3.

0 Industry analysis

3.1 Steel Industry

Steel is the essential raw material used in the manufacturing sector, machinery and
engineering industries, transportation equipment (automotive, railway and shipping) as well
as the major ingredient for infrastructure projects. Hence, steel-making capacities are often
viewed as a national interest to add value to natural resources, it ensures ready supply for the
development of manufacturing and construction sectors, substitute for import, as well as
generate saving on foreign exchange

Steel production has a high multiplier effect in the economy through increased
activities in other related areas. The level of per capita consumption of steel is treated as one
of the important indicators of socio-economic development and living standard of the people
in any country. It is a product of a large and technologically complex industry having strong
linkages in terms of material flow and income generation.

The steel industry can be classified into two segments i.e. primary steel producers and
secondary steel producers. Primary steel producers, also known as integrated steel producers,
are involved in the entire range of iron and steel production commencing from exploration of
iron ore to the production of finished steel products. The secondary producers purchase iron
ore or steel scrap as raw material for production process that do not use coking coal. The
secondary steel producers can be classified into three types i.e. major secondary players,
mini steel plants and steel re-rollers. Finished steel is used mainly in the form of long
products, flat products, (which in turn contain hot rolled and cold rolled and galvanised
products) and alloy steels. The demands for steel are mainly from sectors like automobiles,
consumer durables, and infrastructure and construction industry. Being a core sectors, it tracks
the overall economic growth.

The steel industry is well known for its cyclical nature. The up and down turns are not
new to the steel industry. Over the past decade, the steel industry has witnessed emerged as
more risilent and more efficient industry despite of the cyclic nature. Together with coal and
cotton, iron and steel were the principle materials upon which the industrial revolution was
based. Technical developements from the early eighteenth century onward allowed dramatic
increases in ouput, for example by replacing relatively scarce charcoal with hard coal/lignite
and coke respectively and by the developement of the paddling process for converting pig
iron into steel.

Crude steel production has grown exponentially in the second half of the twentieth
century, rising to a world total of 757 million tones in 1995 and growing further to 1.146
million tones ten years later in 2005. In 2012, crude steel production worldwide recorded
1.545 million tones.

(sources from World Steel Association)

More than half of the steel produced worldwide goes into steel buildings and
infrastructure. The population will increase by another 2.7 billion people by 2050 and this will
be accompanied by rapid urbanisation. The need for buildings and infrastructure will continue
to grow worldwide in years to come. Steelmakers around the world are increasingly providing
construction solutions that enable energy-effcient and low-carbon-neutral buildings. These
solutions are highly material efficient and recyclable.

Here are the statistic of percentage steel use in service life for 2016 taken from the
World Steel Association:
 (Sources from World Steel Association)

3.2 Steel Industry in Malaysia

In 2016, Malaysia maintained its ranking as the worlds fifteenth-largest steel

importer. Malaysia imported 8.9 million metric tons of steel in 2016, a 16 percent increase
from 7.7 million metric tons in 2015. Malaysias imports represented about 2 percent of all
steel imported globally in 2016. The volume of Malaysias 2016 steel imports was more than
a third the size of the worlds third-largest and Asias largest importer, South Korea. In value
terms, steel represented just 3 percent of the total goods imported into Malaysia in 2016.
Malaysia imports steel from over 50 countries and territories. The four countries labeled in the
map below represent the top import sources for Malaysias steel imports, with each sending
more than 1 million metric tons to Malaysia and together accounting for 82 percent of
Malaysias steel imports in 2016.

Malaysia is a net importer of steel mill products. Since 2009, Malaysias level of steel
imports has been trending upwards after rising sharply in 2008 and falling quickly afterwards
in 2009. Between 2009 and 2016, Malaysias imports increased by 134 percent. Over the
same period, Malaysias steel exports gradually declined by 52 percent. Between 2009 and
2016, Malaysias steel trade deficit widened from -944 thousand metric tons to -7.6 million
metric tons, a 700 percent increase. Between 2015 and 2016, the trade deficit grew 27 percent.

