- Maegma Steel enters the ring. The Edge Weekly has reported
that privately-held Maegma Steel – linked to Tunku Datuk Yaacob Tunku Abdullah
– is at the final stages of setting up an integrated steel mill in Manjung,
Perak after a five-year delay. If it kicks off, the plant would be the second
after Eastern Steel – an integrated steel mill that is jointly-owned by Hiap
Teck Ventures (55%) and Chinese companies, Shougang (40%) and Chinaco (5%). The
estimated cost of Maegma’s plant is US$1.5bil at an annual capacity of 1.5
million tonnes. By contrast, Eastern Steel’s plant in Kemaman, Terengganu is to
cost some RM3.8bil (licensed production: 5 million tonnes) and may include an
iron ore mine at Bukit Besi (~80km away from Kemaman). Phases 1 & 2 would
have a combined capacity of 2.2 million tonnes of slab at ~RM1.7bil.
Maegma’s new facility would combine all three stages of
steel-making, i.e. (i) raw iron production using the direct reduction process;
(ii) steel-making in a melt shop with an electric arc furnace & ladle
furnace; and (iii) production of hot-rolled coil (HRC) that is widely used in
the flat steel industry. With most of the key inputs (e.g. electricity, iron
supply) virtually sorted out, Maegma will likely conclude a natural gas supply
contract with Petronas by month-end.
- Targeting HRC market for high-end flat steel products.
Unlike Eastern Steel which is targeting the ASEAN slab market, Maegma focuses
on the domestic HRC market that is dominated by the Lion Group’s Megasteel –
currently the sole local HRC maker and major player within the mid-stream &
downstream segments. We gather that Megasteel’s plant in Banting, Selangor costs
RM3.2bil. At present, most of the local flat steel users – the Melewar Group
including – have to secure their supplies of HRC through Megasteel or pay
import duties. The only exceptions are if there were no local availability for
a specific range or if the product is to be used for re-exports.
Specifically, Maegma’s primary focus is on producing
high-end flat steel segment that supplies to the automotive and electrical &
electronics industries, whereby its HRC could serve as an input for these
downstream steel products. Furthermore, Maegma highlights that Malaysia imports
around 1 million tonnes of HRC against its planned capacity of 1.5 million
tonnes – and reckons that local consumption could reach that level by 2016 when
its plant is ready. Interestingly, Tunku Yaacob’s listed steel units – i.e.
Melewar Industrial Group and Mycron Steel – consume a combined 350,000 tonnes
p,a. alone, and is set to expand to 500,000 tonnes. Hence, the Maegma plant’s
HRC would fit nicely into the group’s overall plans to reduce input cost
through import substitution with in-housed produced HRC feedstock.
- Strong technical partners, strategic location. We note
that Japan’s JFE Corp has a technical pact with Mycron Steel (~55%-owned by
Tunku Yaacob). In addition, China’s Anshan Steel, together with Gindalbie
Metals, has set up an iron ore pellet plant in China to process ore from
Australia. We gather that Mycron was instrumental in bringing Anshan to
Gindalbie back in 2007, where the latter is now a major shareholder in
Gindalbie (36% stake). Further, Maegma’s plant at Tg.Hantu is strategically located
only 20km away from Brazilian mining giant Vale’s mega iron ore distribution
centre/pellet plant.
- Funding plan. Maegma aims to raise US$900mil out of the
US$1.5bil required via European banks, backed by export credit guarantees from
Germany. The balance is to come from:- (i) commercial debt from regional banks
(US$100mil); (ii) private equity/international banks (US$320mil); and (iii)
Tunku Yaacob & partners (US$180mil). Tunku Yaacob and local partners will have
majority control in Maegma at 55%, with foreigners making up to 45%. Financial
close is targeted by year-end.
- Maintain OVERWEIGHT. While the Maegma project seems to
have been revitalised, it remains to be seen if it would take off eventually –
in particular the funds required. For now, we prefer Ann Joo Resources for
traction to the steel sector – whereby its mini-blast furnace is already up and
running. Our other top pick within the sector is Lion Industries.
Source: AmeSecurities
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