INTERVIEW: Steelmakers prioritize survival over green goals: Southern Steel director

Like many of their competitors, Malaysia's steelmakers face multiple challenges, including ripple effects from the Middle East war and global decarbonization efforts. A new steel trade measure introduced by the EU on July 1, alongside the Carbon Border Adjustment Mechanism, which took effect Jan. 1, has further complicated market dynamics.

Platts, part of S&P Global Energy, interviewed Choon Kwee Yeoh, a deputy president of the Malaysian Iron and Steel Industry Federation and group managing director of Southern Steel Berhad, about the challenges and opportunities amid industry decarbonization initiatives and trade disruptions.

Platts: How would you describe the steel industry's impetus to decarbonize at the moment?

Choon Kwee Yeoh: Decarbonization is certainly very important, given the climate change that we are seeing today, and it is very important for steel mills to act. But the reality is that a lot of steel mills are not doing well. We are facing overcapacity issues, very high operating costs, and there are a lot of trade tariff measures affecting the business. So, in this environment where we are losing money, it is almost like being in a crisis mode. While we may want to put in more effort in decarbonization, survival is more important. You would have to take care of your own survival before you look into other areas.

There could be pockets in some countries where margins are good, like in the US, where tariffs are very high, so the local participants are somewhat protected. But in general, steel companies are experiencing a lot of problems. Right now, many blast furnaces in China are having negative margins. In Malaysia, we are having similar problems where a lot of steel plants are not doing well, as is the case in Southeast Asia.

Platts: Is the Middle East war contributing to this?

Choon Kwee Yeoh: The Strait of Hormuz problem affects us in a few ways. The rise in oil prices means that our electricity costs and a lot of other consumables that depend on oil will go up. Freight costs have gone up because of the vessels that are stuck in the strait, and vessels have to be redirected and so on.

All these factors will flow into our operating costs and put pressure on our margins. Often, we are not sure whether the strait is open or closed due to uncertainty over ceasefire talks between Iran and the US. In any case, even if it goes back to normal, all the oil infrastructure that has been destroyed over the last several months will take a long time to rebuild. In the meantime, the supply will be affected. So I do not see how oil prices can be back to what they were before the war started in February.

Platts: What are the challenges in managing the EU's CBAM for Asia's steel industry?

Choon Kwee Yeoh: The export of 1 metric ton of wire rod from Malaysia to the EU today has a default CO2 value of 3.9 mt under the CBAM. The same wire rod exported from Vietnam is 2.4 mt, and then from Thailand is 1.9 mt.

When you have such vast differences in the CO2 default value from three neighboring countries, a big part of it would be coming down to how these numbers are measured and reported. So without harmonizing this, we will continue to face problems. So, this is not a green steel problem. It is basically a data problem.

Platts: What growth plans does Southern Steel have in the pipeline, given the global overcapacity?

Choon Kwee Yeoh: Demand in Malaysia has been flat for the last couple of years, so any attempt to grow in such an environment would further exacerbate the overcapacity issues we see worldwide.

If we can control our costs and be a lot more productive and efficient, even at the same volume, we will be able to have higher margins, which will give us some buffer to weather any market volatility. That, to me, would be a better strategy for us than to chase headline growth.

Most of our steel is for domestic construction, though we do export a little bit. Malaysia's construction sector consumes about 2 million mt/y of rebar, out of an overall demand of about 8 million mt, which includes other kinds of structural steel for industrial use, like coil and flat steel, and so on. We produce just over 20% of Malaysia's rebar for construction demand, which equates to about 500,000 mt.

Platts: Is there growth potential in Malaysia's economy you could feed into?

Choon Kwee Yeoh: There have been some long-overdue projects that have been put on hold in Malaysia, like the big MRT3 project, high-speed rail from Kuala Lumpur to Singapore and underground sea tunnels from Penang Island to the mainland. These are big mega projects that we are eagerly waiting for. Whichever government emerges from the election that the market expects to occur this year, those projects would be good for us, and we have capacity that we can ramp up once demand improves to serve those markets.

We just hope the market can improve once global conflicts can be resolved. Someday, when there is a total ceasefire in the Middle East and the war between Ukraine and Russia ends, that is when the reconstruction phase starts, which will be good for the steel business because they would require a massive amount of steel. I do not know when that day will come, but when it does come, it will be good for all of us.