The steel industry in Malaysia is centered on the countrys construction and

manufacturing needs. Steel production is no longer dominated by long products such as bars
and wire-rods as the importance of flats and steel sections has increased in recent years with
the rapid economic development in the country.

Malaysian apparent steel consumption had shown an increase from year 2007 to 2008
before a slight decrease in 2009 and increase back with constant consumption until 2016
(figure 1). Crude steel production has experiencing a decrease in production from year 2007
until 2009 before the production had increase slightly in 2011. However, the production keep
decreasing simultaniously until 2016 (Figure 2). For the finished steel production, the steel
production in Malaysia had experienced a fell down from 2007 until 2009 before gaining back
and maintaining until 2014. For the following period 2015 and 2016 the production of
finished steel had decrease back (Figure 3). Due to the following decreasing in production,
imports of iron and steel products had increase from year 2010 until 2016 due to decreasing in
production in Malaysia (figure 4).
(Figure 1)

(Figure 2)
 (Figure 3)

(Figure 4)

All of the figures are taken from Malaysian Iron and Steel Industry Federation. Both
company that we are analyzing lies under the steel manufacturing industry which producing
steel to be distributed to certain sector such as manufacturing, construction and other sector.
All of the chart shows all the production of steel in Malaysia and two of the company which is
CSC Steel and KL Steel are among them who act as a producers in the country.
3.3 Market Studies
In malaysia, there are approximately around 3305 companies of selling steels all over
the states. According to the Malaysian Iron and Steel Industry Federation, Malaysia has over
100 steel manufacturing and processing facilities. The five largest steel producing companies
account for the majority of Malaysias estimated steelmaking capacity, with members of The
Lion Group alone accounting for more than half of Malaysias total steelmaking capacity of
10.6 million metric tons in 2015.

Csc steel are one of the company that we taken to analyze that is listed in top five of
steel producers in 2015.

Megasteel (The Lion Group)

Megasteel Sdn Bhd is in close proximity to the Klang valley where 70% of the
nations consumer of hot rolled coils are located. Its strategic location near Port Klang
helps to facilitate exports and lower transportation costs for the import of raw
materials and export of finished coils. With a capacity of 3.2 million tonnes per
annum, Megasteels production helps to substitute imports and yield substantial
foreign exchange savings. The company are considered as the top producer as it
produces 4 million metric tons of hot-rolled and cold-rolled coils to be distributed to
consumers. However the lastest news state that the company are rumoured to be close
following debt issues.
 Antara steel mills (The Lion Group)
The Lion Group acquired Antara Steel Mills Sdn. Bhd. in Pasir Gudang, Johor
from Johor Corporation Bhd in September 2002 after operating the mill under lease
since March 2001. Antara which produces billets, mild steel round bars, high tensile
deformed bars, angle bars, flat bars and U-Channels has about 800 employees.Located
at Pasir Gudang, Johor make the Antara Steel Mills Sdn Bhd the only one of the
biggest steel making factory in Johor. The company reached the second top producers
in 2015 which also belongs to Lion Group with the capacity of 1.5 million metric tons
of bars and sections. The steel plant in Antara Steel Mills was established in 1993 to
produce billets with approximately 700,00 tonnes per annum. The producers also
having the issues of debt same as Megasteel since both are under the same parent
company.

