THE ROAD MAP FOR THE MALAYSIAN STEEL INDUSTRY ( ) (Approved by the MISIF Council on 13 October 2005)

Transcription

1 THE ROAD MAP FOR THE MALAYSIAN STEEL INDUSTRY ( ) (Approved by the MISIF Council on 3 October 2005) CONTENTS. Introduction.. Background.2. Objectives.3. Scope.4. Work Methods 2. Overview of the Malaysian Steel Industry 2.. Role in Socio-economic development 2.2. Structure and value chain 2.3. Performance 3. Status and Performances of Malaysian Steel Industry 3. World Steel 3.2 Asian Countries 3.3 Malaysian Steel Industry 4. Concerns of the Industry 4. Lack of Growth of Domestic Market 4.2 ASEAN Countries Consumption 4.3 Government Regulations 4.4 China Factors 4.5 ASEAN-CEPT and Free Trade Agreements 5. General Overview of Sectors 6. Visions 7. Strategies 8. Strategies and Recommended Plans 9. Implementation of Road Map 9. Steering Committee 9.2 Growth Sectors and Task Forces 9.3 Budget 9.4 MISIF Secretariat Support 0. Conclusions

2 . INTRODUCTION.. Background.2. Objectives The 2 nd Industrial Master Plan (IMP) was from and was a rolling plan without targets; As the period of the 2 nd IMP will end this year, MITI had commenced work to prepare the 3 rd IMP for the years ; The original proposal was to review a plan for the manufacturing sector, but addressing macro issues on external trade, investments, SMI development, HR Development, technology and ICT Development, marketing/branding and logistics; MITI set about setting up task forces to review the eight (8) macro areas but realized that feedback from industry sectors would be needed as inputs to the macro-issues. Hence, a ninth Task Force on Industry Sectors was set up with MISIF being invited to represent the steel sector; MISIF noted that the 3 rd IMP would be written according to the guidelines of MITI and the final IMP will feature the macro issues and recommendations for specific industry sectors will likely not be featured; It was also viewed that the 3 rd IMP will reflect the industry position basically from the Government s perspective; Hence, MISIF, in reviewing that the industry was being confronted by various challenges, agreed for a project beyond the IMP report and to prepare a Road Map for the Malaysian Steel Industry. The primary objective of the road map plan therefore is to look into measures to promote the best, conducive environment to for the sustained growth and development of the Malaysian steel industry..3. Scope The road map plan would review and make recommendations for both: Long Products Flat Products The road map is an industry wide plan and not to be identified as a MISIF business plan..4. Work Methods The proposal to work on the Road Map was endorsed by the MISIF Executive Committee in October 2004; Brainstorming sessions with sector groups held between 0 January February Secretariat presented sectoral reports; 2

3 Consolidated session held on 8 February 2005 in the Pan Pacific Glenmarie in which respective chairman presented reports (annexed report). Brainstorming session in which the vision and some strategic directions were drawn up Another session to review the strategic directions was held 29 April 2005 with Mr. Gary Hook as facilitator 2. OVERVIEW OF THE STEEL INDUSTRY 2.. Role in Socio Economic Development Steel is at the heart of every economy, making contributions to the lifestyles of its citizens, both at work and at home. Steel plays an essential role in providing citizens with energy, transport, manufacturing, infrastructure, construction, home appliances and many other product services. Steel s unique range of chemical and physical attributes provides the combination of properties that can be tailored to demanding user applications at a lower cost compared to other manufactured materials, which makes it the material of choice for all these sectors. Although the cost of steel used by modern society is now a much smaller portion of the per capita gross national products than it was 50 years ago, steel remains indispensable. Great economic powers need steel to fuel their economies and indeed, the perceived need for steel is part of current world supply problems. Even small countries seem to feel naked without their own steel mills! More than 2000 difference steel grades have been registered which demonstrates the versatility of this material known as steel. Steel is constantly developing to meet the ever changing and ever more stringent needs of the modern world. Within the last five years, about half of these steel grades have been further developed by changes to the production process or have been newly developed to meet the latest application developments. It is worthy to note that about 70% of the steel used in autos today did not exist 0 years go Structure and Value Chain Any consideration of the structure of the steel industry requires consideration of the industry as LONG PRODUCTS and FLAT PRODUCTS; Then again, for both sectors, products are reviewed as upstream, mid-stream and downstream, constituting the value chain; In most cases, upstream production, being highly capital intensive, are fewer in number but they turn out products in large tonnages to supply to the more numerous downstream companies which tend to smaller companies but perform the value-adding activities; Hence, the activities of the upstream companies would generally influence the performance of the downstream companies, making the end-products. 3

