This article first appeared in The Edge Malaysia Weekly on November 25, 2024 - December 1, 2024

FLAT steel player CSC Steel Holdings Bhd (KL:CSCSTEL)’s financial performance for the third quarter ended Sept 30, 2024, announced last week, shows the adverse impact of the government’s lifting of anti-dumping duties on flat-rolled plated steel imports from China and Vietnam on March 7 this year.

For 3QFY2024, CSC Steel made a net profit of RM6.88 million on revenue of RM404.89 million. In the previous corresponding period, the company registered a net profit of RM8.35 million on revenue of RM404.21 million, which means net profit fell 17.6% while revenue remained largely flat. For the nine-month period, CSC Steel managed a net profit of RM22.81 million on revenue of RM1.17 billion, translating into a drop of 49.5% and 0.85% respectively from a year ago.

In an emailed response to questions from The Edge on the adverse impact of the lifting of anti-dumping regulations, CSC Steel says, “The revocation of the galvanised iron anti-dumping duties on March 7, 2024, has led to a notable surge in imports since then.

“According to the Department of Statistics Malaysia (DOSM), galvanised steel imports from China and Vietnam increased 12% in 2Q2024 from 1Q2024, and they are estimated to further increase by 20% in 3Q2024 from 2Q2024. Additionally, total galvanised steel imports from all countries were up 16% in 2Q2024, signalling intensified competition in the domestic market.

“Lifting anti-dumping duties has amplified this challenge, opening the floodgates to cheaper steel imports from exporting countries, especially China, South Korea and Vietnam. Therefore, CSC Malaysia has taken enormous measures to streamline operations and focus on value-added products in order to sustain its domestic market share.”

The Edge understands that CSC Steel had written to the Ministry of Investment, Trade and Industry (Miti) in late January this year, requesting a Sunset review, but the application was rejected. A Sunset review is basically an evaluation undertaken to determine if a course of action — in this case the imposition of anti-dumping duties on galvanised flat steel from China and Vietnam — should be continued or terminated, or perhaps continued at a greater or lesser level than that imposed earlier.

In CSC Steel’s response to The Edge, it points out that government support is pivotal to reducing import dependency, which then helps balance trade deficits and strengthen the nation’s economic sovereignty.

“This strategic autonomy is essential to secure the nation’s industrial future and sustain its long-term economic stability. Therefore, we urge the Malaysian government to extend its support to domestic steel producers, enabling them to defend the local market against unfair competition and create a conducive business environment. Such support is vital to sustain the steel industry’s long-term viability and bolster Malaysia’s broader economy through job creation, industrial growth and economic stability,” it says.

Meanwhile the Malaysian Iron and Steel Industry Federation (MISIF) president Roshan M Abdullah, who was abroad when contacted by The Edge, says in a short phone message: “Malaysian galvanised iron and galvalume manufacturers are facing an imminent threat to their survivability due to the surge of galvanised iron imports, particularly from China and Vietnam, at predatory prices.

“The government needs to take immediate action against the predatory steel exports into Malaysia to create an environment that is fair and sustainable for the Malaysian steel ecosystem to survive, develop and eventually thrive,” he says.

MISIF is the national industry association for manufacturers of iron and steel products and has 152 member companies involved in manufacturing and affiliated services. CSC Steel’s wholly-owned unit, CSC Steel Sdn Bhd, is a member.

To put things in perspective, from March 29, 2019, to March 7, 2024, anti-dumping duties of as much as 16.13% were imposed on galvanised steel from both China and Vietnam.

However, it is understood that despite the imposition of anti-dumping duties, there were loopholes that were utilised by the Chinese and Vietnamese companies to continue to penetrate the Malaysian market, but details of their methods are scarce.

For CSC Steel, which is 46.3% held by China Steel Asia Pacific Holdings Pte Ltd, a unit of steel giant China Steel Corp, the impact is clearly showing.

Commenting on its prospects in notes accompanying its financial results, CSC Steel paints a rosy picture, saying, “Looking ahead to the fourth quarter of 2024, expected interest rate cuts in the US, along with easing monetary policies in China, including interest rate reductions and reserve requirement ratio cuts, are expected to significantly boost steel demand and potentially raise steel prices.

