November 5, 2007 -- PERWAJA Steel Sdn Bhd may invest RM400 million in a blast furnace next to its existing direct reduction and steel-making plant in Terengganu to expand production capacity. "There's just not enough steel, prices are going up and up. Whatever we produce is all taken up quickly by our clients, both local and overseas," said Kinsteel group managing director Tan Sri Pheng Yin Huah.
Perwaja, controlled by Kinsteel Bhd, is expanding its annual capacity to 2.8 million tonnes by the end of 2008. This will comprise 1.5 million tonnes direct reduced iron and 1.3 million tonnes billet, beam blank and bloom. "We need to increase output. The demand for steel is mounting, prices will jump next year," Pheng told Business Times in an interview held in Kemaman, Terengganu, recently. Big steelmakers around the world are negotiating with iron ore miners in Brazil and Australia on 2008 price contracts in coming weeks.
Most steel firm analysts expect prices of iron ore, the main ingredient to make steel, to climb between 25 and 35 per cent, although some forecast a jump as high as 50 per cent. Heated demand, driven largely by China's hunger for commodities, has resulted in soaring iron ore prices. This year, prices for iron ore fines rose 9.5 per cent, after surging 18.6 per cent in 2006 and 71.5 per cent in 2005. The coking coal price has also more than doubled since 2004. "With a blast furnace, we hope to boost annual production at this plant by another 800,000 tonnes," he added.
The Kemaman mill is the only billet-making factory in Malaysia that makes steel products through direct reduction of iron ore (DRI). Steel made via DRI is known for its strength and is used in shipbuilding and construction of bridges and railway lines.
Kinsteel bought 51 per cent of Perwaja last year when the latter had debts of RM786 million, comprising RM220 million borrowings from a bank and RM566 million owed to third-party creditors. In an interview early this year, Pheng was optimistic of paying off Perwaja's old debts to power utility Tenaga Nasional Bhd (TNB) if steel continues to be traded at high prices. So far, Perwaja has settled all of its borrowings with Alliance Bank and outstanding debt with TNB. "We've just given the last outstanding cheque to TNB. Perwaja's old debts with TNB are all cleared now," he said.
In September 2006, Perwaja sold RM400 million of bonds to a handful of local and foreign banks. The bonds are to be redeemed over 10 years through cash flow generated from its Gurun and Kemaman mills. "So far, we've only drawn down RM310 million of the RM400 million. Things are progressing and repayment of the bonds will be according to schedule," Pheng said.
Source: Business Times
