Saturday, May 10, 2008

Malaysia to liberize steel market effective 12 May 2008

It has been quite some times since the Master Builders Association of Malaysia (MBAM) and Real Estate Housing Developers Association (REHDA) called on the Government of Malaysia to lift the price controls on steel products and allow the free market to decide its actual price. The Malaysian Iron and Steel Industries Federation (MISIF) has also been urging the Government to lift the import restrictions of flat steel products.

Finally, our Prime Minister Abdullah Ahmad Badawi announced the liberization of steel market after the cabinet meeting on Friday 9 May. This decision includes:

  • lifting of price caps to steel products
  • exempting steel importers from having to pay import duties
  • scraping the requirement for steel importers to obtain import license
  • allowing local steel producers to export their products

So, who will be benefited from this move?

1. Manufacturers of cold rolled coils (CRC)

Currently, there are 4 main CRC manufacturers in Malaysia, which are Megasteel (of Lion Group), Mycron (5087), Ornasteel (5094) and Yung Kong (7020).

Before this, Megasteel is the only local producer of hot rolled coils (HRC), which is the raw material for CRC. The problem faced was:

  • lack of supply
  • price of HRC supplied by Megasteel is relatively higher than world market
  • quality of HRC supplied by Megasteel is lower because they relies on scrap metal as feedstock
  • restriction of importing raw material
  • price cap to end product

All the above problems will be solved following this steel market liberization, and Ornasteel (5094), being the largest CRC producer in the country, will benefit the most.

2. Construction, property and automotive players

Before this, even though the price was capped to steel product, the supply and demand market was disrupted, and there was almost no supply to these industrial players unless they are willing to pay at the black market price, which is higher than the capped price.

The supply and demand market for steel products is expected to fall back to normal following this liberization, and the projects can be planned and budgetted more effectively.

The following industrial players are expected to get benefit from this:

Construction: Gamuda (5398), IJM (3336), WCT (9679)...

Property: SP Setia (8664), IOI Properties (1635), Metro Kajang (6114), Plenitu (5075), Suncity (6289), E&O (3417)...

Automotive: Proton (5304), MBMR (5983), UMW (4588).

Disclaimer: This article is intended for sharing of point of view only. It is not an advice or recommendation to buy or sell any of the mentioned stock counters. You should do your own homework before trading in Bursa Malaysia.


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