Oversupply to hit Malaysian steel industry: Analysts

Oversupply to hit Malaysian steel industry: Analysts

KUALA LUMPUR (AFP): Malaysia's steel industry, which expanded aggressively in recent years, will be plagued by excess supply despite a string of infrastructure projects lined up in the country, investment bank Salomon Brothers said yesterday.

Despite the country's anticipated 20-billion-ringgit (US$8 billion) investment in infrastructure in the next three years, Salomon Brothers analysts said they did not expect demand to match industry supply until 1996.

"Investments in power generation projects, new expressways, Sepang Airport, facilities for the 1998 Commonwealth Games and port facilities will boost economic growth over the next five years," said analyst Bruce Rolph.

Malaysia is spending about nine billion ringgit ($3.6 billion) to build its second international airport at Sepang, south of here.

But although the steel industry is heavily dependent on the construction sector, which absorbs more than 90 percent of output from Malaysia's five major producers, the country was still heading for a steel glut, Rolph said.

He said major expansions between 1991 and 1993 by steel producers Antara, Lion Land, Malayawata, Perwaja and Southern Steel had boosted the country's billet-making capacity to 2.79 million tons last year from 1.70 million tons in 1991.

The country's steel rolling capacity had also increased to 2.76 million tons from 1.71 million tons in the same period.

"Over the last year, Malaysia's steel industry has been plagued by soft selling prices and rising raw material costs," said Rolph, attributing the low prices to an aggressive sales strategy by newcomer Perwaja.

Steel prices have been depressed since last year although they recovered to 1,000 ringgit ($400) per ton from a low of 950-980 ringgit in July last year.

"The price of steel bars is unlikely to breach the 1,100 ringgit per ton mark in 1995," said Rolph.

Annual growth of Malaysia's steel industry has been among the strongest in Asia in the last decade. The country's per capita consumption of 250 kilograms (550 pounds) per annum makes it the second highest per capita consumer of steel in Southeast Asia after Singapore.