KUALA LUMPUR (Nikkei Markets) -- Malaysia's ministry of international trade and industry plans to seek the federal cabinet's nod to stop issuing new manufacturing licenses to steel-makers, the deputy trade minister said Thursday, reflecting the government's aim to extend support to local players when competition from foreign rivals is intensifying.
"We are still consulting and will seek a cabinet mandate," Ong Kian Ming said at steel forum in Selangor. "We have to decide whether we want to allow more players who are manufacturing products, which are already being produced now."
Manufacturing licenses and tax incentives are currently issued by the Malaysian Investment Development Authority, an agency under the ministry of international trade and industry.
Global steel prices have plunged as excess production and protracted U.S.-China trade tensions have weighed on demand for one of the world's most important commodities. Prices of iron ore, mostly used in steelmaking, have also fallen due to the weak demand.
Domestically, steel consumption is estimated to increase by just 2% to 9.97 million tons, estimates Malaysian Iron and Steel Industry Federation, the trade body also known as MISIF. Decline in property sales and soft infrastructure expenditure have kept a lid on local demand for steel products, often leading to supply glut for select items and lower plant utilization.
Steel bar prices have fallen to 1,910 ringgit ($454)-to-2,060 ringgit ($492) per ton from as much as 2,300 ringgit a ton at the end of 2018, according to the Ministry of International Trade and Industry.
Sluggish demand, coupled with rising costs particularly electricity, have eroded margins of the energy-intensive industry for the past few years and have clouded industry outlook. Energy typically accounts for 20%-40% of the cost of steel production.
That has driven at least two consolidation deals in Malaysia and asset sales in the past two years. Earlier this month, Ann Joo Resources and smaller rival Southern Steel announced a joint venture to hold long-product manufacturing assets worth 1.65 billion ringgit ($393.52 million).
The merger "could be an important benchmarking case on possibility for other consolidation that could take place," Ong said. The government will work with the industry to facilitate "comprehensive consolidation," he added.
In recent years, Malaysia's steel industry faces mounting challenges from international competitors, especially from China, Vietnam and Indonesia which have invested in integrated capacities, said Lim Hong Thye, president of MISIF, which has 133 member companies.
"(It) is timely for the Malaysian steel industry to restore its competitiveness, to compete globally against international entrants, irrespective whether in domestic or regional markets," he said.
Supported by right incentives, consolidation in the steel industry would allow players to boost their financial position, develop higher grade of steel products and capture wider global market, Lim said.
"There have been numerous calls by the government in the past few years, which indeed is required to create a truly Malaysian regional and global leader in steel," he said. "We hope the steel industry players will echo the calls of the government on consolidation efforts to bring the industry forward."
Parties interested in merging businesses may seek certain tax incentives and exemptions, the deputy minister said. "For example, waiver of stamp duties for certain property transactions," and related issues, which the finance ministry needs to examine, he added.
His ministry is preparing a white paper on the steel industry, which will be submitted to the federal cabinet by this year-end, Ong said.