Lion Group on the move (3581)

BUSY TIMES: Bank hired to look into revamp, steel arm in alliance talks with foreigners


THE Lion Group, controlled by Tan Sri William Cheng, is considering revamping the diversified group.

The group said its steel arm Megasteel Sdn Bhd is in talks with several foreign parties on strategic alliances.

Megasteel, however, could not ink any deals until there is a clearer government policy on the local steel sector.

"We are talking to various foreign parties, including China, Taiwan, South Korea and others. But, we cannot have any conclusion until the government policy on the steel and iron industry is clearer," Cheng, Lion Group chairman and chief executive officer, told a media briefing yesterday.

On the possible restructuring, he said: "We have hired an investment banker to look into this, and we will make an announcement as soon as the decision is made."

Malaysian steel industry has frequently been in the limelight lately, especially after Boston Consulting Group (BCG) completed a comprehensive study on the RM40 billion industry.

BCG, hired by International Trade and Industry Ministry, has put forth recommendations for the ministry to formulate mechanisms for the local players to stay competitive amid the influx of cheaper imported goods, increasing protection measures as well as volatility in the prices of raw materials.

The recommendations included giving Megasteel a deadline until mid-2013 to record positive cash flow by forming strategic collaborations with foreign parties and improving operational efficiency.

BCG is also believed to have proposed a more stringent monitor on imported steel products.

Cheng agreed with BCG's proposal for a more stringent monitoring on imported steel products.

He stressed that the government should impose stricter rules on imports of flat steel products - such as hot rolled coils, cold rolled coils, coated steel and pipes.

Currently, most companies import flat steel products from countries like China and South Korea, as prices are cheaper due to reduction in tariff.

Originally, there was a tariff protection of 50 per cent for flat steel products, before being reduced to 25 per cent. Early this year, the rate was cut further to 20 per cent.

As a result, steel producers including Megasteel faced production cuts.

Megasteel, which has a hot rolled coil capacity of 3.2 million tonnes, currently has a utilisation rate of 1.2 million tonnes or 40 per cent capacity.

"The key is to fill up the capacity. If the government comes up with measures to curb excessive imports of hot rolled coils, cold rolled coils, coated steel and pipes, it will not only fill up our capacity, but also other players' capacity. This would ultimately result in lower prices as well," said Cheng.

In terms of the quality of its steel products, Cheng said that its products have gone through various types of testing.

It has met the requirements of its overseas customers in the US and Japan, he added.

Cheng welcomes the entry of more flat steel producers here.

"We are not worried about competition, the market is there, the growth is there. The key thing is to have a clear policy that helps the industry," said Cheng.

He added that it is common for other countries to protect their steel industry.

"Other countries are protecting their steel industries, in some cases, imposing more than one safeguard measures on certain areas.

"For countries like Thailand and Indonesia, it is very hard for overseas steel players to export into the countries," he noted.