Malaysian steel prices are expected to jump a further 15 percent to 20 percent after the Chinese New Year as governments in East Asia restart spending on major infrastructure-related projects and restocking activities increase, said Malaysia Steel Works (KL) Bhd (Masteel) managing director Datuk Seri Tai Hean Leng.
The current steel bar price in the domestic market is about USD 585 per ton while the international market price is about USD 565. He said the steel industry was heading for a recovery with an average capacity utilisation of about 70 percent to 75 percent due to an improvement in steel demand from East Asia. The higher cost of raw materials like iron ore and scrap metal, given the extreme cold winter, could also result in steel prices rising in the coming months.
“Many industry players are expecting an increase in restocking activities as consumers (steel buyers) prepare for strong construction demand by end-February,” Tai said.
Malaysia, Indonesia, the Philippines, Singapore and Thailand are expected to spend a total of about RM102bil on infrastructure projects, financed by their economic stimulus packages. He also expects locally-made steel billets to command higher prices in the regional markets as the local products were of a higher grade compared with those from China.
“The Middle East, Australia, Pakistan and Bangladesh will also be favourable export markets for local billets, should these economies continue to improve,” he said.
According to Tai, Masteel was looking forward to boosting the sale of its premium steel products which conform to the Australian and New Zealand standards.
The company recently secured a two-year contract worth RM120mil to export steel bars to major cities in Australia. It has been exporting to New Zealand since October last year. Tai said Masteel was targeting to produce 500,000 tons of steel billets and 280,000 tons of steel bars by the year-end. Currently it produces about 450,000 tons of billets and about 230,000 tons of steel bars.
“Works are in progress to further boost our billets and steel bars capacity to 550,000 tons and 300,000 tons by the middle of next year,” he said, adding that this was to cater to the expected higher demand arising from projects earmarked by the government stimulus packages.
The infrastructure expenditure in Malaysia include the Light Rail Transit extension, Gemas-Johor Baru electrified double-tracking, the low-cost carrier terminal, the upgrading of roads, bridges and community halls in rural areas, the upgrading of schools and hospitals as well as the urban transport system. It is reported that over the past two years, local steel mills had been exporting about one million tons of steel products.
Malaysia's exports of steel products increased after China imposed a 25 percent tax on exports of billets which created a shortfall of about five million tons of billets in the South-East Asia (SEA) market. Previously, China supplied about 75 percent of the total SEA billets requirement.
Meanwhile, analysts expect feedstock iron-ore prices to increase by 20 percent to 40 percent from 2010 onwards due to the emergence of highly monopolised supply from the impending merger between iron-ore giants BHP Billiton Ltd and Rio Tinto Group.
Another report had mentioned that iron-ore prices would likely trade at USD110 to USD110 per ton from USD70 to USD75 per ton currently. BHP is currently in talks with China to set the annual iron-ore prices. Together with Vale SA, the world's biggest producer, the move could signal contracts doubling the spot market prices this year.

Policies aimed at boosting demand for cars and homes in emerging markets helped Japanese mills increase crude steel output by more than a third in January from a year ago.
A nearly 37 percent jump in January to 8.72 million tons was the third-straight monthly increase in crude steel output and in line with recent economic indicators which have shown the Japanese economy is on a moderate recovery path.
"The data shows that finally, the upward momentum (in steel output) is strengthening," said Tomomichi Akuta, senior economist at Mitsubishi UFJ Research and Consulting. According to a report, Japanese manufacturers are becoming steadily less pessimistic about economic conditions and at their least gloomy since July 2008 as the economy recovers on the back of exports, particularly to emerging economies.
The stimulus-fuelled rebound in domestic demand and a corporate investment revival have also helped mask rising deflationary pressure and the risk of a slowdown in 2010, as Japan's economy grew faster than expected in the fourth quarter. Japan's core machinery orders jumped in December to secure the first quarterly rise in the key measure of capital spending in almost two years, but the data also pointed to little confidence of recovery in the months ahead.
"There were concerns about the weakness of capital spending, but recent data showed that investment money is gradually returning to big machinery and buildings," he said. There are also signs of the U.S. economy bottoming out.
U.S. housing starts rose to a six-month high in January and industrial output increased solidly, pointing to an economic recovery taking a firm hold and respectable first-quarter growth.
"It (the steel data) suggests that the developed economies have emerged from their slump in the recent financial crisis, and that this recovery trend will continue. But it will still lack the strength of a full-fledged recovery," Akuta said. Japanese steelmakers, including the world's second-biggest steelmaker Nippon Steel Corp and the No.6 JFE Holdings Inc, have boosted exports of high-grade steel, such as galvanised sheet steel, tinned plates and magnetic sheet steel, to South Korea, China and other Asian countries.

Mitsubishi Corporation made an offer to acquire 25 percent of Cia. Minera del Pacifico, a unit of Chilean steel and iron-ore producer Cap SA, reports said. Mitsubishi, Japan's largest trading company, offered to buy USD 400 million in new shares in CMP and hand over its 50 percent stake in CMP's Cia. Minera Huasco iron-ore unit.
The prospective deal is part of Mitsubishi's plan to restructure its shareholding in Cap, the Santiago-based company wrote in a December 18 regulatory filing. Mitsubishi owns 19.3 percent of Cap.

Japan's competition regulator needs to be more flexible on anti-monopoly rules to enable domestic steelmakers to compete with international rivals. The Fair Trade Commission needs to embrace a perspective of international competitiveness when it considers mergers and tie-ups among Japanese steelmakers, reports quoted Masaki Koito, Director of the Iron and Steel Division at the Ministry of Economy, Trade and Industry. Kyoei Steel Ltd. and Tokyo Tekko Co. in October called off a merger to create Japan's second-largest electric-arc furnace steelmaker after saying it took more time than anticipated for the watchdog to review the plan.
Japan, the second-biggest steel producer behind China, is losing ground as China considers a new steel policy that will encourage mergers to create three to five mills with capacity of about 50 million tons each. Nippon Steel Corp., Japan's biggest mill, produced 26.5 million tons in 2009. Nippon Steel plans to raise its stake in Nisshin Steel Co., the smallest of Japan's five blast-furnace steelmakers, to 20 percent and sell part of its 80 percent stake in a stainless steel unit.
Nippon Steel has notified the commission of the plan and may reduce the proposed stake in Nisshin Steel, depending on the commission's judgment. The commission typically looks at whether a merger will stifle competition domestically, according to Koito. The regulator should also consider the international arena to get a wider perspective of the ramifications of a merger. JFE Holdings was formed in September 2002 by the merger of Kawasaki Steel Corp. and NKK Corp. Nippon Steel, Sumitomo Metal Industries Ltd. and Kobe Steel Ltd. have extended a partnership since they agreed to buy stakes in each other in November 2002. China's economy is forecast to expand by 10 percent and India's by 7.7 percent in 2010, while Japan is expected to grow at 1.7 percent after coming out of its worst recession since the end of World War II.
Japanese steelmakers are depending more on exports to Asia after domestic manufacturers cut investment and the government halted public work projects, including construction of the USD 5 billion Yamba Dam north of Tokyo, as part of its efforts to control spending. Domestic consumption of construction steel has fallen 9 percent in the past two years to 25.6 million tons, according to Tokyo-based Nippon Steel, which cites the data from the Iron and Steel Federation.