4 Table : Process Flow and the Value Chain of the Malaysian Steel Industry Foundry IRON ORE Direct Reduction Furnace IRON CASTING PIG IRON SPONGE IRON (DRI/HBI) SCRAP Foundry Converter Arc Furnace (EAF) STEEL CASTING LIQUID STEEL Casting Machines Blooms, Billets, Ingots Reheating Furnace/ Rolling Mill Slabs Reheating Furnace/ Rolling Mill Bars Wire rods Sections Plates Hot-rolled coils Hot-rolled sheets Drawing Cold Forming Pickling Tank Rolling Mill Annealing Furnace Drawn wire Pipes, light gauge sections Cold-rolled coils/sheets Galvanised wire Tinplates Tinplating Galvanised sheets Galvanising Secondary wire products, bolts, nuts, nails, screws, BRC fabrication, welded mesh, wire rod, welding electrode, etc. Secondary wire products, fencing, netting Pipes, drums, furniture, other sheet metal products Tin cans Fabricated sheet products Corrugating Machine Roofing sheets, wall cladding 4

5 3. STATUS AND PERFORMANCE OF THE MALAYSIAN STEEL INDUSTRY 3.. World Steel World steel consumption increased 4% during the and the principal growth engine was China and other parts of Asia and Eastern Europe; Production of crude steel grew from 777 million tons in 998 to.05 billion tons in 2004, with China dominating the largest increase (from 28 million tons in 998 to 272 million tons in 2004) ; The largest shifts in trade during the period also came from Asia- Oceania area which grew by 58 million tons, with China accounting for the largest increase (+30 million tons) Strong market conditions drove steel prices to record high levels and also periods of great fluctuations 3.2. ASEAN Countries Apparent Steel Consumption Consumption of steel products in ASEAN grew an average of 7.6% between 998 and 2004; Thailand enjoyed 40% growth from and has overtaken Malaysia as the largest consumer of steel products Table 2: ASC of ASEAN Countries ( ) 000 tons Indonesia 2,839 3,99 4,500 5,023 4,92 4,688 5,390 Malaysia 3,547 6,068 6,855 7,322 6,862 6,674 7,758 Philippines 2,977 3,300 3,04 3,343 3,735 3,462 3, Singapore 3,245 3,022 2,873 2,752 2,925 3,047 3,69 Thailand 3,800 6,33 6,595 7,535 9,987,004 2,700 Vietnam 2,50 2,300 2,500 3,767 4,900 5,400 5,720 ASEAN 8,558 24,2 26,364 29,742 33,32 34,275 37,848 Production Production of Crude Steel in the ASEAN countries did not grow correspondingly with consumption growth recorded only 3.2 % between ; But highest crude production continued to come from Malaysia which has the largest crude steel facilities. But Vietnam probably has the highest number of new projects currently As a whole ASEAN has higher installations for rolling rather than steel-making hence the need to import scrap, billets and HR/CR coils 5

