Steel associations oppose Bintulu project on oversupply concerns

KUALA LUMPUR (Feb 4): Two steel associations are objecting to the proposed Wenan steel manufacturing project in Bintulu, Sarawak, saying it will further increase the oversupply that is afflicting the industry.

"If allowed to materialize, the local steel industry expects the proposed 10 million tonnes per annum steel project to further exacerbate the overcapacity in the country," said the Malaysian Iron & Steel Industry Federation (MISIF) and the Malaysia Steel Association (MSA).

Construction work for the project, located at the Samalaju Industrial Park within the Sarawak Corridor of Renewable Energy, is set to begin by mid-2020.

China's Wenan Iron & Steel Co Ltd is undertaking the project, billed as the largest steel manufacturing plant in the region.

MISIF and MSA, in a statement today, said Malaysia's total steel consumption in 2018 was 9.77 tonnes. In contrast, the total installed capacity in Malaysia was 24.64 million tonnes — of which 12.64 million tonnes were for long steel products and 12 million tonnes were for flat steel products.

The associations also highlighted that the national long steel products' capacity utilisation deteriorated to 28% in 2018 from 46% in 2014, due to the emergence of another China-owned mill in the east coast of Peninsular Malaysia, which produced the same type of products as the ones produced by local players and added 3.5 million tonnes to existing local capacity.

MISIF and MSA claim that the mill in question caused nearly RM500 million in losses to the four key domestic long products steel mills in the past 12 months.

As for flat steel products, the associations said hot-rolled coil (HRC) production capacity is temporarily idle and already in the process to resume production.

The average domestic demand for HRC, they said, was 1.68 million tonnes in 2018, versus the existing and upcoming HRC new capacity from existing manufacturing licences of up to six million tonnes.

The associations added that if all 1.68 million tonnes of HRC demand are to be supplied by local steel mills, this would translate into an utilisation rate of 28%.

MISIF and MSA explained that on a global level, steel companies typically require 70% to 80% capacity utilisation in order to be sustainable.

Both associations emphasised that if new production capabilities are left unchecked, it could result in the retrenchment of 8,000 local employees from existing steel mills in Malaysia.

They said domestic scrap supply was 2.96 million tonnes in 2018, with the shortfall of 558,000 tonnes met by imports.

Should the Wenan steel project produce 10 million tonnes in steel products with a conventional scrap consumption of 20%, this would result in up to two million tonnes of scrap metal, which is 67.6% of the domestic scrap supply in 2018.

"Scrap demand of existing steel millers can only be met via imports and this will lead to foreign exchange loss, trade deficit and outflow due to service costs, freight and insurance charges," said MISIF and MSA.

The two associations, however, welcome foreign and domestic direct investment for steel-grades and products that are not manufactured locally, namely railway tracks, seamless pipes, hot-rolled sheet piles and electrical steel sheets, to move up the supply value chain.

But manufacturing licences for same products that are produced by existing local steel mills should not be approved, they added.

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