Southern steel
Southern Steel Group is a leading Malaysian Steel Group with 50 years of
experience and expertise in steel products manufacturing. Its strong shareholder line-
ups include Hong Leong Manufacturing Group Sdn Bhd and Signaland Sdn Bhd
which are members of Hong Leong Group Malaysia, and the founding business
families based in Penang. Hong Leong Group Malaysia is among the top ten
diversified conglomerate in Malaysia. Its strong shareholder line-up include Hong
Leong Manufacturing Group Sdn Bhd and Signaland Sdn Bhd which are members of
Hong Leong Group Malaysia, and the Groups founding families based in Penang.
Hong Leong Group Malaysia is among the top ten diversified conglomerate in
Malaysia. The founding families of the Group have businesses spanning from rubber
products manufacturing, branded retailing, financial services to property development.
The company are the third top producers in 2015 with production of 1.5 million metric
tons specialized in billets, bar, wire rod, pipe and tube.
 Amsteel Mills (The Lion Group)
Amsteel Mills Sdn Bhd, a member of The Lion Group commenced operations
in 1978. It operates two steel mills, in Klang and Banting, both in Selangor, which are
equipped with modern facilities comprising Electric Arc Furnaces of 85-ton and 160-
ton respectively, 6-strand Continuous Casting Machines and Ladle Furnaces to
produce billets for rolling into bars and wire rods. The Banting mill produces special
grade bars and wire rods for automotive parts, mattress and mechanical springs,
turning parts, wire ropes and other speciality uses. Another mill operated by the Group
under the name of Antara Steel Mills Sdn Bhd in Johor produces billets and bars
including U-channels. Antara Steel Mills also operates a HBI plant using the Midrex
Direct Reduction technology in Labuan, East Malaysia. Most of the HBI is exported
for steel making purposes with some used in Amsteel's own operations and in sister
company, Megasteel Sdn Bhd. Amsteel and Antara have a steel making capacity of
2.7 million tonnes of billets per annum, and a rolling capacity of 1.9 million tonnes per
annum. Strategically located in the Klang Valley in Peninsular Malaysia, its proximity
to Malaysia's premier port, Port Klang, makes Amsteel Mills ideally located to cater to
the requirement of domestic customers as well as international markets. Antara Steel
Mills' location in the south of Peninsular Malaysia is also well placed to cater to
southern region including Asean market. A commitment towards prompt and reliable
delivery services had enabled Amsteel Mills and Antara Steel Mills to gain both local
and international acceptance and customer satisfaction in its products and services.
The company was the fourth top producers in Malaysia which produce 1.2 million
metric tons of bars and wire rods. The same issues occurs as The Lion Group are
indeed in a debt.

Csc Steel

In December 2000, CSC had acquired its first offshore steel companies,
namely CSC Steel Sdn. Bhd. (CSCM, formerly known as Ornasteel Enterprise
Corporation (M) Sdn. Bhd.) and Group Steel Corporation (M) Sdn. Bhd. (Group
Steel). Since then, both CSCM and Group Steel have been fully operated under the
management of CSC. In January 2004, Ornasteel Holdings Berhad was established
and acquired CSCM and Group Steel as its wholly-owned subsidiaries in the same
year. Subsequently, Ornasteel Holdings Berhad was successfully listed on the Main
 Market of Bursa Malaysia in December 2004 and renamed CSC Steel Holdings
Berhad (CHB) in 2008. At the helm of its parent company, CSC, the productivity as
well as the competitiveness of CSCM in both domestic and international markets has
been strengthened with the capital injection in upgrading equipment and expanding
production lines, providing technical support, and enhancing its management
performance. CSCM has been one of the key players in the Malaysian steel supply
chain with the raw material supply of hot rolled coils from CSC as well as from a local
Malaysian manufacturer. In recent years, CSCM has actively broadened its market
reach to countries in Southeast Asia and Oceania. This move would help the CSC
Group to further penetrate into the steel markets in Southeast Asia. The company had
reached the fifth top producers of steel in Malaysia in 2015 by producing 0.9 million
metric tons of hot-rolled/cold-rolled coils and sheets, galvanized.

