RHB Research Institute analyst Toh Woo Kim said most steel millers in Malaysia use electric arc furnaces except for Ann Joo Resources Bhd.
"But then, Ann Joo had already secured their coke supply. So, this temporary coking coal supply disruption from Australia is unlikely to have a big impact," Toh added.
He is maintaining a "market perform" call on Ann Joo's shares and values the stock at RM3.14.
Toh said he is not too bullish on the steel sector as steel prices are closely tracked and no millers can really charge a premium.
"World prices of crude oil, natural gas and coal are already on the rise. So, it is really up to the government how they want to implement the reduction in subsidies," Toh said.
He added that steel millers had appealed to the government to consider their competitiveness against rival neighbouring countries when deciding on electricity and natural gas tariff hikes.
Toh said they had appealed to extend off-peak electricity pricing to the weekends and not just limit it to night time.
In view of the burgeoning fuel costs, Toh said Malaysia's steel millers' profit margin is at risk of being eroded.
OSK (Asia) Securities analyst Ng Sem Guan has a "neutral" take on the local steel sector.
"Demand for steel is still sluggish as the implementation of mega projects has yet to be seen. Also, raw material prices have been inching up," he said.
Ng gave an example of steel scrap, which is usually priced higher in the winter as it costs more to collect and ship out the scrap in the cold.
On Ann Joo, Ng said he is maintaining a "neutral" call and values the stock at RM2.76.
He said Ann Joo has yet to operate its blast furnace and is still using electric arc furnace to make steel.
"Even when Ann Joo starts up their blast furnace, they'll be sourcing coke, which is actually a finished product of coking coal. They'll source the coke from China and Japan. Australia does not export coke."
Aussie coal supply woes may affect power tariffs
Tenaga Nasional Bhd (TNB) is likely to be affected by higher coal prices following massive floods in Australia and this may strengthen its case for higher power prices.| |
Thermal coal is used to fuel power plants while coking coal is used by steel mills to fuel their furnaces. Australia is also the world's biggest exporter of coking coal.
Coal prices for delivery in March have already risen to some US$130 (RM398) a tonne, according to Bloomberg data. It was around US$100 (RM306) a tonne at the start of December last year.
TNB (5347) purchases about 17 per cent of its coal from Australia. The bulk of its coal comes from Indonesia.
Currently, about 40 per cent of Malaysia's generation capacity comes from coal-fired plants.
"Thermal coal prices have been steadily increasing over the past few weeks due to the overall demand and supply disruptions, which has resulted with the tightness in the market.
"The massive flood situation in Australia is the latest supply disruption for seaborne coal trade and it is expected that thermal coal prices will be affected by the situation," TNB said in reply to questions from Business Times.
On December 10, TNB president and chief executive officer Datuk Seri Che Khalib Mohamad Noh said the group was still able to absorb the increase in fuel prices but should they continue to rise, the power company's bottom line will definitely be hurt.
"There is no way we are able to sustain and absorb these additional costs," he had said then, noting that a revision request will be made to the government.
But analysts don't think the government would agree to a tariff hike as it could be preparing for an early general election, as widely expected.
"I'm sure that TNB will continue to make their case but I think they will only get it after the election," said OSK Research's head of research Chris Eng.
http://www.btimes.com.my/Current_News/BTIMES/articles/xtahan/Article/index_html
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