- The Edge FinancialDaily reported that the Ministry of International Trade and Industry (MITI) has launched a preliminary investigation on the imports of steel concrete reinforcing bars (rebars) from China and South Korea. This follows a petition lodged on 14 August from a local producer for the imposition of anti-dumping duties on imports of steel concrete rebar in straight length form.

- From MITI’s preliminary investigations, there was sufficient evidence to indicate that the dumping of steel concrete rebars at a lower price had indeed harmed the domestic market. The investigations are based on the Countervailing and Anti- Dumping Duties Act 1993 and its related regulations.

- More importantly, MITI added that if the final investigations match that of its earlier findings, it could impose anti-dumping duties on such imports. We understand that the final investigations could take up to four months to complete.

- We are not surprised by this news, as the proliferation of cheap steel imports – particularly from China – has perpetrated market imbalances within Malaysia’s steel industry. To be sure, we understand that Imports of bars and wire rods from China reached ~130k tonnes in June 2014 alone (+40% QoQ).

- Based on a report by The Star late last May, certain Chinese steel producers have reportedly exploited a taxation loophole in China to enjoy export rebates of c.9%- 13%. These players are believed to have circumvented the system by declaring their Malaysia-bound exports as alloy instead of steel.

- Nevertheless, we are increasingly encouraged by recent moves by the Malaysian government to address the rising threat of dumping activities. From our channel checks, the core focus is to investigate whether there are concrete grounds to impose anti-dumping duties on wire rods and steel bars originating from China.

- The petition on rebars comes on the back of an appeal to extend anti-dumping duties on wire rods to include two major Chinese exporters that were earlier exempted. The latter follows an inaugural annual review of anti-dumping duties imposed on wire rods effective 20 February 2013.

- We maintain our OVERWEIGHT stance on the STEEL sector, and see Ann Joo Resources (BUY, FV=RM1.75/share) as a key beneficiary of any positive structural trade remedies to level the playing field within Malaysia’s steel supply chain. As it is, Ann Joo is trading at bottom-of-the-cycle valuations (FY14F P/BV: ~0.6x) – where sequential earnings momentum is already picking up despite muted steel prices. Lion Industries Corp remains a HOLD, where our FV is currently under review.

Source: AmeSecurities