KEMAMAN, Terengganu (Nov 8): Eastern Steel Sdn Bhd (ESSB), a steel slabs and billets producer that is 27.3%-owned by Hiap Teck Venture Bhd, is determined to shift its focus to mainly hot rolled coils (HRCs) next year now that its annual production has jumped nearly fourfold.

ESSB's annual production capacity increased from 700,000 tonnes previously to 2.7 million tonnes currently, following the completion of its Phase 2 expansion project in August, and the ignition of a new two million-tonne blast furnace in Kemaman, Terengganu.

Hiap Teck executive deputy chairman and major shareholder Tan Sri David Law Tien Seng pointed out that ESSB shareholders have to date made a cumulative investment of nearly RM7 billion, of which RM5.5 billion was invested in the Phase 2 expansion project.

Out of the RM5.5 billion, RM4 billion has been invested to expand the annual production capacity by two million tonnes.

At the same time, ESSB is in the midst of putting up a hot rolling mill — also under Phase 2 expansion — which is expected to be completed next year at an estimated RM1.5 billion.

“We will be the only HRC producer in Malaysia,” Law told reporters at a press conference before the Phase 2 project completion ceremony here on Wednesday.

In Malaysia, ESSB is the sole producer of steel slabs — a core ingredient in the manufacture of steel plates, HRCs and cold rolled coils (CRCs).

However, Law said from next year onwards, ESSB’s product focus will shift to the production of HRCs, which are widely used in downstream products such as CRCs, galvanised and pre-painted steel coils, welded steel pipes and tubes for industries such as manufacturing, automotive, electrical and electronics, oil and gas, and shipbuilding.

It is learnt that Malaysia’s demand for HRCs in 2022 was around two million tonnes, which was mainly met by imports that reached RM6 billion in value based on the current exchange rate.

Law said that ESSB aims to bridge the gap by producing 2.7 million tonnes of HRC a year.

For the longest time, Megasteel Sdn Bhd — part of Tan Sri William Cheng Heng Jem’s Lion Group — was the only HRC maker in the country, but it ceased operations in 2016, owing to cash constraints. Its assets were sold to sister company Lion Industries Corp Bhd.

On ESSB's Phase 3 expansion, which involves the production of high-end steel products and special steel, Law said, "I think we will only kick-start the investment and construction of Phase 3 in 2025. And then, the expansion will take at least three to four years to be completed.”

ESSB is 68.8%-controlled by Shanxi Jianlong Industry Co Ltd, whose parent company Beijing Jianlong Heavy Industry Group Co Ltd (Jianlong Group) is the world’s eighth largest steel producer in terms of crude steel output.

Main Market-listed Hiap Teck is the second largest shareholder of ESSB with a 27.3% stake, while Chinaco Investment Pte Ltd owns the remaining 3.9%.

Founded in 1993, Hiap Teck is 28.28%-owned by Law, a steel and mining magnate who is better known as TS Law. The group's earnings dropped 80% to RM30.911 million for the financial year ended July 31, 2023, against RM156.013 million a year before.

On funding for Phase 3 expansion, Law said ESSB will be looking at bank borrowings from both China and Malaysia.

“The banks have been very supportive to us in our Phase 2 expansion, so funding shouldn’t be an issue for our Phase 3 expansion as well,” he said.

Given the size of the Phase 3 expansion project, Law acknowledged that ESSB will not be solely relying on Malaysian banks in providing financing.

“Obviously, Jianlong Group is the fifth largest Chinese steel enterprise that produces over 36 million tonnes of steel, so I am pretty sure the Chinese banks are more than willing to lend us the money,” he said.

Moreover, ESSB has an annual capacity of 2.7 million tonnes, which would provide future earnings for the company, or have its own internally generated funds too.

“At this point in time, we don’t see any need for Shanxi Jianlong to make further cash injection into ESSB. I think all of us are quite comfortable with our shareholding levels in ESSB,” Law said.

Wang Shifeng, the group vice-president of Jianlong Group and managing director of ESSB, opined that based on the current trend of steel prices, the favourable markets for the company include Mexico, Türkiye, Thailand and Malaysia.

“As we expand our production capacity and venture into HRCs, we will have a higher product mix and better prospects, while our cost of production will also come down tremendously,” he explained.

About 12 years ago, ESSB started construction of its Kemaman plant in 2011 before its dry run in 2014, followed by the commencement of production in January 2015.

In October 2015, however, operations were halted to minimise losses because of difficult market conditions at the time that were caused by the influx of cheap imports from China, which began in 2013.

ESSB then sought collaboration with Angang Group Hong Kong Co Ltd in 2016 to help revive the Kemaman plant, but the negotiations took too long, and the parties failed to enter into a definitive agreement.

The breakthrough came in April 2018, when Hiap Teck successfully roped in Shanxi Jianlong as a new strategic partner.

Jianlong Group, through Shanxi Jianlong, embarked on its first overseas investment venture by acquiring a controlling stake of 60% in ESSB, which subsequently resumed its steel production in less than 100 days.

In 2021, Shanxi Jianlong injected 500 million yuan cash (RM325.6 million) into ESSB, raising its stake in the company to 68.8%.

Today, ESSB operates two blast furnaces — one with a capacity of 600 cubic metres (m³), and another with a capacity of 1,380m³ — on its 1,200-acre (485.62-hectare) Kemaman site. The company had previously produced 700,000 tonnes of steel annually. 

But with the completion of its second-phase expansion, which provides an additional capacity of two million tonnes a year, ESSB’s annual capacity has now reached 2.7 million tonnes. The company currently employs some 2,600 workers, about half made up of locals.

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