Coal shortage not affecting locCoal shortage not affecting local steel millsal steel mills

 By RISEN JAYASEELAN and YVONNE TAN  starbiz@thestar.com.my

PETALING JAYA: The reduced supply of coking coal, a key raw material used by steel mills, is not likely to affect local steel makers which mostly use scrap metal in their operations.

Australia, which supplies more than half of the world's coal exports, has been hit with massive floods that have hurt the production of the commodity, which is mostly sold to Asia's steel companies.

However, Malaysian steel makers will still have to contend with slightly higher scrap metal prices.

According to some estimates, scrap metal prices have risen following the uptrend in coking coal prices to about US$500 per tonne now from around US$400 per tonne in December.

A file picture shows a man working at a steel mill in Penang. Steel product prices are expected to soften slightly in the coming weeks.

 

But Kinsteel Bhd chief executive officer Datuk Henry Pheng reckons that the problem in Australia will create a shortage of steel products.

“With the slowdown in the supply of coking coal, we are expecting a shortage of steel. This bodes well for local producers who don't rely on coking coal as their raw material,” he said.

Kinsteel uses scrap metal as its main raw material. Pheng declined to comment on how this development would impact Kinsteel's margins.

Analysts said the outlook for local steel makers depended on whether they could pass on the slight increase in scrap metal prices to their end customers.

“The good news is that steel prices are on an uptrend. That bodes well for steel makers, despite their higher raw material costs. If steel prices keep going up, local steel companies could see a positive impact on their margins, notwithstanding the rise in raw materials,” said an analyst.

However, OSK Research steel analyst Ng Sem Guan said in a recent report that steel product prices were expected to “soften slightly” in the coming weeks largely due to a slowdown in construction activities in view of the upcoming Lunar year celebrations.

“Thus this (higher-priced products) may not significantly benefit local mills for now,” he said, without giving estimations.

As a result, he is keeping a “neutral” stance on the sector.

Meanwhile, another analyst said local steel companies were poised to benefit in the long term from the implementation of mega construction projects under the Economic Transformation Programme (ETP).

“The construction sector will be in a better position to absorb any additional cost as construction players themselves will be able to factor in the higher cost when bidding for the projects under the ETP,” said an analyst.

The ETP aims to transform the nation into a high-income nation. Some of the projects to be carried out include the RM36bil mass rapid transit network and Shell Malaysia's RM5.1bil investment to upgrade or build facilities in upstream, midstream and downstream activities.