Synopsis:
The Malaysian government's decision to impose a two-year moratorium on the expansion and diversification of the iron and steel industry has been welcomed by steel players as an opportunity to reconfigure their businesses and align with the government's new policies and roadmaps for economic reform and restructuring.
Article:
In a move that has sent ripples through the Malaysian steel industry, the government has implemented a two-year moratorium on the expansion and diversification of manufacturing activities in the iron and steel sector. This bold decision, effective from August 15, 2023, has been met with a mixture of relief and anticipation by steel players, who see it as an opportunity to reassess their businesses and align with the government's new direction.
The moratorium, announced by Deputy Minister of Investment, Trade and Industry Liew Chin Tong in November 2023, covers a wide range of activities, including inquiries, assessments of current applications, new applications, licence transfers, expansions, regularisations, and diversifications for manufacturing licences in the iron and steel industry. It also extends to a freeze in the issuance of certificates for exemption from manufacturing licence (ICA10) under the Industrial Coordination Act 1975 (Act 156) for manufacturing activities, including non-ferrous recycling activities.
However, the government has left the door open for exemptions from the moratorium for applications that align with the agenda of the New Industrial Master Plan (NIMP) 2030. This includes projects involving the production of complex iron and steel products with high added value and those equipped with low-carbon or carbon-reduction technologies. The move is seen as a way to encourage the industry to move up the value chain and reduce its dependence on imported steel.
The moratorium comes in response to the significant excess capacity faced by the regional steel industry, with the total capacity for iron and steel products in Southeast Asia expected to double to 150 million metric tons by 2026. Malaysia, the third-largest steel producer in the region, had a production capacity of 16.1 million metric tons per annum in 2021, despite an apparent steel consumption (ASC) that peaked at 9.78 million metric tons in 2018 and declined to 7.52 million metric tons in 2022 due to the COVID-19 pandemic.
While the moratorium aims to address the overcapacity issue, it also highlights the need for the Malaysian steel industry to diversify its production and fill the gap in the supply of flat steel products, especially those of higher grade and hot-rolled coils (HRC). The government's commitment to transforming the manufacturing industry requires the steel sector to produce locally unavailable products and reduce its reliance on imports.
Industry players have proposed various measures to support the moratorium's objectives, including strict enforcement of conditions on manufacturing licences for products already in serious overcapacity, collaboration between banks and existing steel mills to reinvest in higher-grade steel production, and the implementation of a carbon tax and Carbon Border Adjustment Mechanism (CBAM) to streamline the supply of low greenhouse gas emissions long products in the local market.
Despite the challenges faced by many steel mills in the country, some players, such as Eastern Steel Sdn Bhd, have been successfully expanding their production capacity and reaping the benefits of economies of scale. The company's recent ignition of a two million metric ton blast furnace at its Kemaman plant has increased its steel production to 2.7 million metric tons, leading to a significant increase in revenue and cost savings.
Conclusion:
The Malaysian government's two-year moratorium on the expansion and diversification of the iron and steel industry is a bold move aimed at addressing the overcapacity issue and encouraging the sector to move up the value chain. While the moratorium presents challenges for some players, it also offers an opportunity for the industry to reconfigure itself and align with the government's new policies and roadmaps for economic reform and restructuring.
Source: STEELGURU
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