The Government has announced some positive measures to liberalise the steel industry

Steel Sector
Liberalisation of steel industry

The Government has announced some positive measures to liberalise the steel industry to enhance its competitiveness, locally and abroad. The key changes which will take effect
from 1 August 2009 are as follows:

1. Manufacturing licences will be granted without restriction to meet the demand for domestic and exportmarkets for long and flat products.
2. Free issuance of import licences for flat products. Noexport licence is required on flat products. The current import and export duty exemption on 57 tariff lines of long products will be maintained.
3. Import control for products of Hot-Rolled Coils (HRC), Cold-Rolled Coils (CRC) and Electro Galvanised Iron (EGI) through fixing the ratio between locally sourced and imported products will be abolished.
4. For long products - import duties will be reduced from the existing 10-30% to 10% and further cut to 5% effective 1st January 2010.
5. For flat products - import duties will be reduced from 50% to 25% and further decreased between 0-10% from 1st January 2018.
6. Import duty exemption for flat products, including HRC, CRC and EGI, is given to raw materials used for the production of finished goods for the export market, irrespective of local availability.

The determination of HRC base price implemented by MITI will be abolished. HRC price will be determined based on domestic and international market forces. Traditionally, local long steel products are priced at 10-15% premium to overseas prices. This is largely due to the inclusion of the freight, warehousing and handling charges. Potential new importers would require a fairly sizeable investment and working capital to import long steel on a regular basis (shipments are large, variety of sizes and storage space required) - which will be a barrier of entry to overcome. We do not expect significant additional volume of imports and do not expect significant impact to earnings at this point. We maintain Hold for both Kinsteel (TP RM RM0.85) and Southern Steel (TP RM1.75). The free issuance of import license and the abolishment of import controls for flat products would be beneficial to pipe producers as we expect them to obtain more competitive pricing on HRC. This would be positive for Hiap Teck (Hold; TP RM0.75) and Southern Pipe Industry Sdn Bhd (83.7%- owned subsidiary of Southern Steel). However, earnings from newly priced HRC should only filter through when existing stock is utilized.