KUALA LUMPUR: Headwinds in the metals industry are expected to persist into 2024 primarily due to uninspiring demand, particularly from China, and the presence of structural overcapacities within Asean.
RHB Research said global and China's crude steel production reached 1.88 billion tonnes and 1.02 billion tonnes respectively last year with the latter contributing 54 per cent of the global production.
While China's steel consumption has been declining since 2021, global steel consumption has remained stable, buoyed by growth in India and Japan.
"Yet, the Chinese steel industry is at a crossroads, as both production and consumption of crude steel have been steadily declining from the 2020 peak.
"These shifts have unveiled structural changes in China, as steel consumption transitions from the real estate sector to infrastructure and manufacturing, reflecting the challenges in its property market," RHB Research said.
The Southeast Asia Iron & Steel Institute (SEAISI) revealed that Asean is on the brink of a massive influx of integrated mega mills.
If these plans come to fruition, over 71 million tonnes of steel capacity could flood the market by 2026.
"This is a cause for concern, as capacity would outpace demand or the apparent steel consumption (ASC) in the region.
"It said the challenge extends to Malaysia, where overcapacity and underutilisation issues are looming large.
Alliance Steel expects to add another 6.5 million tonnes to its current installed capacity of 14.1 million tonnes.
Eastern Steel is in the process of establishing Malaysia's first integrated hot-rolled coiled plant with 2.7 million tonnes capacity.
"As of 2022, only hot metal and pig iron have achieved capacity utilisation above the global average of 74 per cent and sustainable threshold of 85 per cent, while other products fall significantly below these levels at less than 51 per cent," noted RHB Research.
As steel industry accounts for 28 per cent of the local manufacturing sector's total carbon emissions, and 4.0 per cent of Malaysia's total carbon emissions, the firm said a multi- faceted approach is needed to achieve the country's net zero target by 2050.
"We learnt that the lowest hanging fruit would be renewables and pursuing energy efficiency as the most accessible and cost-effective steps to reduce scope emissions.
"Subsequently, the transition can be made to electrification using electric furnace, hydrogen-based direct reduction (H2-DRI), carbon capture and storage/utilisation (CCS/CCU), and bioenergy CCS (BECCS).
"The adoption of these advanced technologies is contingent upon Malaysia's technological maturity and economic viability.
"RHB Research maintained its "Overweight" call for the metal industry.