Analysts are generally more optimistic about the prospects of the domestic steel industry, with the expected increase in demand for steel products due to the Ninth Malaysia Plan (9MP) and a recovery in steel prices.

The Malaysian Iron & Steel Industry Federation has projected Malaysia's steel demand to grow at a compounded annual growth rate (CAGR) of 13% per year from 2006 to 2010, mainly driven by the 15.5% per annum CAGR in flat products' demand.

Steel demand in the country is centred on the construction/infrastructure and manufacturing sectors.

The construction/infrastructure industries are the major end-users of long products (bars and rods) while the manufacturers are the main consumers of finished flat products (pipes/roll-formed sheets).

An analyst from a bank-backed research house expects steel players like Hiap Teck Venture Bhd, Choo Bee Metal Industries Bhd and Ornasteel Holdings Bhd to be beneficiaries of the 9MP.

Under the 9MP, highly anticipated large-scale projects have been specifically mentioned and earmarked for implementation, thus stimulating demand for steel products.

"We like Ornasteel for its dominant market position in the local cold-rolled coil (CRC) industry, underpinned by its commanding market share.

"We also like Hiap Teck and Choo Bee for their dominant market positions in the local bare steel pipe/structural hollow section industry.

"There is also a potential strong rebound in earnings over the next 12 to 18 months with the surge in demand for pipes for water projects as well as structural hollow sections for infrastructure projects under the 9MP," the analyst said.

He also expects the recovery of steel prices to continue for the rest of 2006.

The global steel industry went into a protracted downcycle over the first three quarters of 2005 on the back of a collapse in steel prices.

The trigger was largely China's excessive capacity expansion, which led to higher global inventories and players undercutting steel prices.

However, since late last year, international steel prices have risen by an average of 15% led by production cuts in the Chinese steel market and strong steel product consumption mainly in China, Europe and the US.

"We expect China's supply growth to slow down this year but demand for steel to rise due to China's 11th five-year plan, which is equivalent to the Ninth Malaysia Plan.

"The key risk would be an unexpected jump in Chinese steel production," the analyst said.

In tandem with rising steel prices in the international market, domestic steel prices have also risen.

The price of hot-rolled coil (HRC), the feedstock for making flat-based products like steel pipes and CRC had risen in April and May, with further increases expected this month.

The analyst said the rise in local HRC price would ultimately lead to a rise in prices of flat-based steel products like steel pipes, CRC, structural hollow sections and galvanised pipes.

"Players like Hiap Teck Venture, Choo Bee and Ornasteel are expected to benefit from rising steel prices.

"Apart from rising steel prices, margins for players like Hiap Teck and Choo Bee should improve as they generally replenish HRC ahead of the price hikes, which should boost margins in subsequent quarters," he added.