Mapping Malaysia’s steel sector journey
30 Jul 2024
Developing advanced steel-making capacities is crucial for ensuring domestic iron and steel supply, reducing import reliance and generating forex earnings
MALAYSIA’S iron and steel industry is an important sector that supports the nation’s infrastructure development and economic growth.
Among the major players are Alliance Steel (M) Sdn Bhd, Amsteel Mills Sdn Bhd, Ann Joo Resources Bhd, Eastern Steel Sdn Bhd, Malay- sia Steel Works (KL) Bhd and Southern Steel Bhd.
These companies produce a variety of steel products, including rebar, steel wire rods, sections, and structural components. These products are crucial for the construction of buildings, bridges, roads, railways, and other civil engineering projects.
Evolution of the Steel and Iron Industry
According to the 15th Report on the Status & Outlook of the Malaysian Iron and Steel Industry 2024/2025, the local iron and steel industry has significantly influenced the nation’s economic and industrial development since 1957.
The development of advanced steel-making capacities is crucial for ensuring iron and steel supply and to reduce import reliance and generate foreign exchange (forex) earnings.
In 2023, Malaysia’s basic metals industry employed 112,157 people which accounts for 4.7% of the total manufacturing employment.
Basic metals account for 2.5% of GDP, significantly impacting construction and manufacturing industries whereas iron and steel exports account for 2.4% of total manufactured goods.
In 2016, the Malaysian iron and steel industry showed signs of recovery due to China’s “Blue Sky” policy, which reduced production capacities and imposed stricter green regulations on steel producers.
As the domestic market normalised, efforts were refocused on strengthening the nation’s steel capabilities, particularly within South-East Asia.
In May 2018, China introduced ultra-low emission standards for steelmakers. Despite China’s actions, the rationalisation move prompted an increase in outward investment driven by Chinese steelmakers, particularly in South-East Asia.
In April 2019, the Malaysian iron and steel industry players collaborated to submit a White Paper to the Investment, Trade and Industry Ministry (MITI) demonstrating the government’s commitment to working with all segments of the industry to ensure its sustainability.
On the other hand, the industry faces overcapacity issues and low utilisation rates, with global steel consumption declining in 2022.
MITI has imposed a two-year moratorium on the expansion and diversification of the steel-making industry, effective Aug 15, 2023.
The ministry also aimed to collaborate with the Malaysian Iron & Steel Industry Federation (MISIF) and the Malaysia Steel Association to formulate the Green Transition Roadmap for the Iron and Steel Industry.
Moving forward, the sector will undergo a significant transition towards a sustainable and low-carbon economy through the National Energy Transition Roadmap, Hydrogen Economy and Technology Roadmap, Petronas Hydrogen Plan and Tenaga Nasional Hydrogen Vision.
National Infrastructure and Challenges
HSBC Bank Malaysia CEO Datuk Omar Siddiq said the Malaysian steel industry is integral to national infrastructure projects as it provided essential materials for construction and development.
“These steel products would form the backbone of infrastructure construction, used in buildings, bridges, roads, railways and other civil engineering projects,” he told The Malaysian Reserve (TMR).
A new flat steel producer is set to start production in the second half of 2024, which is expected to transform the Malaysian steel industry.
However, he warned that Malaysia faced significant challenges in expanding its market share in the global steel market, primarily due to fierce competition from established steel-producing nations such as China, Japan, South Korea, Vietnam and Indonesia.
These countries benefit from economies of scale and strong export networks, posing challenges for Malaysia in terms of pricing and production volume.
Omar said in 2023, Malaysia’s steel industry saw total exports valued at RM30.4 billion, predominantly comprising fundamental grade steel.
Regardless, there is a promising opportunity for industry players to commence regional exports of higher-grade steel by the end of this year.
He said leveraging free trade agreements such as ASEAN Free Trade Area, Regional Comprehensive Economic Partnership and Comprehensive and Progressive Agreement for Trans-Pacific Partnership could strengthen supply chains and provide broader market access within ASEAN and beyond.
MISIF president Datuk Lim Hong Thye expressed hope that the government would prioritise and expedite the necessary infrastructure projects.
“We are looking forward to infrastructure projects such as the Mass Rapid Transit and Light Rail Transit (LRT) project in Penang and hopefully, there will soon be either Bus Rapid Transit (BRT) or LRT launched in Johor,” he said in his speech at the launch of MISIF’s 15th report.