6 Table 3: Crude Steel Production in ASEAN Countries ( ) 000 tons Country Indonesia 2,699 2,89 2,848 2,780 2,46 2,042 2,4 Malaysia,903 2,770 3,650 4,00 4,72 5,260 5,698 Philippines Singapore Thailand,82,532 2,099 2,27 2,538 3,572 4,533 Vietnam Total 8,03 8,62 9,93 0,20,223 2,479 4,3 Trade Imports In view of low-steelmaking capacities, ASEAN imports large quantities of semi-finished as well as high-end products Imports of all ASEAN countries continued to grow until The downslide of imports could be attributed to spiraling prices of both materials and products; Thailand alone imports 30% of all ASEAN steel imports Table 4: Imports of steel by ASEAN Countries 000 tons Indonesia 2,0,737 4,087 3,245 3,657 3,879 4,979 Malaysia 3,667 5,360 4,687 5,478 5,442 4,274 5,706 Philippines 2,09 3,48 2,762 3,049 3,336 3,242 2,843 Singapore 3,4 3,294 3,069 2,98 3,29 3,003 3,322 Thailand 3,822 7,366 7,62 7,375 0,040 9,857 2,06 Vietnam,743 2,27 2,528 3,586 4,689 4,475 5,456 Total 6,862 23,032 24,295 25,74 30,293 28,730 34,367 Trade Exports ASEAN countries only export 5-6 million tons of low carbon steel products per year and out this quantity, Malaysia dominates 50% of the exports; Malaysia s export capabilities only took off after the Financial Crisis when low domestic demand for construction steel forced companies to foray for export markets Table 5: Exports of steel by ASEAN Countries 000 tons Indonesia,544,42, ,008,040,30 Malaysia 2,056 2,373 2,9 2,467 2,002 3,222 3,739 Philippines Singapore Thailand,524,279,995,636,626,882,938 Vietnam Total 5,874 4,7 6,033 5,675 5,40 6,843 8,034 6

7 Malaysia s and ASEAN Malaysia is most integrated steel maker in ASEAN region and with HBI and DRI making facilities; Although ASEAN has high billet requirements, Malaysia cannot supply all of it although country has excess capacity of the product Malaysia imports 30% of steel products from ASEAN countries but ASEAN countries have become largest export markets, especially for billets Malaysian Steel Industry Structure Table 6: Structure of Malaysian Steel Industry (2004) Number of Sub-Sector Product Type Establishments Primary Products DRI HBI Billets 6 Blooms Slabs Rolling/Finished Products Secondary Products - Long Secondary Flat Bars Light Sections Medium to Heavy Sections Hot Rolled Coils Cold Rolled Coils Plates Wire Mesh Galvanised Wire Hard Drawn Wire Bolts and Nuts Nails Welding Electrodes High Carbon Shafting Bars Others Steel and Cement lined pipes Pipe Fittings Tinplate Galvanizing Colour Coating Roll Formers Steel Service Centres Fabricators Capacity ( 000 tons), , ,500 7, ,500 2, , ,00-7

8 Performance in 2003/2004 Table 7: Performance of the Malaysian Steel Industry (2003 & 2004) 000 tons 000 MT Sector Item Production Import Export Consumption Scrap Substitutes DRI/HBI,70 (,600) 42 (40) 372 (743),380 (897) Long Products Billets 3,998 (3,800) Bars,903 (,760) 68 (95) 48 (68) 724 (52) 0 (3) 3442 (3,383),850 (,697) Wire Rods,357 (,287) Sections 39 (295) HR Coils,650 (,80) Plates 290 (85) CR coils Other Metallic 50 Coated (304) 23 (0) 348 (26) 663 (68) 37 (3) * 79 (76)* 230 (245) 96 (26) 598 (244) 36 (22) 69 (33) 97 (66),340 (,52) 57 (485),75 (,54) 39 (76) 42 (,339) 32 (34) Flat Products CR Electrical Sheet - 63 (08) 4 (0) 59 (08) EG (239) Tinplate (25) (5) GI Sheets (257) (35)* Pipes + Tubes (669) (74)* 3 (7) 34 (33) 75 (60) 387 (23) 259 (232) 39 (43) 405 (332) 467 (720) Apparent Steel Consumption ASC rose to all time high in 997, but plunged by 45% in 998 Between , ASC recovered but dropped again in 2002 and 2004 and this can be viewed in the context of: o Stiffer import restrictions for flat products introduced in that year; o Spiraling scrap prices and slow-down in construction market in 2003 for long products; 8

