Malaysia’s reinstatement of COVID restrictions creates uncertainty for steel market

Posted on 13 January 2021

The Malaysian government’s reintroduction of tighter pandemic restrictions from Jan. 13 is creating uncertainty for the local steel industry, with sources anticipating potential delays in scrap deliveries and a possible reversal in the recovery in downstream markets.

The states of Penang, Selangor, Melaka, Johor and Sabah as well as the three federal territories of Kuala Lumpur, Putrajaya and Labuan will be under a Movement Control Order for two weeks until Jan. 26, the ministry of trade and industry said.

While manufacturing and steel production will be allowed to continue, albeit under certain safety-related restrictions, inter-state transportation could be an issue for the two-week period.

“With these major states under a lockdown, and roads with blockages, flows will definitely be impacted,” a Kuala Lumpur-based trader said. “Kuantan [on the east coast] and Penang [in the north] have their own ports and local scrap supply, but a huge bulk of Malaysia’s scrap is generated from the capital, where deliveries likely will face some issues.”

Logistical disruptions within states could place short-term upward pressure on domestic scrap prices. Sources speculated that trucking companies or yards may factor in additional fuel costs to re-route delivery to mills that are located further away from the city.

Domestic scrap prices were already on an upward trend, amid bullishness in seaborne markets. For instance, bonus grade scrap delivered to Kuantan mill was already marking levels at MR1,680/mt ($413/mt) Jan. 12 prior to the lockdown, a MR370/mt increase since the start of December.

Meanwhile on the product market front, the lockdown restrictions could once again depress trading activities in downstream sectors such as construction and auto production, unwinding the recovery seen over the last six months.

Listed prices for rebar of 12 mm diameter have gained MR300/mt since early December and were heard in a range of MR2,600-2,650/mt ($640-$652/mt) Jan. 12, ex-works Klang.

“Finished product sales could fall once again, like what we faced during the first MCO in March,” a Klang-based mill source said. “We may have to adjust production rates, but will monitor how our customer demand changes.”

Source : Platts