Soh: We need to look in the right direction. Otherwise, this will be a disaster for the steel companies in Malaysia. Photo by Patrick Goh/The Edge
IT may not be the most important issue right now but when the Covid-19 crisis ends, the Ministry of International Trade and Industry (Miti) will have to decide whether or not to approve the controversial Wenan steel project in Bintulu, Sarawak.
With an estimated production capacity of 10 million tonnes per annum, the multibillion-ringgit Wenan steel project, which will be mainly funded by investors from China, will be the largest steel manufacturing plant in the region once it is completed.
While the Covid-19 pandemic and change in government may delay the project, work on which is expected to commence in the middle of this year, local steel makers have already made it clear that they are against it.
In fact, in February, the Malaysian Iron and Steel Industry Federation and Malaysia Steel Association publicly opposed the project, which will be located in the Samalaju Industrial Park within the Sarawak Corridor of Renewable Energy.
In a joint statement on Feb 4, the two steel associations called for an immediate freeze on manufacturing licences for new investments in long and flat steel products in Malaysia due to overcapacity in the industry.
“If allowed to materialise, the local steel industry sees the proposed 10 million tonnes per annum steel project exacerbating the overcapacity in the country,” they said in the statement.
It is worth noting that the Wenan steel plant’s production capacity was raised to 10 million tonnes per annum from the originally planned 3.5 million tonnes per annum.
Malaysia’s total steel consumption in 2018 was 9.77 million tonnes but the total installed capacity was 24.64 million tonnes — with 12.64 million tonnes and 12 million tonnes for long and flat steel products respectively.
In the current situation, says Federation of Malaysian Manufacturers (FMM) president Tan Sri Soh Thian Lai, the country cannot afford to have another massive steel plant that will compete with existing local players.
“The oversupply situation in Malaysia is severe. How we solve this problem would depend on how the new licence is issued,” he tells The Edge.
FMM is the largest private sector economic organisation in Malaysia, representing more than 3,000 manufacturing and industrial service companies of varying sizes.
Soh stresses that if the government allows new players to make products such as steel bars, wire rods, hot-rolled coils and cold-rolled coils, it will worsen the oversupply situation and put the local steel companies in an even tougher position.
“There is no chance for them to turn around; they will continue to lose money. This will cause them to cease operations and retrench workers,” he warns.
Many local steel makers have invested billions in the industry since the early 1980s, Soh points out.
At press time, Miti had not responded to The Edge’s queries on the matter.
The Chinese factor
The Wenan steel project was conceived in 2016 when two Chinese firms, Hebei Xinquan Steel Group and MCC Overseas Ltd, signed a memorandum of understanding to conduct feasibility studies on an integrated steel plant with an installed capacity of five million tonnes per annum.
It was reported that the project would attract RM13 billion in total investments, marking the biggest foreign direct investment (FDI) for Sarawak.
Interestingly, MCC, a unit of Chinese state-owned enterprise China Metallurgical Group Corp, is also the contractor for Alliance Steel (M) Sdn Bhd’s integrated iron and steel works project in Kuantan, Pahang.
MCC’s sister company, Metallurgical Corp of China Ltd, which is dual-listed in Shanghai and Hong Kong, will be the engineering, procurement and construction contractor for the Wenan steel project.
A steel industry observer tells The Edge that any new investment in a steel project should have the ability to elevate the country’s steel industry to the next level rather than manufacture products that are already being produced locally.
“We are talking about railway tracks, electrical sheets, beams and seamless pipes. If they could produce these products, then the whole value chain of our steel industry will be well in place,” he says.
The industry observer points out that the local players became very concerned after they found out that the Chinese firms may have purchased the land from the state government.
“The Chinese firms will have to plan from day one which type of rolling mills they are going to put up, as well as what kind of machines and equipment they are bringing in. It is still not too late for the government to make a decision now. But once they put up the rolling mills, it will cause us a big problem,” he says.
FMM’s Soh concurs. He says as many steel companies from China are able to produce high value-added and high technology steel products, the federal and state governments should attract those types of FDI.
“We need to look in the right direction. Otherwise, this will be a disaster for the steel companies in Malaysia. We need the government to support the local manufacturers. It doesn’t mean that we shouldn’t encourage FDI but we need to be selective,” he reiterates.
Soh goes on to say that the Sarawak government must look at what is good for the country in the long run. “We know that they want to attract investments but they should also look at the national interest.”
He highlights the fact that today, almost none of the local steel makers are producing I-beam, H-beam and alloy steel for automotive parts and various other industries.
“Why don’t we attract such foreign companies to come here? We are talking about the viability of the steel business; we are talking about the survival of the local steel players. If the same products come in here, the local steel industry will be wiped out,” he says.
Meanwhile, a steel industry expert believes that if the government wants to attract FDI, it must make sure that it will create job opportunities for Malaysians. “It can be harmful to the country if these issues are not addressed properly. Imagine what will happen to us if all the FDI makes money or maybe even loses money, and then goes back to its own country?”