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Malaysia Metals Report Q3 2009Product Type: Market Research ReportPublished by: Business Monitor International Published: July 2009 Product Code: R302-7063 Description The outlook for the Malaysian steel industry looks poor over 2009, but China’s retreat from the SoutheastAsian regional market opens up some opportunities that could ameliorate an otherwise disastroussituation, according to BMI’s latest Malaysia Metals Report.Q109 appeared to be the low-point for Malaysian metals industries, with domestic consumption andoutput falling by at least 50% y-o-y. BMI believes the market has reached its nadir, with signs ofresumption in construction activity and a general expectation that overall demand will stabilise in H209.The positive trend will be boosted by the government’s economic stimulus packages, which are aimed atlarge infrastructural projects. An ambitious US$16.2bn stimulus package passed by Malaysia in March,on top of the US$1.9bn billion package passed at the end of 2008, should assist a recovery. The recoveryin demand is expected to begin in 2010, but will be slow. The Malaysian Iron and Steel IndustryFederation (MISIF) forecasts a 25% contraction in Malaysian steel demand in 2009, after falling 10.7%to 7.8mn tonnes in 2008. However, poor performance early on in the year will weigh heavily on full-yearfigures. The construction sector is vital to the recovery of the Malaysian steel market as it represents 71% of thecountry’s steel consumption. Overall longs consumption has recovered as a result of a stabilisation in theconstruction sector, with a gradual improvement over Q209 leading to a rise in prices. There is still agreat deal of uncertainty in the domestic longs market, with producers warning that an increase in salescould be attributed to restocking to avoid the cost of future price rises, rather than an increase in actualdemand. With the domestic market in contraction, Malaysian steelmakers will be looking abroad to sustain andrevive output. The slowdown in Chinese steel billet output growth is likely to benefit Malaysia’s share ofthe Southeast Asian market. With Chinese production likely to be more domestically-oriented over theshort to medium term, and its export tax on steel longs set to remain at 25%, China’s market share isexpected to drop. The retreat of Chinese producers will benefit local billet producers such as Amsteel,Perwaja and Southern Steel, which have combined billet production capacities of 3.7mn tonnes perannum (tpa). While longs may benefit from uplift in regional demand and the retreat of Chinese competition, flatssuppliers are facing major setbacks and will take longer to recover due to a lack of demand for cars andelectronic goods. The stimulus programmes in Malaysia and the rest of Southeast Asia are not likely tohave an impact on flats demand, which will be a setback to Malaysian flats producer Megasteel, whichhas a production capacity of 2mn tpa. Moreover, there is a risk that the market will be flooded with cheapimports, particularly from China, although reports suggest Malaysian flats imports from China were down69% year-on-year (y-o-y) in Q109. Bearing in mind the gradual uplift in prices in H109 amid signs of recovering demand, BMI has revisedits crude steel output forecast for the year with production likely to fall 26% instead of the 39% wepredicted in the previous quarterly report. This will bring output down to 5.03mn tonnes. Our revision isbased on a less pessimistic outlook for steel exports, which we now expect to decline by 23% instead of37.5% we forecast in the previous quarter, falling to 2.18mn tonnes. Table of Contents
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