It is reported that Hiap Teck Ventures Bhd's 55% owned Eastern Steel Sdn Bhd, controlled by businessman Mr David Law Tien Seng, will begin work on the first phase of its integrated steel complex in Kemaman from December 2011. The initial cost is MYR 754 million and targeted completion is by mid 2013.
Despite the ongoing uncertainties in global markets and the challenging outlook for the steel sector, Hiap Teck, currently a steel pipe manufacturer, together with its China partner, China Shougang International Trade and Engineering Corporation, has decided to go ahead with the project that will be among the first to produce steel slabs in ASEAN.
According to Mr Low Choong Sing, an executive director of Hiap Teck, the ASEAN market imports 4.13 million tonnes of steel slabs per year. He said that "Given our initial capacity of 700,000 tonnes, we hope to capture about 17% of the ASEAN market. We would be among the first in the region to produce steel slabs."
While no company in ASEAN is producing steel slabs, foreign steelmakers have tied up with players in Indonesia and Thailand to set up steel slab plants. Local player Ann Joo Resources Bhd is also in the process of setting up a plant.
According to Mr Low, construction of Phase 1, Stage 1 of Eastern Steel’s complex will be undertaken by China Shougang, and the work will comprise the construction of a blast furnace capable of producing 700,000 tonnes of steel slabs and 350,000 tonnes of coke per year. The ground breaking ceremony at the site will be on December 5th 2011.
The cost of MYR 754 million for Phase 1, Stage 1, will be shared by the shareholders of Eastern Steel Hiap Teck which owns a 55% stake, Orient Steel Investment Pte Limited (40%) and Chinaco Investment Pte Ltd (5%).
Mr Law controls 27.64% of Hiap Teck. He is the sole shareholder of Orient Steel, but is in the process of selling his 100% stake in Orient Steel to China Shougang, which will effectively own 40% of Eastern Steel.
Mr Low said there are plans to build another blast furnace in the second stage with a capacity of 1.5 million tonnes of steel slabs and 700,000 tonnes of coke per year. He added that "We hope to complete the commission of the first blast furnace before we embark on the second stage. We foresee an investment of MYR 1 billion for the second blast furnace. We could look at bank borrowings to fund this portion."
He said that "China Shougang is one of the top three steel mill players in China and produces 30 million tonnes of steel annually. As such, it is the best entity to undertake the construction job."
Mr Low said that the steel complex would be built in Kemaman as it is strategically located next to the deep sea port. Eastern Steel would source its raw materials from the iron ore mines in Kelantan, Pahang and Terengganu. He added that "We also plan to import better quality iron ore and coal from Australia."
There is a strong market in ASEAN as all steel slabs are currently imported from Eastern Europe, Low said, adding that the shipping of steel slabs from Eastern Europe costs about USD 60 per tonne and takes about 45 days to be shipped to this region.
Furthermore, Mr Low said Eastern Steel would benefit from the construction of the steel complex in the weakening global economy. He added that "A weak global economy means costs will be lower and the contractors (may have less projects and so) could focus on the project and complete it on time."
According to Bloomberg data, Hiap Teck has one hold and three sell calls with a consensus fair value of 70 sen. Analysts cited their concerns over the group’s investment risk and the possible potential low efficiency rate during the initial stage of the production of steel slabs.
(Sourced from www.theedgemalaysia.com)