The report further showed that the industry faced structural challenges such as overcapacity, low green technology adoption, limited scrap access, low research and development investment, insufficient financing and a low-skilled workforce.
The absence of a green shift increases the risk of stricter regulations which could further pressure profit margins and hinder investment.
Due to China’s decarbonisation efforts in steel production, ASEAN region including Malaysia has faced overcapacity issues.
This excess steel production has impacted domestic producers, especially during weakening domestic demand and uneven global economic growth.
However, the steel industry’s CO2 emissions continue to rise, highlighting the need for green technology adoption.
“Failure to keep pace with these developments could lead to increased trade barriers and competitiveness challenges,” the report added.
Global Disruptions, Technological Advancements and Initiatives Omar noted that geopolitical tensions have influenced regulatory policies and government interventions, affecting operational strategies and business planning within Malaysia’s steel industry.
“Malaysia can mitigate dependency on traditionally affected regions by leveraging FTAs which enables Malaysia to diversify its export markets and explore emerging regions while promoting green steel production,” he said.
However, according to the report, challenges for moving to green solutions included limited technology availability and high integration costs.
Financing for green technologies also presented challenges due to traditional mechanisms not aligning with long-term investment horizons and risk profiles, which requires a major reorientation of capital and financial flows.
In turn, it makes it necessary for financial institutions to explore innovative financing approaches to support the green transition for businesses.
On the other hand, the green transition necessitates the development of skilled personnel capable of not only operating but also innovating and optimising green technologies.
Omar said initiatives were put in order, focusing on reducing energy consumption per unit of steel produced, upgrading equipment, optimising operations and implementing energy management systems.
He also told TMR that the industry is currently exploring hydrogen steel-making and carbon capture, utilisation and storage as these technologies mature.
He said the future outlook for Malaysia’s iron and steel industry looks promising, driven by factors such as infrastructure development, technological advancements and strategic initiatives.
Omar added that government policy intervention is essential to ensure the sustainability of the industry and fair trade.
For that, an independent committee for Malaysia’s iron and steel industry has been formed under the guidance of MITI to evaluate and recalibrate its trajectory towards fulfilling the objectives outlined in the New Industrial Master Plan 2030.
The committee, which Omar chairs, comprises industry experts such as Taylor’s University professor Dr Ong Kian Ming; South-East Asia Iron and Steel Institute’s secretary general Yeoh Wee Jin; Khazanah Nasional Bhd chief investment officer Datuk Hisham Hamdan and several others.
Industry Performance
Based on MISIF’s report, Malaysia’s apparent steel consumption increased by 4.5% in 2023 to 7.9 million metric tonnes (MT) for the third consecutive year, driven by improved finished steel production and higher imports.
Despite this growth, the capacity utilisation rate remained low at 39.1%, while exports of iron and steel products increased by 14.5%.
Iron and steel exports went up 14.5% to 8.2 million MT last year, with Turkiye (1.2 million MT), Hong Kong (1.04 million MT) and Singa- pore (996,093 MT) as major markets.
Furthermore, Malaysia’s top iron and steel imports are China (2.04 million MT), Taiwan (921,860 MT) and Vietnam (825,952 MT).
On a global scale, China remains the top 3 exporter for 2022 with 68.1 million MT, followed by Japan (31.7 million MT) and South Korea (25.5 million MT).
Lastly, the US is the top importer globally with 28.9 million MT, followed by Germany (21 million MT) and Italy (20.2 million MT).
MITI Deputy Minister Liew Chin Tong explained that the steel industry is exploring various measures to advance towards a green and sustainability agenda, aiming to ensure progress.
The next level of decarbonisation requires a comprehensive approach from the government, considering not just the steel industry but the entire ecosystem.
Liew said Malaysia’s decarbonisation process is influenced by the European Union’s (EU) Carbon Border Adjustment Tax (CBAT), which will be imposed effective Jan 1, 2026.
Through this policy, either Malaysia or the EU collects carbon tax on the products it exports to them.
However, this will take some time for Malaysia to implement the carbon tax.
“The process is that we will have to first price carbon, then only we can start trading carbon.
“Once we trade carbon then we can discuss the potential of taxing carbon,” Liew said.
Source: The Malaysian Reserve
