Malaysia’s new moratorium unexpectedly propels rise of green steel


(Photo: iStock)

The green steel supply chain is gradually starting up in Malaysia, largely due to stricter government policies related to decarbonization. One of these policies is a two-year moratorium on all expansion and diversification of manufacturing activities in the iron and steel industry.

A big push from exemptions

The moratorium was imposed in last August to address the oversupply of steel, as well as to provide a “timeout” for steelmakers to reconfigure their businesses in line with the country’s decarbonization agenda, according to the government.

Nearly eight months later, market participants point out that the government’s move to grant exemptions to steel manufacturing licenses aligned with its decarbonization agenda, like low-carbon iron and steel products or carbon-reduction technologies, serves as a big push for steelmakers to invest in such technologies.

There have already been several green steel investments in Malaysia, including the latest project launched by Esteel Enterprise Sabah, valued at 20 billion Malaysian ringgit. It is expected to reduce carbon emissions by 70%. Spanning three-phase, it will use natural gas as a reducing agent instead of coke and coal.

A Singapore-based consumer said, “This shows that there is a growing focus on decarbonization. Government policies can be a big push, but the bigger push is demand and rate of consumption.”

Steel oversupply issue remains 

A trader said the surge in investments in green technologies and electric vehicles flowing into Malaysia over the past year, possibly influenced by the moratorium or not, has been promising. This trend signifies the country’s potential for expansion on this front.

“We’re seeing more green steel and EV investments flowing into Malaysia. Even Tesla is expanding in Malaysia,” the trader said. “It definitely signifies that the industry is increasingly using green technologies.”

But according to market participants, while the government may have attracted investments in green technologies, it has yet to tackle the issue of steel oversupply through the moratorium.

Malaysia’s consumption peaked at 9.78 million tons per year in 2018, before falling to 9.21 million tpy in 2019 and to 6.81 million tpy in 2020 due to the pandemic, according to data from the Malaysian Iron and Steel Industry Federation (MISIF).

The consumption then rose to 7.03 million tpy in 2021 and to 7.52 million tpy in 2022. Meanwhile, the latest steel production capacity was reported at 16.1 million tpy, more than double its consumption.

A Singapore-based trader said, “Malaysia is facing severe excess capacity especially in the production of rebar and wire rods. That’s why Malaysian rebar to Singapore is usually priced most competitively.” Offers of Malaysian rebar to Singapore were largely $10 per ton lower than other offers in the spot market.

(Photo: Pixabay)

Green steel motivation may come from neighbor

According to a source close to Malaysian steelmakers, most producers prioritize boosting profit margins and fulfilling orders over investing in green steel, which requires substantial capital.

The source also noted that despite the influx of investments in green technologies and EV into the country, this does not necessarily lead to increased demand.

A consumer based in Singapore said: “EVs don’t necessarily use green steel, so even if EV investments increase, it doesn’t mean demand will. And if demand is not there, steelmakers will not be incentivized to produce them.”

According to a Malaysian exporter, the steel industry still lags behind its Southeast Asian counterparts in terms of producing high-value products. For instance, domestic production of hot-rolled coil is only slated to begin in the third quarter of this year.

“It is also important to note that the parent companies of most local mills in Malaysia are from China, so the country’s decarbonization ambitions are not a priority,” said the exporter.

The exporter also added, “But that is not to say that they’re not looking to decarbonize. I believe if Malaysia is looking to produce green steel, it will be to cater to the Singapore market, where adoption of construction material, especially beams, is growing rapidly.”

Singapore government said in last year that companies that can demonstrate the sustainability credentials of their products and services would gain an advantage in bidding for specific government tenders starting from 2024.

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