Malaysia's Perwaja Optimistic About Domestic Steel Demand in Construction

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Researched by Industrial Info Resources (Sugar Land, Texas)--Adopting an optimistic outlook despite the prevalent financial turmoil worldwide, Perwaja Holdings Bhd (KUL:PERWAJA) (Kuala Lumpur, Malaysia), an investment holding company, plans to expand the existing product portfolio of its wholly owned subsidiary Perwaja Steel Sdn Bhd (Kuala Lumpur), the country's largest producer of iron and steel, by venturing into the development of new grades of steel. The firm had announced plans to increase its production of direct reduced iron, a vital material for the steel industry, from 1.5 million tons per year to 1.8 million tons per year and has said the expansion is under way.

Buoyed by the government's continuing focus on the infrastructure sector, Perwaja is optimistic about resilient demand for steel products as basic materials for construction and plans to focus on research and development (R&D) activities to diversify its product offerings. The firm is of the view that domestic demand for steel will be strong for at least another six months if the government continues to promote infrastructure projects. Malaysia's government had earmarked funds of about $60 billion for the infrastructure sector under the Ninth Malaysia Plan, 2006-10. The country's construction industry was estimated to be $3.9 billion in 2007 and is slated to grow to $6.6 billion by 2012, accounting for 2.4% of the national gross domestic product at that time.

In addition to executing plans for growth and R&D, the firm is focusing on prudent inventory management to avoid any financial fiascos caused by market slumps and weakening demand for steel worldwide. Perwaja, a 37% subsidiary of investment holding company Kinsteel Bhd (KUL:KINSTEL) (Kuantan, Malaysia), also has the advantage of its parent company being a producer of downstream steel products. Kinsteel is primarily engaged in the manufacture and trading of steel bars and allied products. The firms plan to achieve cost synergies through the elimination of duplicated manufacturing processes along the value chain. In October 2008, Kinsteel announced plans to increase the production of H beams and I beams by 1.6 million tons per year at its currently underutilized Gurun plant in Kedah.

Perwaja posted $280 million in revenues and a net profit of $23.08 million for the third quarter that ended on September 30 in the current fiscal year. For the present fiscal year until September, the firm's revenues stood at $604 million with a net profit of $87 million. The firm views the current prices of steel in Malaysia ranging from $630 per ton to $1,035 per ton as reasonable in the face of rising costs of input materials.

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