3.4 Michael Porters Five Forces Model

Existing rivalry

Competitive rivalry within the industry is the core of the Porters 5 Forces, competitive
rivalry states what an organization has to differentiate itself from others and how do they
define themselves among other competitors, using their competitive advantage, advertising,
pricing strategy, and promotions. There is a ton of competitive rivalry right now. Malaysia is
still a developing country, thus, there are quite a few big players within this industry in
Malaysia. There were approximately over 100 producers of steel in Malaysia and each of
them was considered as a rivalry in the production businesses.
 For the company Csc Steel which located in Melaka, their competitors were not many that
having the same location with the company. To be said that the company are the main
dominant producer in the states whereas Malaysian Steel Works have many state competitor
as the company are located in centre of Malaysia, which is in Selangor. However, the rivalries
all over the states in Malaysia are considered to be many as others were also included in Bursa
Malaysia such as Lion Group, Southern Steel, Press Metal, Kinsteel, ChooBee, Malaysia Steel
Works, Mycron Steel Berhad (Among who are nominated in Bursa Malaysia).

Threat of new entrants

This seems to be relatively low or at best medium. It affects the competitive environment
for the existing competitors and influences the ability of existing firms to achieve
profitability. A high threat of entry means new competitors are likely to be attracted to the
profits of the industry and can enter the industry with ease. New competitors entering the
marketplace can threaten or decrease the market share and profitability of existing
competitors and may result in changes to existing product quality or price levels.

Having more than 100 registered companies, it is not a big threat. The number of entrants
varies over time and it depends on market condition. It would require a huge amount of
capital and a long period of time in order for new company to achieve economies of scale, or
getting their invested capital return. For a new company, getting a brand loyalty would be a
difficult task especially in property development as big companies are already set their
headquarters in each state. Csc Steel and Malaysia Steel Works remains operating until now
compared to other companies that need to be shut down due to issues like debt.

Bargaining Power of Buyers

In the market, one side has the power and is able to control how the market in that
industry is running. When there is over supply in the market or the buyers are very few,
buyers get the opportunity to be picky and state their own conditions; this might affect the
price the quality of the product and other factors like service. However, in steel industry, they
are always have low in bargaining power because there are many that seek affordable price of
steel and they have a lower prices to be compared to steels that are imported from other
countries like China which are sold at higher price.
 Bargaining Power of Suppliers

This one seems to be very high since one of the problems in making a profit in this
industry as it is taking longer to obtain the necessary supplies, plus the pricing has risen for
these supplies. Indeed, workers are also technically suppliers too and due to the construction
boom, the cost of workers is much higher.

The rarity of supply of any important input such as raw materials or/and working power to
the organizations operations would put the power in the suppliers hands and give them the
opportunity to rule the market by the prices and the quality. On the hand the oversupply of the
input for the organization reduces the power of the supplier as the organizations gets the
privilege of choice among the many alternative. When the demand is high, the production of
steel needs to be in higher output so the steel company will able to achieve the demand rate of
steels.

Threat of Substitutes

The availability of other alternatives for the buyer, and how easy for them to switch to
other options. The nature of competition in an industry is strongly affected by the above
mentioned five forces. The stronger the power of buyers and suppliers, and the stronger the
threats of entry and substitution, the more powerful competition is likely to be within the
industry.

In Malaysia, when developing a steel producers, company must take note that it can be
replaced by competitive product from another developer that already exist in the markets such
as billets, rods, etc that are being used in occasions like construction. The company have to
differentiate product with three aspects which are location, type and quality. Producer with the
most generic product have higher substitute, while the one that distinguish will cope the best.
Securing location with ease traffics and transportation will reduce the probability of buyer
propensity to substitute.
 Conclusion

As a conclusion, steel industry is considered to be a part of major influence in

generating the profit of the country. From the analysis, Malaysia are to be said one of the
major exporting of steel as the country are in fifteenth largest steel importer in the world. The
producers of steel in Malaysia are experiencing a healthy growth of production contributing to
the manufacturing sector. The growth had reached over 102 percent in steel imports since
2009. Having large numbers of producers in the country will enhance the countrys economic
to be in stable condition and help the manufacturing sector to be at the same place as other
sectors that help Malaysia to develop into a better country and competing with other
developing countries.