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 materialise, 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 and Steel Industry Federation (Misif) and the Malaysia Steel Association (MSA).Construction work of the project, in 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 the MSA, in a statement yesterday, said Malaysia’s total steel consumption in 2018 was 9.77 million 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 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 types of products as the ones produced by local players and adding 3.5 million tonnes to existing local capacity.Misif and the MSA claimed that the mill in question caused nearly RM500 million in losses for the four key domestic long steel product 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 HRCs, they said, was 1.68 million tonnes in 2018 — versus existing and upcoming 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 a utilisation rate of 28%.Misifand the MSA explained that on the 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 of steel products with a conventional scrap consumption of 20%, this would result in up to two million tonnes of scrap metal — 67.6% of 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, a trade deficit and outflow due to service costs, freight and insurance charges,” said Misifand the MSA.The two associations, however, welcome foreign and domestic direct investment in 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 the same products being produced by existing local steel mills should not be approved, they added.
Source : https://www.theedgemarkets.com/article