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Malaysia's steel industry seen benefiting from revived East Coast Rail link project

Singapore — Malaysia's construction steel industry is expected to benefit from the government's move to resume construction of the East Coast Rail link, local steelmakers said Tuesday.

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The Malaysia Rail Link and China Communications Construction Company on April 12 signed a supplementary agreement to revive the project and set up a 50:50 joint venture company to manage and operate the rail network, the prime minister's office said Monday.

The railway project was suspended in July 2018 by the Pakatan Harapan government after it was elected on May 9 that year, citing high costs. Under the new agreement, the cost of building the East Coast Rail Link is down 32.8% from Malaysian ringgit 65.5 billion ($15.9 billion) to MR 44 billion.

"Many will be eyeing the same pie," a domestic steelmaker said, noting that local participation will be limited to structural steel for civil works such as rebar and beams as there are no rail makers in Malaysia.

The bulk of demand is likely to come from construction of the 20 stations planned for the project.

Notably, domestic participation in the project has been raised to 40% of the civil works from 30% in the original deal signed in 2016. At MR 44 billion, there could a potential MR 17.6 billion payout for local mills.

The railway's demand for construction steel will boost Malaysia's steel industry, which has been sluggish since 2013, when demand stood at 10.05 million mt before falling to 9.44 million mt in 2017, data from the Malaysia Iron and Steel Industry Federation showed. The construction sector consumed about 70% of the 2017 total.

Malaysia's steel industry is dominated by long products, which meet about 67% of local demand, while 33% is met by imports, MISIF data showed.

With the special agreement in place, the East Coast Rail link will now span 640 km instead of 688 km, comprised of standard gauge and double tracking, the prime minister's office said.

"The new alignment will avoid the construction of the 17.8 km-long Genting Tunnel from Bentong to Gombak. It will provide a direct link from Kuantan Port to Port Klang to serve as a land bridge between the two ports," it said.

The Malaysian government expects to complete construction of the rail link by December 21, 2026, instead of June 30, 2024.

--Samuel Chin, samuel.chin@spglobal.com

--Clement Choo, clement.choo@spglobal.com

--Edited by Wendy Wells, wendy.wells@spglobal.com