Smelting Corporation's Financial Results 33
BMI Methodology 34
How We Generate Our Industry Forecasts 34
Cross Checks 34