Kuala Lumpur, 28 July 2011 - MegasteelSdnBhd would like to respond to the many gross misrepresentations in the press statement by the Malaysian Iron & Steel Industry Federation (MISIF)on the proposed safeguard action on hot rolled coils (HRC).

1) MISIF’s claim that it represents the whole spectrum of the iron & steel industry is disputed as the only upstream member namely Southern Steel Bhd is singularly involved in long products. There is no representation of the upstream flat products sector. From MISIF’s own admission, after consulting members of various sectors, only 14 members agreed to participate in the Federation’s objection to Megasteel’s safeguard petition. The majority of their 138 members are apparently not in agreement with MISIF’s stand against the safeguard petition and there have been some resignations of members who appear to be opposed to the action taken by MISIF.

2) While MISIF claims that it seeks to strengthen the growth and development of the entire spectrum of the iron & steel industry, its policies and direction for the last few years have been consistently against the interests of the upstream sector which have led to the mass resignations of steel mills including some founding members.

3) There is a very clear and objective basis to confirm the surge in HRC imports which is also presented by MISIF’s President in his paper at the Seaisi Conference in May 2011 that almost 1 million tonnes of HRC were imported in 2010 whilst local production had declined substantially by more than 40% from 2.1 million tonnes in 2007 to 1.2 million tonnes in 2010.

Clearly, Malaysia has been flooded with imports of HRC by some unscrupulous importers who are exploiting loopholes in the import regulations. These increased imports at dumping prices have undermined the domestic HRC prices resulting in huge losses to small local manufacturers, affected orders, eroded market share and also jeopardized Megasteel’s viability to continue operations. If the present situation continues, it will lead to plant shutdown and retrenchment of workers by not only Megasteel but also supporting and downstream industries.

4) While the import duty on HRC has been in force for the 12 years that Megasteel has been in operation, other countries have been protecting their industry for many years, such as Japan for 50 years, Taiwan 26 years and Korea more than 20 years. These steel mills continue to receive government assistance in one form or another. The development of steel mills is the backbone of a country’s economy. The level of development of a country is very accurately reflected by its per capita steel consumption. Whilst our National Steel Policy provides for big manufacturers to import HRC for the purpose of exporting their finished good, small manufacturers elect to participate in Megasteel’s Export Scheme using its HRC to process for export.

In most countries, heavy investments in the steel industry are undertaken by the governments and a project like Megasteel is a state initiative such as Posco of South Korea, China Steel of Taiwan and Baosteel of China which have all benefitted from direct government funding; while other steel companies such as Sahaviriya in Thailand have received anti-dumping and safeguard protection from their governments. In view of the high investment and long gestation period involved, steel projects require strong support from their respective governments. Megasteel has never received any government funding, but it does need the continued support of the Malaysian government to reach its full potential.

5) The safeguard requested by Megasteel is not permanent but a temporary tariff at a proposed rate of 35% that is decreasing over 5 years. On MISIF’s claim that this will render exporting end products uncompetitive in world markets and also increase the cost to domestic consumers of products including electronic and automotive products, Megasteel reiterates its petition for safeguard measures will not affect imports necessary for Malaysia to compete internationally, and imports of grades not available locally. Imports of steel not produced by Megasteel such as for the automobile, electronic and electrical industries, would continue under the safeguard measures proposed by Megasteel.Imports for the exporting industries would also be exempted.

Duty on HRC Before & After Proposed Safeguard
 

HRC Grade		Duty Structure
		Current Duty	Proposed Safeguard#
Available Locally:
a)	Imports from Asean*	0%	35%
b)	Imports from Non-Asean	25%	35%
c)	Imports for Manufacturing for Export	0%	0%
Not Available Locally		0%	0%

Indonesia has filed 11 investigations of which five are related to the steel industry. In particular, it has imposed anti-dumping duty on HRC against Malaysia (48.46%) and six other countries. It has also tightened its industrial standards as non-tariff barrier (NTB) against steel imports.

Thailand has imposed anti-dumping on HRC from 16 countries, and also initiated action against Malaysia (38.92%).

Without safeguard on our HRC, Thailand and Indonesia can freely export their HRC into Malaysia while Megasteel has the uphill task to export there and be subject to anti-dumping duties and other non-tariff barriers.

7) Since Megasteel commenced operation, it has never raised prices substantially and indiscriminately to take advantage of the so-called `tariff wall’ alleged by MISIF. For the record, the domestic prices of HRC in Indonesia and Thailand are higher than our domestic price as shown below:
 

Normally, domestic price is higher than international or export price as can be seen from the above 2 tables as export price is based on marginal costing and subject to fluctuations. In the case of Indonesia, its export price of HRC is USD780 per MT while its domestic price is USD859 per MT. On top of the CFR imported price, importers must also pay an additional few percent for port clearance, handling and local transport charges.

8) MISIF has raised the spectre of the possibility of supply delay and interruption including supply rationing. Megasteel has a capacity of 3.2 million tonnes which is more than sufficient to fulfil local demand and is in fact, suffering from the lack of orders. Under these circumstances, it makes no sense for Megasteel to delay supply and jeopardise its position.

9) On MISIF’s contention that certain businesses will be destroyed as they cannot afford to import HRC with the safeguard measure in place, we wish to reiterate that exempted sectors will continue to be exempted. On the contrary, without the safeguard measures, Megasteel will be forced to close along with the many smaller manufacturers who are dependent on local supply of HRC. Having a local mill with proximity to the customers benefits the latter as their requirements can be attended to expeditiously. In addition, Megasteel is able to accept smaller orders with no restriction in size assortment and a shorter delivery. In times of shortage which is common due to the volatility in the steel industry, a local and consistent supply of this essential raw material is important to support the local downstream industries.

10) MISIF has warned that Megasteel would also lose its domestic sales as end-users shift to CRC and other products that attract nil/low import duty. This is a serious misconception that reflects the lack of representation and technical knowledge of the flat products sector in MISIF. CRC has certain limitations and cannot replace HRC in most product applications.

11) Megasteel has always abided by the Steel Policy implemented by the Government to maintain the orderly growth and development of the local steel industry while supporting trade liberalization aimed at bringing in bigger and new market share for our steel products. Trade liberalization however has resulted in unfair trade balances which are exacerbated by the non-level playing field our local industries have to compete on against the developed countries and more dominant economies. Hence, safeguard measures, anti-dumping and non-tariff barriers etc are provided under WTO to address these imbalances.

Our Malaysian Government has the responsibility to ensure the healthy growth and development of the steel and all other industries in the country. We believe it will not allow any party to manipulate the policies and procedures in place to benefit a few with different agenda, and jettison the interests of the bona fide manufacturers.

Released by: Tan Sri William Cheng
Chairman
MegasteelSdnBhd

For further information, please contact Ms Quah Le Ching, Corporate Communications Department at tel no. 03-21420155 ext 2505 or fax no. 03-21428409.