SSteel… dated July 2012

Its has joined the ranks of those seeking to build flat steel plants in Malaysia, an area that has been largely controlled by Tan Sri William Cheng’s Lion goup.

 

The company obtained the approval of the MIDA about six months ago (Jan 2012) to set up a flat steel plant on the premises of its long steel plant in Penang .

 

The flat steel is slated to come onstream by the third quarter of 2013 that has been the domain of Megasteel Sdn Bhd.

 

Southern Steel could be the second player to enter the flat steel segment that has been the domain of Megasteel Sdn Bhd.

 

Two other steel players – Tunku Datuk Yaacob Abdullah’s Maegma Steel Sdn Bhd and Tan Sri David Law’s Hiap Teck Venture Bhd – are looking at breaking Megasteel’s monopoly. Maegma is planning to set up an integrated plant in Lumut while Hiap Teck has already broke ground for a rm1.8 billion integrated steel plant in Kemaman.

 

Southern Steel could prove to be a strong competitor to Megasteel because it has a strong balance sheet and would be able to put up the plant quickly. This could add to the pressure faced by Mesgateel, which has been given a deadline of between 24 and 36 months to turn around its loss making flat steel operation.

 

The deadline is the result of a study by a consulting group, which has been tasked with coming up with a solution to improve the competitiveness of the flat steel industry in Malaysia . The industry is protected to a certain extent to allow Megasteel to recoup its investment of more than rm2.3 billion made over the last 10 years.

 

Downstream players have complained that Megasteel’s products have quality issues and are not priced competitively. Megasteel, in turn, says its plant is only 30% utilized because flat steel imports are hampering its sales.

 

The question is, how will Megasteel stop the bleeding if Southern Steel comes onstream to compete against it? Things will only get worse when Maegma and Eastern Steel come onstream.

 

Southern Steel confirms to set up a flat steel plant.

 

At present, long steel products, which are generally used in the construction industry, are the mainstay of Southern Steel. But its entry into flat steel could pose a serious threat to Megasteel.

 

The benefits of the new flat steel plant could be numerous, but the most significant would likely be Southern Steel unlocking excess steelmaking capacity, increasing overall plant efficiency and reducing operating costs.

 

Southern Steel will also have the flexibility to produce either long or flat steel products allowing it to mitigate significant risk in what has been prominently a volatile past three years (200-2012) for the steel industry.

 

In a nutshell, the plant will result in higher profits for Southern Steel and fairly priced HRC for the industry.

 

Quek’s 60% owned HL Bank is also known to play an important role in financing steel players, which could nudge them into acquiring Southern Steel’s flat steel products.

 

Then there is the question of which company Quek will bring in as Southern Steel’s partner. A partner is essential as Southern Steel will need the expertise.

 

At end 2010 the QUek controlled Signaland Sdn Bhd bought out Natsteel Asia Ltd’s 27% stake in Southern Steel for rm2.05 per share on a total of rm233 million. This triggered a MGO as Quek already held more than 40% in Southern Steel. At present, Quek owns 71.9% stake of Southern Steel.