9 Table 8: ASC of the Malaysian Steel Industry ( ) Year Population ASC ( 000 tons) ASC (kg/capita) ASC Growth , , , , , , , CONCERNS OF THE INDUSTRY 4.. Lack of Growth of Domestic Market The ASC of the Malaysian steel industry has shown erratic patterns since 998. Following a recovery after the severe beating of the 997 ASIAN Financial Crisis, it was anticipated that the industry would henceforth take a recovery path since the country was still developing and working towards an industrialized state. But ASC went into negative growth in 2002 as well as In 2004 and 2005, domestic markets have contracted again as construction industry went into negative mode and growth in 2004 was supported by export tonnages. Hence, a major concern of the steel industry now is the decline and contraction of the domestic market for steel products 4.2. ASEAN Countries Consumption While the consumption trends in Malaysia showed erratic patterns of decline and growth, the consumption in Thailand and Vietnam grew consistently. In 999, Malaysia lost its position as the largest consumer of steel products in South East Asia. Vietnam s ASC is also fast growing and may overtake Malaysia s pace of growth in a couple of years if growth in Malaysia continues on an irregular path Government Regulations The industry, from the Government perspective is a policy driven sector and being such is subject to numerous rules and regulations which can be reviewed and changed from time to time: Requirements for import permits for flat steel items; Import duties ranging from 30-50% for flat steel products; Requirements for import/export permits for billets and bars; Price Control of billets and bars 9

10 4.3. China Factors High growth of the Chinese economy has driven up steel demand, leading to a steep increase in steel outputs and imports. Over the decade, China has become the number one steel producing and consuming nation. To avert spiraling of prices and shortages of materials, China had implemented a cooling down process in 2004 to try and slow down consumption trend but event then, consumption and imports continue to grow. Factors which affect Malaysia and even ASEAN countries include: Low priced products being exported to Malaysia, which has been particularly facilitated by the ASEAN-China Free Trade Agreement; Fluctuations on prices, particularly of materials, which is broadly determined by the Chinese market and demand; China products posing competition in Malaysia s export markets, particularly ASEAN countries 4.4. ASEAN-CEPT and Free Trade Agreements The varying terms and conditions of the ASEAN-CEPT as well as those of the various Free Trade Agreements would likely contribute to some level of confusion in trade, particularly with Customs stations. 5. GENERAL OVERVIEW OF THE SECTORS Long Products In viewing that: The sector is too much construction based and that the mills need to move up the value chain; There is too much dependence on scrap the country is not generating enough local scrap and that the country needs to import 60% of its scrap requirements; Government is not responding to market conditions the price control issue is taking too long to review or the Government is unable to make a decision; There are export controls the administration procedures by itself become a bureaucratic control but the sector needs to export in view of over-capacity situation; There is good potential in ASEAN Markets but price of raw materials deters more export. Moreover, China becoming a competitor in these markets. But without export quantities, there would be a price war in the country; Downstream wire product manufacturers identified the need to expand and broaden market for wire products and asked for greater support from upstream companies to work with downstream; Recommendation: Increase downstream competitiveness through competitive pricing and good quality the keys to success. Such a situation would ultimately create 0

11 demand for upstream products. Upstream companies may need to conduct consolidations for better competitiveness. Flat Products Import restriction control affects the supply of materials for downstream processing and value-adding activities; The supply of materials from local sources are restrictive and not efficient in terms of delivery and quality; The domestic market is not growing or rather constricting Government policies on steel industry is not transparent or consistent Human Resource support is not supportive Recommendations Expansion of downstream processing will create wider base for steel industry and create greater demand for HR/CR coils; But currently, upstream cannot provide all sizes and width needed to process into a wider variety of finished products and yet import restrictions are curtailing access to materials Hence, review of regulations and freer flow of materials will generate growth and expansion of industry Consolidated Recommendations Need to lobby Government to review the policies that impede imports and exports Upstream to support and provide linkages to downstream and to grow the market with better products for customers 6. VISION To follow up on the recommendations, the following VISION for the companies to work towards: SUSTAINING GROWTH THROUGHOUT THE BUSINESS CYCLES Focus on the customers Marketing and product development Reducing reliance on the Government Integrating the industry Competitive QCD and S Leveraging ASEAN Relationship

