KUALA LUMPUR: Megasteel Sdn Bhd is believed to be lobbying for a 15% levy on steel imports across the board from non-Asean countries, according to industry sources.
“If this proposal goes through, it will irreparably damage the (downstream) steel industry in Malaysia. Why would anyone want to do business in Malaysia?” said an industry source.
Industry sources are not happy with Megasteel’s new proposal, which they claim will tax imports of all steel products, even those not produced by Megasteel.
A unit of the Lion group’s flagship Lion Corp Bhd, Megasteel is the country’s sole manufacturer of flat steel products, producing hot rolled and cold rolled coils.
Bursa Malaysia-listed Lion Corp owns 79% of Megasteel while another Lion group listed entity, Lion Diversified Bhd, holds the remaining 21% stake.
To recap, Megasteel had in May filed a safeguard petition to seek an additional 35% import duty on hot rolled coils (HRC), which would bring the total duty payable on HRC up to 60%.
The new proposal of a 15% import duty is not in the nation’s interest, the source said.
“Almost every industry uses steel. It is used in the automotive industry, in manufacturing and construction. Everyone will lose out if this goes through.”
A player from the steel industry who supports the liberalisation of the steel industry told The Edge Financial Daily, “Protectionism is very unhealthy. We must look at the whole value chain, the growth of the whole industry and protect everyone’s interests. Not just the well-being of one company.”
The Edge Financial Daily was unable to reach the International Trade and Industry Ministry for comment on the progress of the discussion on the proposed levy.
Global conditions of late have been unfavourable to Megasteel, noted an analyst.
“While iron ore prices have fallen, steel prices have fallen even further. Megasteel’s costs may have fallen giving them some reprieve but overall, their net margins would have fallen,” said the bank-backed analyst.
“The fall in prices has been due to softening demand. China, for example, has been slowing down its property market, which has in turn reduced appetite for steel used for construction. Manufacturing has also been slowing down in tandem with poor global economic conditions.”
He pointed out that Megasteel continued to make losses despite the lack of competition due to safeguards by the government and Megasteel’s monopoly.
“Megasteel has not been profitable even though there has been a 25% levy on HRC, its primary product. Also, Megasteel is essentially the sole HRC producer in Malaysia. This could be indicative of its uncompetitive cost structure.
“Furthermore, Megasteel uses the the electric-arc furnace, which produces lower grade steel products.
“If the proposed import tariffs on steel do not go through, Megasteel may not be able to compete with imports,” noted the analyst.
The situation is further exacerbated by the fact that Megasteel’s products are mostly sold in the local market.
An industry player said: “Nobody wants Megasteel to suffer. We want Malaysia to have its own steel makers. We just want the industry to be fair. A 15% levy on all steel imports will cripple the industry. A solution will need to be discussed across the value chain that can benefit everyone.”
“Unfortunately, it doesn’t seem like Megasteel is ready to talk,” the industry source added.
Megasteel is undertaking a RM3.2 billion blast furnace project that will be able to produce about 2.07 million tonnes of liquid hot metal a year, of which 1.57 million tonnes could be converted into slab for sale on the open market.
“They are trying to rope in foreign partners and secure a loan from Chinese bankers, but the economic climate is not conducive,” said an analyst.
If global economic conditions worsen, Megasteel could be affected by a collapse in demand for steel, which will drive steel prices down.
“Given the present situation, unfavourable global economic conditions will have an adverse impact on Megasteel,” the analyst added.
He also noted that Megasteel has a high level of debt.
A summary of Megasteel’s financial information for the year ended June 30, 2010 revealed it had liabilities of RM4.06 billion and RM146.6 million in accumulated losses.
Meanwhile, Lion Corp reported a net loss of RM45.1 million for 4QFY11 ended June 30 compared with a net profit of RM60.4 million a year ago.
That brought full-year net loss to RM234.4 million, more than double FY10’s loss of RM112.8 million.
This article appeared in The Edge Financial Daily, November 3, 2011.
