This article first appeared in The Edge Malaysia Weekly on April 3, 2023 - April 9, 2023

THE financial results of both flat and long steel manufacturers in the first half of 2023 are unlikely to be good, as the energy-intensive industry is being hit hard by the electricity tariff hike for the January-June period.

To recap, in mid-December last year, the government decided to raise the electricity tariff for medium- and high-voltage users by lifting the imbalance cost pass-through (ICPT) surcharge from 3.7 sen per kWH to 20 sen per kWH.

The steel industry viewed the climb as too steep at one time.

The impact of high energy costs will be even more severe if the government raises the tariff for the second half of the year. The Energy Commission (EC) is due to review the electricity tariff under the ICPT mechanism in June. The biannual review is to ensure that any increase in fuel cost will be passed on to the end users while any reduction will result in savings for the end users.

That said, there could be a chance for the steel players to heave a sigh of relief as the international price of coal, the main fuel for power generation, has halved since the start of the year. The price has fallen from around US$400 per tonne to US$192 currently, although it is still substantially higher compared with pre-pandemic levels of below US$100.

While both the Malaysian Iron and Steel Industry Federation (Misif), which is the association for flat steel players, and the Malaysia Steel Association (MSA), which is the body for long steel players, have sought a waiver on the tariff surcharge after the government’s announcement, there has been no response from the latter.

With the tariff hike, Misif forecasts that the steel industry’s annual electricity cost, which was estimated at RM1 billion in 2022, will rise to more than RM1.5 billion under the revised surcharge on the tariff.

Misif president Datuk Lim Hong Thye tells The Edge: “It (the tariff hike) was unplanned (sudden) for us. It was announced and implemented immediately.”

He notes that a more gradual increase would have been preferred. The Federation of Malaysian Manufacturers, in which Lim is a council member, was looking to speak to the government on the matter, he says, but there has not been any response from the latter.

MSA deputy president Datuk Seri Tai Hean Leng could not be reached for comment.

Some steel players have termed the current situation an “unsustainable business environment”.

“The steel industry is grappling with low demand. Be it long steel or flat steel, demand has fallen off a cliff … there have been no infrastructure projects, there is no demand,” says a flat steel player.

“During the Pakatan Harapan government’s time in 2018, a White Paper was undertaken, but nothing came of it. Then under Tan Sri Muhyiddin Yassin and Datuk Seri Ismail Sabri Yaakob, another study was done, but nothing came of it …

“From what I understand, the current unity government is looking at the steel industry and what to do again … we understand that subsidies have to be removed and the government is short on cash, and so on, but what we would like is some form of consultation with the players before any decisions are made,” he says.

It is worth noting that the domestic steel industry has been plagued by structural problems for years, besides the energy cost hike.

Malaysia is one of the few countries that did not revise electricity tariffs during the pandemic, although energy costs shot up drastically worldwide.

According to Deputy Finance Minister I Datuk Seri Ahmad Maslan, the government has been able to save RM4.1 billion by cutting the electricity subsidy for heavy industrial users.

The subsidies, including electricity subsidy, have drained the nation’s coffers. The subsidy bill ballooned to over RM70 billion in 2022.

In fact, Tenaga Nasional Bhd has had to bear most of the brunt of this situation. Its receivables shot up to a record high of RM22.8 billion as the government could not pay the utility group on time while it was incurring high fuel costs.

It is also noteworthy that the government is still subsidising electricity for low voltage non-domestic users, and small and medium enterprises and businesses. It is just that the quantum of the subsidy is smaller.

Lim is the managing director of steel player Ann Joo Resources Bhd, of which his father, Lim Seng Qwee, was chairman. His family controls about 48% of the company, which deals in billets, bars and wire rods, among others.

For its financial year ended Dec 31, 2022 (FY2022), Ann Joo suffered a net loss of RM132.63 million from RM3.03 billion in revenue. And this was prior to the tariff hike.

“The next financial quarter results should be out in May. We will see [what will happen], we also have to ensure that long steel imports do not flood into the Malaysian market, as there are no controls for long steel being imported,” he says.

The bleeding has not been just at Ann Joo, but at many other players as well — both flat and long steel.

Lion Industries Corp Bhd (LIC), which wholly owns Lion Steel Sdn Bhd (previously Oriental Shield Sdn Bhd and Megasteel Sdn Bhd), suffered a net loss of RM315.08 million from RM2.58 billion in revenue for FY2022.

The Edge understands that Lion Steel has stopped operations since January this year, supposedly after being unable to cope with the tariff hike.

Choo Bee Metal Industries Bhd, for its fourth quarter ended December, suffered a net loss of RM7.45 million from RM98.16 million in revenue, compared with the net profit of RM23.47 million from RM149.77 million in revenue a year ago.

For FY2022, the flat steel maker managed to rake in RM8.13 million in net profits on the back of RM493.11 million in revenue. Its core business is the manufacturing of steel tubes and pipes.

In its prospects column, Choo Bee says, “With the start of the new year 2023, lacklustre international steel prices of the past year have been firming up, mainly attributed to the relaxation of China’s Covid-19 lockdown policies and softening of US monetary policies. However, international steel demand remains rather weak, reflecting the repercussions of inflationary pressures, rising interest rates globally and ongoing geopolitical tensions.

“On the domestic front, steel demand and average selling prices have yet to pick up much on the back of the Chinese New Year festivities while pending news for existing/new infrastructure projects to roll out. The external environment’s uncertainties remain a downside risk for Malaysia’s open economy,” the company says.

“Apart from major infrastructure projects rolling out, steel demand growth also hinges on healthy private consumption and construction activities, which will very much depend on the new government’s economic policies and direction.”

Malaysia Steel Works (KL) Bhd (Masteel), in which MSA deputy president Tai and his family have a 31.37% stake, registered net profits of RM1.63 million from RM446.57 million in revenue for the fourth quarter of FY2022 ended December. For the previous corresponding quarter, Masteel made RM12.04 million in net profits from RM463.87 million in revenue.

For FY2022, Masteel posted net profits of RM19.02 million on revenue of RM1.78 billion, down from RM32.5 million and RM1.58 billion respectively the year before.

Even CSC Steel Holdings Bhd, which is 46.3%-controlled by China Steel Corp, suffered a net loss of RM347,000 from RM360.72 million in revenue for the fourth quarter of FY2022.

For the previous corresponding period, CSC Steel managed to rake in RM38.86 million in net profits on the back of RM532.35 million in revenue.

For FY2022, CSC Steel posted meagre net profits of RM14.61 million from RM1.7 billion in revenue. In FY2021, CSC Steel reported net profits of RM86.09 million on RM1.47 billion in revenue.

Hiap Teck Venture Bhd, for the six months ended January 2023, suffered a net loss of RM26.72 million from RM758.39 million in revenue.

Tan Sri Quek Leng Chan’s 70%-controlled Southern Steel Bhd, for the six months ended December 2022, suffered a net loss of RM125.17 million from RM1.15 billion in revenue. A year ago, the company chalked up net profits of RM66.34 million on RM1.14 billion in revenue.

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