12 7. STRATEGIES Focus on the Customer Product Development Relationship Standards and Enforcement Human Resource and Training Industry Management Influencing architects, JKR, builders and housewives to prefer steel Consider building prototype (steel house) - address the negative perceptions Consider R+D for usage: - making it modular and for IBS - environmentally friendly and thermal efficient - light weight steel for residential applications Commu - nicating with groups and to promote solutions and systems in using steel - Dialogues with architects, engineers, builders, universities - paper on Contributions of steel by 2020 Malaysian standards promotion and implementation of enforcement - CIDB to conduct better enforcement - better customs support for imports - new entrants lack leadership -rebranding industry to attract talent - marketing solutions and not products - Conduct training activities for: - competency training; Sales and marketing - Need to promote and rebrand the industry - joining CIDB and others on IBS - Role of MISIF Advertising and promotion campaign on the steel industry 8. STRATEGIES AND RECOMMENDED ACTION PLANS No. Strategy Ideas Actions. Focus on the Customer - Industry to identify solution opportunities Companies to conduct market research (influencing customers to use more steel) - Government and IBS Companies to understand modular coordination, IBS and role of government/cidb and others - Building Prototype to communicate steel - steel house - MISIF office - Selling Solutions, Not Products Educate customers about advantages and correct perceptions noise, heat, rust, cost, corrosion protection - road shows and exhibitions 2

13 No. Strategy Ideas Actions 2. Relationship (how to communicate with these groups to help them understand and know what solutions to offer) - Government - Architects - Engineers - Contractors - Government to provide business environment - Universities - External parties third party influences - Bankers - Need to do presentation to these bodies about our steel solutions: IBS - Identifying 3 rd party influences - Conferences regular - Contractors enhancing skills & knowledge - Addressing perceptions - 9 th Malaysian Plan/ Standards and Enforcement - CIDB - JKR - Customs - SIRIM 4. Product Development - R+D - Residential - IBS - Water Applications - Structural Applications - IBS solutions - Enforcement of building and product standards - those product not under CIDB consider appointing a third party specialist - sponsor of steel specialist/trainer/educator provide tools to help Customs - eliminating foreign workers - energy saving products - environment high performance buildings (HBP) - Cost efficient products - product, processes, machinery and delivery systems - Technologies what are these? - modular factories - conference/dialogue with engineers; - Government: Paper on Contributions of Steel Industry by revisit CIDB on enforcement, but better to take control. MISIF could appoint third party like SGS; - Engineers on on-site enforcement - influencing the Building Code Environmentally friendly products thermal efficiency; - Residential products; - working with universities. 3

14 No. Strategy Ideas Actions 5. Human Resource and Training 6. Industry Management: - Relationship - joint efforts - competition - MISIF - Leadership skills - Attracting Talent need to rebrand the industry to attract new employees - Skills training - knowledge universities programmes, research - Competency training to deliver certain outcomes - Sales, marketing (branding, value proposition, understanding customers, selling solutions, environment) - Advertising and promotion campaign for the steel industry (2006) - joint IBS - Role of MISIF - Competency training leadership programmes for graduates - Sales and Marketing Changing the image: - One Steel (mining to building - solutions - customer focused - quality products - innovations - what is the steel industry 9. IMPLEMENTATION OF ROAD MAP 9.. Steering Committee Steering Committee Chairman Task Force Promoting to customers Task Force on Communications and Relationships Task Force on Standards and Enforcement Task Force on Product Development Task Force on HR & Training Task Force on Industry Management 9.2. Growth Sectors and Task Forces - Task Force on Promoting to Customers - Task Force on Communications & Relationship - Task Force on Standards and Enforcement - Task Force on Product Development - Task Force on HR and Training - Task Force on Industry Management 4

15 - Light Weight Structural Steel Group - Structural Steel Group (hollow sections and other sections) - Process Equipments Group 9.3. Budget As this is an industry plan: The industry (members) should fund the projects, like hosting of seminars, road shows, participating in exhibitions, research and product development; MISIF should allocate some monies for administration, hosting of some meetings and entertainment of customer groups MISIF Secretariat Support 0. CONCLUSION The Secretariat would need to provide staff with the following skills: - marketing - material science ( standard writing and product development) The development thrust of the IMP3 and the MISIF Road Map for the Malaysian Steel Industry is to promote the growth of downstream value-added manufacturing of products for domestic and export markets; The demand for iron and steel products is generated by a strong and vibrant manufacturing sector that use iron and steel as its basic materials; The future of the industry lies in its ability to provide solutions and selling systems rather than selling products; Hence for the Road Map period, MISIF will lead the industries to: o Environmentally friendly solutions complying to ISO; o Low cost steel production; o Growing downstream to support upstream; o Focusing on products that support national projects; o Working with engineers and architects and builders to target projects outside Malaysia, like systems for modular housing; o Value adding o Selling solutions and not products and companies. 5