Dents and glitter in steel sector

THE steel industry, once a cornerstone of Malaysia’s economy, now appears to be buckling under its own strain.

For years, industry players have echoed the same challenges: thin margins, overcapacity, stagnant demand and unpredictable consumption patterns.

Amid these struggles, decarbonisation – a pressing issue for many industries – has taken a backseat, as survival in the current economic climate remains the top priority.

Furthermore, a temporary surplus of long-term capacity has led to fierce competition in the market; whereas flat-term capacity is relatively scarce and heavily dependent on imports.

Iron and steel trade value dropped significantly to RM4.7bil in January, marking a 30.9% decline from RM6.8bil a year ago.

This downturn reflects a shift from a surplus of RM203.4mil in January 2024 to a deficit of RM344.7mil in January 2025, as reported by the Investment, Trade and Industry Ministry (Miti).

The challenges in the sector trace back to the early 2020s, when steelmakers faced widespread losses.

Individual firms like Southern Steel Bhd faced major losses as early as the fourth quarter of 2022, with a RM164mil net loss due to impairments and rising costs.

Malaysia Steel Works (KL) Bhd also experienced ongoing losses after 2020, with a trailing price-to-earnings ratio at 0.0.

Despite the challenges, some companies managed to post decent earnings this quarter, a surprising outcome given the circumstances.

For example, CSC Steel Holdings Bhd, one of the country’s larger steel makers, reported a higher profit of RM20.71mil for the third quarter ended Sept 30, 2025, compared to RM6.87mil for the same quarter a year ago.

How did CSC Steel perform better than its peers, most of whom suffered losses?

A review of its earnings on Bursa Malaysia revealed that its bottom line improved due to lower raw material prices and the appreciation of the ringgit against the US dollar.

The counter has been doing reasonably well, hitting a six-month high of RM1.45 on Dec 8 before dropping slightly to RM1.38 at the time of writing.

Insiders say CSC Steel is being pragmatic by improving production efficiency, keeping input costs low, and focusing on product segments where demand actually behaves.

This efficiency seems to work, with consistent profit growth over the last three quarters.

Mycron Steel Bhd is another group that made profits for its first quarter ended Sept 30, 2025.

Its revenue and profit were higher at RM203.11mil and RM4.45mil respectively, compared to a loss of RM2.2mil in the same quarter a year ago. The group attributed the improvement to better sales.

In the last six months, its share price has traded within a narrow band of RM0.23 and RM0.27 without any major breakouts or declines.

This is most likely due to the stock’s low volatility amidst cautious investor sentiment.

Southern Steel Bhd is another big player.

Despite reporting losses over the last 15 months, analysts reckon its share price didn’t take quite as hard a beating as expected.

At the time of writing, its share price closed at 39 sen, but has remained fairly stable since March last year.

The good news is, steel makers have generally been outperforming the FBM KLCI Index.

On Dec 10, the FBM KLCI fell 0.20% to 1,611 but companies like Southern Steel outperformed the index by gaining 4%. This suggests investor confidence is tied to infrastructure demand or improved margins.

Even Malaysia Steel Works which had a flat performance, held ground in comparison to the index.

So is there hope for steelmakers in the near future?

Malaysian Iron and Steel Industry Federation (Misif) president Roshan M. Abdullah, says the outlook for 2026 remains challenging although there are pockets of opportunity.

“The government’s designation of steel as a strategic sector, supported by initiatives under the Steel Industry Roadmap 2035, provides a foundation for strengthening domestic capabilities and reducing import dependency.

“Additional prospects lie in renewable energy development and semiconductor-related supply chains,” he explains.

He adds that the greatest strain will remain on upstream and midstream producers. Downstream players will also feel the pressure but are more resilient.

This is partly due to an influx of dumped steel into Malaysia, which Roshan says allows these companies to offer export prices that do not reflect true production cost.

“Many foreign exporters are state-owned enterprises that have no commercial pressures and benefit from substantial subsidies, rebates and low energy prices,” he opines.

He reckons that Malaysian steel makers are fundamentally competitive, despite higher electricity and natural gas tariffs than other steel-producing nations.

“When the operating environment is harsh and volatile, with producers constantly fighting for survival against increasingly cheaper imports, it inevitably discourages investment and stifles innovation. On a level playing field, Malaysia’s steel manufacturers are world class producers.”

Only time will tell if local steel makers will push through headwinds, but for now, investors shouldn’t be too worried about steel stocks – against all odds, they’re holding up better than the industry narrative would have you believe.