Kuantan Port to benefit from Malaysia-China bilateral ties
25 Jul 2024
ALLIANCE Steel (M) Sdn Bhd — a joint venture between China’s Guangxi Beibu Gulf Port International Group and Guangxi Shenglong Metallurgical — is undertaking a US$1.8 billion (RM8.41 billion) expansion, increasing its steel production capacity to 10 million tonnes a year from the existing 3.5 million tonnes.
The company, located in the Malaysia-China Kuantan Industrial Park (MCKIP), produces high-speed wire rod, bars and H-beams. Alliance Steel, which plans to widen its product range to include high-end steel plates, expects to complete its build-up in two years and kick off production at its extended facility in 2026.
IJM Corp Bhd (KL:IJM), which has 60% equity interest in Kuantan Port Consortium Sdn Bhd, is seen to benefit from this upscaling by Alliance Steel. The remaining 40% is held by Beibu Gulf Holding (Hong Kong) Co Ltd, which is part of the Alliance Steel group. To gain from Alliance Steel’s expansion, Kuantan Port will have to be upgraded, which will cost at least RM1 billion, says IJM group CEO and managing director Lee Chun Fai. Nevertheless, he is sanguine about the prospects, citing the “improving” Malaysia-China bilateral ties.
IJM, Sime Darby Bhd (KL:SIME) and the Pahang government hold a 51% stake in MCKIP. China’s Guangxi Beibu and Qinzhou Investment holds the remaining 49%. The 51% Malaysian stake is divided among IJM, with a controlling 40% (effective 20.4%) stake, and Sime Darby and the Pahang government, with 30% each (effective 15.3% each). With these investments, things are looking up for Kuantan Port.
As it is, the port’s new deep-water terminal, which commenced operations in 2018, has a 16m draught capable of accommodating vessels of up to 180,000 deadweight tonnes — three times larger than the previous facilities. The new terminal can also handle seven million tonnes of cargo — primarily dry bulk cargo — annually.
Now, a second phase of this deep-water terminal is being planned. “We have to look at the big picture, given the expansion of Alliance Steel and also other players. There are a few investors that we are talking to about containerised cargo. My dilemma is about the second phase. Is [it going to be for] a container or is it a bulk port?” Lee muses.
A bulk terminal generally handles cargo such as iron ore, coal, grain and fertiliser while containerised cargo refers to goods packed into containers or technically a 20ft equivalent unit (TEU).
For the first quarter of this year, Kuantan Port’s container throughput was a mere 34,206 TEUs, according to Ministry of Transport (MoT) statistics.
“It’s very low,” Lee concedes, referring to Kuantan Port’s containerised cargo. Dry bulk cargo for the first three months of 2024 amounted to 3.71 million freight weight tonnes, or close to 60% of total throughput, MoT statistics show.
Kuantan Port’s dry bulk cargo and container throughput look set to increase, however, going by Alliance Steel’s expansion and the East Coast Rail Link (ECRL) — the 640km railway connecting Kota Bahru in Kelantan in the east coast to Port Klang in Selangor in the west coast that cuts through Terengganu and Pahang.
According to the Companies Commission of Malaysia’s (SSM) website, Kuantan Port registered an after-tax profit of RM17.19 million on revenue of RM331.79 million in FY2023 ended March 2023. In FY2022, the port operator managed an after-tax profit of RM71.4 million on revenue of RM364.48 million. The steep decline in after-tax profit was a result of China’s borders opening only in December 2022, and many sectors in Shanghai and Shenzhen facing disruptions in manufacturing, trucking and logistics even after the borders were opened.
As at end-March 2023, Kuantan Port had total assets of RM2.08 billion and total liabilities of RM1.33 billion. In FY2023, Kuantan Port had retained earnings of RM625.15 million.
Lee says: “We [Kuantan Port] have signed an MoU (memorandum of understanding) with ECRL. Our view is how to make door-to-door [services] viable for ECRL users. At the end of the day, we are part of a logistics solution. To make it work, you must be able to give a competitive solution. And this is where you need government help, for the early days, because [throughput] volume may not be great until it grows to a certain size [an inflection point].”
MCKIP commenced in 2013 with a land area of only 1,200 acres but it has since expanded to about 3,000 acres. Only 400 acres of the 3,000 remain unused. Over the past 10 years, MCKIP has managed to secure Chinese investments worth about RM20 billion from manufacturers of steel, ceramics, tyres, aluminium and fertiliser, among others. Other notable investors include Hong Kong’s NewOcean Energy, which has invested RM5.1 billion in an oil refinery complex.
“The first 10 years [of MCKIP] seem to have been reasonably successful. What about the next 10 years?” Lee wonders aloud. There are many possibilities, with the MCKIP moving from Gebeng to new areas, multiple zones and even to MCKIP 2.0.
While these issues are being worked out, it seems clear that Kuantan Port and IJM, in turn, stand to reap rewards from the many developments.
Source: The Edge Malaysia
