The first phase of the restructuring of Malaysia’s national steel policy is expected to be implemented by the end of January with debt-laden Megasteel Sdn Bhd, a producer of hot-rolled coils (HRC) being the first problem tackled, say industry sources.

Megasteel, a unit of the Lion Group, had sought Government assistance to impose stricter enforcement on the import of HRC, cold-rolled coils (CRC), plates, coated steel and pipes into Malaysia, as the influx of cheaper imported products into the country had placed many flat steel producers in an uncompetitive position, resulting in severe margin squeezes.

Megasteel itself has been badly affected by the inflow. For the financial year ended 30 June 2011, it recorded a net loss of RM223.7M (US$74.19M) on the back of an RM2.8bn ($928.68M) revenue.

An industry source said that the International Trade and Industry Ministry (Miti) was currently in the final stages of helping Megasteel. Solutions include placing the company's restructuring under the framework of the Corporate Debt Restructuring Committee, monitoring its turnaround period, keeping its HRC prices within an agreed range and stricter enforcement of duty exemptions on imported steel goods.

In February last year, Miti hired the Boston Consulting Group (BCG) to undertake a comprehensive study on the strategic RM40bn ($13.26bn) local steel industry on the back of increasing petitions and submissions from disgruntled steel manufacturers on the lack of competitiveness of local steel products compared to imported ones.

The recommendations made last July by BCG to the MSC Technical Working Committee will basically form the framework for the restructuring of the national steel policy, thus dispelling the unfairness or disparity currently existing in the local sector and moving towards a level playing field.

The Megasteel solution is only part of the measures to tackle the entire local steel industry's problems. A steel market analyst said the Government would need to formulate effective mechanisms for local players to stay competitive and be on par with other regional players amidst the influx of cheaper imported goods, increasing protection measures and volatility in the prices of raw materials.

This type of measure would be in compliance with the practices under the World Trade Organisation, he commented.

The net effect of implementing the recommendations made by the five steel working groups in relation to the Megasteel solution: access to key inputs, steel industry capabilities, standards and the importation process, and trade measures would eventually result in the full restructuring of the domestic steel industry.

Abridged from the daily ‘The Star’, Kuala Lumpur; 16 Jan 2013