Steel sector faces oversupply situation

PETALING JAYA: The building materials sector, especially the steel industry, will continue to be weighed down by weak demand due to the absence of sizeable new public infrastructure projects.

AmInvestment Research said the steel industry is expected to face an oversupply situation with the increase in steel production in China in 2020 and from a new foreign-owned plant in Kuantan, Pahang.

“We project an average steel bar price of RM2,000/tonne in 2020, revised down from the RM2,100/tonne we assumed previously, ” it said in a report yesterday.

The research house pointed out that industry experts have forecast the steel surplus in China to rise to 196 million tonnes in 2020, up 13% from 174 million tonnes estimated in 2019.

However, consumption is projected to decline by 1.4% as investments are slowing amid the US-China trade war, it added.

“China’s steel surplus normally ends up as exports to the rest of the world. The oversupply situation could ease but would not go away completely in 2021 as China’s steel surplus is projected to reduce to 115 million tones on the back of a 10% drop in production as the authorities intensify their efforts to eliminate obsolete and highly-polluting capacity from the system on environmental concerns, ” AmInvest said.

Notably, China is the world’s largest producer and consumer of steel, making up about 55% of the global market.

For aluminium, AmInvest expected the industry would see a steady consumption growth in China in 2020.

However, aluminium prices are expected to remain unchanged on the back of an uncertain global economic outlook.

“Aluminium consumption in China is growing, backed by the substitution of steel with aluminium in the production of motor vehicles and aircraft.

“Industry experts project aluminium consumption in China to rise by 7.8% to 38.7 million tonnes in 2020 which will be more than met by production projected to expand by 8%-9%, ” it said,

China is the largest producer and consumer of aluminium in the world with a 58% of global market share.

For cement players, AmInvest expected a “very gradual” rise in cement prices as supply tightens.

AmInvest pointed out that with the takeover of Lafarge Malaysia by YTL Cement, it reckoned that the fight for market share will ease and pave the way for players to shut down underutilised plants to optimise operations.

In terms of consumption, the research house expected a 3% decline to 14.6 million tonnes in 2020 from 15 million tonnes estimated in 2019 on subdued public infrastructure construction activities as the government tightens its belt, coupled with the still challenging property market.

Source: TheStar