“As the traditional peak season approaches, market conditions are forecast to improve, with rising steel demand driven by economic strategies from both nations. In Malaysia, domestic steel demand is expected to stabilise, buoyed by a recovering construction sector and the potential launch of new infrastructure projects. However, ongoing issues such as unfair trade practices involving imports continue to be a concern, prompting calls for government intervention to assist local steel mills move up the value chain and enhance their competitiveness.”

To its credit, CSC Steel has a strong balance sheet. As at end of September this year, the company had cash and cash equivalents of RM329.99 million. The company had no borrowings and its retained earnings stood at RM484.79 million as at end of September.

CSC Steel’s cash flow from operating activities for the first nine months was RM19.29 million.

CSC Steel’s share price hit a 52-week low of RM1.14 in intraday trading on Oct 7. The stock has shed about 17% since the middle of May this year and closed at RM1.19 last Friday (Nov 22), giving the company a market capitalisation of RM439.5 million.

Just last week, Miti Deputy Minister Liew Chin Tong, in an oral question-and-answer session in Parliament, said the government will soon release the findings of a report examining the impact of excess capacity of iron and steel from China purportedly being dumped here.

“The independent committee (undertaking the report) has prepared the relevant report for Miti, which will provide direction on addressing the issue of excess capacity in the iron and steel industry,” Liew is reported to have said.

He said that between 2015 and 2023, the government imposed nine anti-dumping measures and three protective measures against products imported from China, including iron and steel, plastic and construction materials, which have caused significant harm to Malaysia’s domestic industry.

He added that Miti also revised Act 504 and the Countervailing and Anti-Dumping Duties Regulations 1994 to better align these with current international trade practices.

The impact of Chinese and Vietnamese dumping has been severe on steel players with a number of companies throwing in the towel.

For instance, FIW Steel Sdn Bhd (formerly known as Federal Iron Works), which was partly-owned by Japan’s Sumitomo Corp Global Metals Co Ltd, manufactured zinc-coated steel coils and pre-painted zinc-coated steel sheets at a facility in Bukit Raja Selatan, Shah Alam, but it sold the plant to Axis Real Estate Investment Trust for RM120 million in 2021.

Nippon EGalv Steel Sdn Bhd, an electro-galvanised steel manufacturer in Seberang Prai, which was 69%-owned by Japan’s Nippon Steel Corp and 31%-owned by another Japanese steel player, Hanwa Co Ltd, ceased operations at the end of July 2020.

Meanwhile, Asteel Group Bhd (KL:ASTEEL), formerly YKGI Holdings Bhd, sold its coated-coil business and related assets in Klang for RM125 million to NS BlueScope (Malaysia) Sdn Bhd in April 2019.

While the flat steel players, which generally produce steel for the making of household items, such as washing machines and motor vehicles have been adversely impacted, the long steel players which are involved in construction have not been spared either.

For example, Southern Steel Bhd (KL:SSTEEL) is soon to be 50.1%-controlled by Singapore-based steel firm Green Esteel Pte Ltd. This is after the former completes its proposed issuance of 752.06 million new shares — representing a 50.1% stake — to Green Esteel at 42 sen apiece or a total of RM315.86 million.

In other words, tycoon Tan Sri Quek Leng Chan — the patriarch of Hong Leong group who currently owns close to 70% of Southern Steel — is ceding control of the steel company to Green Esteel.

Green Esteel’s controlling shareholder is Chinese billionaire You Zhenhua who has a significant presence in China’s steel industry. Green Esteel already controls Antara Steel Mills Sdn Bhd, Eden Flame Sdn Bhd and Esteel Enterprise Sabah Sdn Bhd and has 61.16% equity interest in Singapore-listed BRC Asia Ltd.

In October this year, more than 11 million tonnes of steel were exported out of China, which marks a nine-year high. Steelmakers in China have been banking on overseas sales to absorb a surplus in production locally, brought about by a long-standing property crisis. This has resulted in allegations of dumping as Chinese steel is typically up to 20% cheaper than that from other producers such as Japan and South Korea. 

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