Trade wars to hit Malaysian steel sector

The Malaysian steel sector will be affected negatively in 2018 and 2019 due to the trade wars on the external front, said MIDF Research.

“Changes in global trade policies, tepid global demand as well as the local steel mill cost structure will continue to impede any positive demand for the companies under our observation,” it said in a report.

It expects the steel sector to experience more headwinds from the trade wars as China’s demand for steel is shaky, coupled with the slump in its construction industry.

“The demand from China’s manufacturing sector takes up to 360 million metric tons annually, close to 60% of its annual consumption. But, the demand is expected to shudder further due to China’s environmental health and occupational safety policies,” MIDF Research said.

It noted that steel players such as Ann Joo Resources, Lysaght Galvanised Steel, Southern Steel, SC Steel, Mycron Steel and Choo Bee Metal have reacted negatively to the announcements and influx of news on trade and tariff wars.

It expects the trend to persist because globally, steel demand is projected to grow to 1,616.1 million metric tons this year and tepid growth will be plagued by low demand for 2019, growing to 1,626.7 million metric tons.

“This means less demand for export for the local steel mill. Most of the local companies are affected by unwavering overhead costs and operational expenditure, making the sector unattractive,” said MIDF Research.

Meanwhile, the government has announced the exclusion of sales and services tax for building materials and construction services, which would be a breather for the construction sector from the grim outlook of project cuts, it added.