KUALA LUMPUR: Flat steel producers will meet with the Ministry of International Trade and Industry (Miti) this week to discuss some policy changes that could possibly shape a new landscape for the sector.

The recommendations of Boston Consulting Group (BCG), hired by Miti to conduct an in-depth study on the local flat steel sector, will be discussed at the meeting, said industry sources.

“BCG submitted its findings to the Economic Council about two weeks ago, and it seems the government has studied the fi ndings and is now on the verge of making a decision,” said an executive in the steel industry. Things are coming to a head in the local flat steel sector.

Miti hired BCG in February to undertake a detailed study, hoping to resolve the woes in the flat steel industry that has been plagued with parties at each other’s throat. The disputes are mainly between Megasteel Sdn Bhd and the downstream players which are required to source their input from Megasteel.

The consulting group had interviewed several industry big wigs over the past few months. BCG made its recommendations to the Economic Council, chaired by Prime Minister Datuk Seri Najib Razak on June 19. It is understood there were two reports made to Miti — a preliminary report and an extensive one.

“There are only a handful of people who know about the contents … BCG of course is only obliged to give details to its client, so it’s futile even trying to get anything from them,” the industry source said.

Malaysian Iron and Steel Industry Federation (Misif ) president Datuk Soh Thian Lai told The Edge Financial Daily: “At the moment, we don’t have the detailed report, but we should get some information soon.”

Misif, which has about 130 members, is the umbrella organisation for the local flat steel sector. Many downstream steel producers are not happy that they are required to source flat steel products from Megasteel, which is controlled by Tan Sri William Cheng.

They can only import if Megasteel does not produce the required items. Megasteel is protected as hefty duties are imposed on imported flat steel products. Flat steel players have been lobbying to the government to abort the protectionism policy on flat steel products.

Megasteel, however, thinks otherwise. Cheng had undertaken a RM3.2 billion heavy investment during the recession in Banting, Selangor, resulting in the high debt levels. Cheng’s argument is that Megasteel’s big risk during the recession warrants the protection.

At present, Megasteel has an electric arc furnace utilising scrap and hot briquetted iron, raising concerns over the quality of steel produced. But Cheng has a grand plan to set up a blast furnace to reduce operating costs, and transform Megasteel into a viable business. For its financial year ended June 2011, Megasteel incurred a net loss of RM223.7 million on RM2.87 billion in revenue. It had accumulated losses of RM370.25 million.

As at end-June 2011, Megasteel had short-term debt of almost RM3 billion and its long-term borrowings was at RM457.53 million. Much to the chagrin of flat steel players, Megasteel last year requested the government to impose an import duty of 35% over and above an existing 35% import duty for steel products.

The request did not go down well with Misif, which has been fighting for an even playing field. Several Japanese companies had urged their ambassador in Malaysia to meet up with Miti to help resolve the import duty issue, but there has been no real change.

Other than Megasteel, the other four licensed flat steel producers are Soon Seng Group, which controls Malaysia Steel Works (KL) Bhd; Eastern Steel Sdn Bhd, in which Hiap Teck Venture Bhd holds a 55% equity stake; Melewar group and Ann Joo Resources Bhd.

This article appeared in The Edge Financial Daily July 9,2012.