Friday 4 November 2011

Misif against Megasteel’s proposed 15% levy

KUALA LUMPUR: The Malaysian Iron and Steel Industry Federation (Misif) is opposing Megasteel Sdn Bhd’s proposed reduction in import duty from the existing 25% to 15% or RM300 per tonne, whichever is higher, on all flat steel products combined with the abolishment of duty exemption.

“Misif, after consultation with its members, rejected Megasteel’s proposal and has conveyed its position to Miti (Ministry of International Trade and Industry) during the meeting between Miti and Misif,” the steel association said in a statement.

Misif was responding to The Edge Financial Daily’s front page report yesterday.

Flat steel products include hot rolled coil, cold rolled coil, coated sheets, pipes and tubes.

Misif president Chow Chong Long told the financial daily that there would be both winners and losers should the proposal go through.

The reduction in duty from 25% to 15% would be welcomed, but the abolishment of duty exemption could be detrimental to many sectors of the downstream flat steel players.

Exporters and steel players that depend on imported steel grades which are not produced locally could be adversely affected.

To allow exporters to remain competitive, Megasteel has proposed to have a duty drawback principle implemented for re-exporters.

“While the duty drawback system will reduce the possibility of abuse by importers, it adds a big financial burden to the exporters,” Chow said.

On the other hand, he pointed out, “The duty drawback will have an impact on the cash flows of businesses. They will have to pay more upfront for their raw materials and wait until they actually export the goods to reclaim the duty paid.”

“Megasteel, being the sole producer of hot rolled coil (HRC), is also a major part of the flat steel value chain and Misif would like to see a win-win solution for the upstream, mid stream and downstream,” he added.

It is important to note the current levy of 25% and Megasteel’s proposal will only affect imports from non-free trade agreement nations (NFN). Since Malaysia is part of the Asean Free Trade Agreement (Afta), imports by Asean members are not taxed.

Chow added that the biggest concern for Malaysian steel producers is China, which has become a threat since the Asean-China FTA.

MIDF Research released a report on Lion Industries Corp Bhd in which it downgraded the steel player to a “trading sell” on the expectation of negative earnings growth this year and weak industry fundamentals.

Lion Industries is the holding company of Megasteel.

The report entitled “The lion is trapped” revised the target price for Lion Industries down to RM1.12, below its closing price of RM1.53 yesterday.

The stock has fallen 24.26% year-to-date compared with the FBM KLCI’s 5.09% decline.

MIDF expects negative earnings growth due to the declining price trend for long steel products and slowing demand in both domestic and export markets.

“Currently, long steel prices are trending downwards with both billet and bar prices having declined 6.2% month-on-month and 9% m-o-m respectively,” the report said.

It also pointed out that contractors which use steel products for construction have also adopted a wait-and-see approach, keeping their inventories low on the expectation of a further decline in steel prices.

The blast furnace joint venture (JV) proposed in March by the Lion Group worth RM3.22 billion has yet to materialise, it added.

Partners of the JV, which include Lion Forest (20%), Lion Industries (29%) and Lion Diversified (51%), are on hold pending shareholders’ approval for a corporate guarantee on a RM2.3 billion loan from China Construction Bank

Shareholders were initially supposed to meet to approve the guarantee of the loan facility earlier this year on March 3. On Monday, the group announced that the date would be extended to March 2 next year.


This article appeared in The Edge Financial Daily, November 4, 2011.
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