“If this proposal goes through, it will irreparably damage the (downstream) steel industry in Malaysia. Why would anyone want to do business in Malaysia?” said an industry source.
Industry sources are not happy with Megasteel’s new proposal, which they claim will tax imports of all steel products, even those not produced by Megasteel.
A unit of the Lion group’s flagship Lion Corp Bhd, Megasteel is the country’s sole manufacturer of flat steel products, producing hot rolled and cold rolled coils.
Bursa Malaysia-listed Lion Corp owns 79% of Megasteel while another Lion group listed entity, Lion Diversified Bhd, holds the remaining 21% stake.
To recap, Megasteel had in May filed a safeguard petition to seek an additional 35% import duty on hot rolled coils (HRC), which would bring the total duty payable on HRC up to 60%.
The new proposal of a 15% import duty is not in the nation’s interest, the source said.
“Almost every industry uses steel. It is used in the automotive industry, in manufacturing and construction. Everyone will lose out if this goes through.”
A player from the steel industry who supports the liberalisation of the steel industry told The Edge Financial Daily, “Protectionism is very unhealthy. We must look at the whole value chain, the growth of the whole industry and protect everyone’s interests. Not just the well-being of one company.”
The Edge Financial Daily was unable to reach the International Trade and Industry Ministry for comment on the progress of the discussion on the proposed levy.
The country's sole manufacturer of flat steel products, Megasteel Sdn Bhd is believed to be lobbying for a 15% levy on steel imports across the board from non-Asean countries.
Global conditions of late have been unfavourable to Megasteel, noted an analyst.
“While iron ore prices have fallen, steel prices have fallen even further. Megasteel’s costs may have fallen giving them some reprieve but overall, their net margins would have fallen,” said the bank-backed analyst.
“The fall in prices has been due to softening demand. China, for example, has been slowing down its property market, which has in turn reduced appetite for steel used for construction. Manufacturing has also been slowing down in tandem with poor global economic conditions.”
He pointed out that Megasteel continued to make losses despite the lack of competition due to safeguards by the government and Megasteel’s monopoly.
“Megasteel has not been profitable even though there has been a 25% levy on HRC, its primary product. Also, Megasteel is essentially the sole HRC producer in Malaysia. This could be indicative of its uncompetitive cost structure.
“Furthermore, Megasteel uses the the electric-arc furnace, which produces lower grade steel products.
“If the proposed import tariffs on steel do not go through, Megasteel may not be able to compete with imports,” noted the analyst.
The situation is further exacerbated by the fact that Megasteel’s products are mostly sold in the local market.
An industry player said: “Nobody wants Megasteel to suffer. We want Malaysia to have its own steel makers. We just want the industry to be fair. A 15% levy on all steel imports will cripple the industry. A solution will need to be discussed across the value chain that can benefit everyone.”
“Unfortunately, it doesn’t seem like Megasteel is ready to talk,” the industry source added.
Megasteel is undertaking a RM3.2 billion blast furnace project that will be able to produce about 2.07 million tonnes of liquid hot metal a year, of which 1.57 million tonnes could be converted into slab for sale on the open market.
“They are trying to rope in foreign partners and secure a loan from Chinese bankers, but the economic climate is not conducive,” said an analyst.
If global economic conditions worsen, Megasteel could be affected by a collapse in demand for steel, which will drive steel prices down.
“Given the present situation, unfavourable global economic conditions will have an adverse impact on Megasteel,” the analyst added.
He also noted that Megasteel has a high level of debt.
A summary of Megasteel’s financial information for the year ended June 30, 2010 revealed it had liabilities of RM4.06 billion and RM146.6 million in accumulated losses.
Meanwhile, Lion Corp reported a net loss of RM45.1 million for 4QFY11 ended June 30 compared with a net profit of RM60.4 million a year ago.
That brought full-year net loss to RM234.4 million, more than double FY10’s loss of RM112.8 million.
This article appeared in The Edge Financial Daily, November 3, 2011.
