KUALA LUMPUR: OSK Research Sdn Bhd has reiterated a 'neutral' call for the steel sector while stating that the government's decision to increase power tariffs is untimely for steel mills.

'Steel mills currently suffer from a shrinking profit margin as a result of surging raw material costs that cannot be fully passed on to their end users due to sluggish steel demand worldwide,' it said in a research note today.

OSK said the thinning margin may certainly result in uninspiring
performance for steel companies, while the present slow pace of implementation of mega project may damp steel demand, particularly for long steel products.

Under the Fuel Cost Pass-Through (FCPT) mechanism for the power
sector, the fuel cost will be reviewed every six months.

It foresees that the fuel price will continue to rise and be a major pain for Malaysia's steel makers.

'We think there is a high probability that the proposed regular review may not actually happen, especially with the next general election looming, and taking cue from past announcements where natural gas price hikes every six months, were not actually implemented,' it said.- Bernama