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NEWS UPDATES Asean Affairs     5 November  2011

China steel threatens Malaysian steel
Lion Group's unit Megasteel Sdn Bhd said the Government has agreed to explore options to assist the local flat steel products industry, while fulfilling the requirements of the Asean Free Trade Agreement (Asean FTA) and other FTAs on steel industry.

One of the proposals by Megasteel, is to lower the import duty to 15 percent from 25 percent for flat steel products covering:

Another proposal is that duty exemption will not be granted given the proposed reduction in import duty.

Megasteel marketing director Lai Chin Yang said the government had become more aware of the significant importation of HRC and other flat products from the non-Asean countries following the termination of Megasteel safeguard petition for HRC in August.

In April, Megasteel had petitioned Miti to consider imposing a safeguard duty of 35 percent on imported HRC which were affecting the local market.

Currently, despite five HRC licences been issued, Megasteel is the only sole HRC producer in Malaysia.

Lai said the proposal to reduce the import duty on flat products would not run foul with the World Trade Organisation and also, not asking Malaysia to retract its commitment under Asean FTA.

“The reduction in import duty will bring about stability in the local flat products market given the loopholes in the current system whereby there is rampant importation of HRC, CRC, GI sheets, EG sheets, colored sheets and pipes from many non-Asean countries into Malaysia, which were duty exempted despite being available locally.

Of the total 1 million tons of HRC imported into Malaysia last year, 400,000 tons were from Taiwan, 200,000 tonnes from Japan and about 100,000 tonnes from South Korea.
“These are all non-Asean countries and do not fall under the coverage of the Asean FTA.

Of the total HRC imports, Lai said about 70 percent were within the range that can be produced by Megasteel.

Hence, the effect of the withdrawal of duty exemption on industries would be minimal if every effort is made to use local materials.

If this can be achieved, Lai said Megasteel would be able to increase its capacity utilisation and lower its production cost, with the overall benefits passed on to the downstream steel industries.

Megasteel has a capacity of 3.2 million tonnes annually or 260,000 tonnes a month.

Lai said: “We are optimistic that the government this time around will consider our new proposal given the ongoing manipulation and abuse in the importation of flat products from non-Asean countries. We also believe that there is an urgent need to standardise the system which will assist in the development of the entire flat products sector,” he said.

Meanwhile, Malaysian Iron and Steel Industry Federation (Misif) president Chow Chong Long said the federation would reject Megasteel's latest proposal after consultation with its members.

While Misif welcomed the reduction of duty from 25 percent to 15 percent, Chow said: “However, the abolishment of duty exemption is going to be detrimental to many downstream industry players.”

Chow said Megasteel was also a major part of the local flat steel value chain and the steel industry. “Misif would like to see a win-win solution for both upstream, midstream and downstream.”

Misif, which is 80 percent represented by downstream steel players, was of view that the new proposal would not entirely resolve Megasteel's current problem, he added.

Chow also said the actual threat for local steel industry players was from China which has increased its crude steel capacity to become the world's largest fully integrated with available raw materials and huge domestic market. “Asean Free Trade Area (FTA) can be an opportunity for Malaysia given the liberalisation in the regional steel policy.”

There is a huge disparity on the HRC import duty structure for imports from China by individual Asean countries.

Malaysia has the highest at 25 percent while Thailand and Indonesia about 5 percent import duty on HRC and its related flat products.

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