It is reported that the ASEAN steel industry is expected to attract industry giants from Japan and China to invest as it offers lower operating cost and a sizeable market. It is also set to become more appealing given the duty free rules under the ASEAN Free Trade Agreement.

OSK Research said that Malaysian steel mills offer a good platform for overseas investors wishing to tap the South East Asian market. It added that "The country offers good basic infrastructure, stable utilities supply and skilled workforce. Local mills with integrated set-ups present better investment potentials compared with their peers in neighboring countries, which are largely focused on downstream operations. Malaysia enjoys tariff advantages under AFTA, which puts the local mills in a strategic position to tap ASEAN’s borderless export markets."

Malaysia has seen some significant developments in attracting investments.

South Korea's POSCO, the world's third largest steel maker, has started to produce electro galvanized steel sheets in Malaysia to supply to Japanese and South Korean consumer electronics manufacturers based in the country. Presently the domestic annual demand for 200,000 tonnes of EG steel sheets is met by imports.

POSCO has increased its stake in POSMMIT Steel Centre Sdn Bhd to 70% from 30% in late 2006. POSMMIT is a subsidiary of Prestar Resources Bhd.

Also, JFE Steel Corporation had acquired a 3% stake in Mycron Steel Bhd early 2010. The Japanese steel giant has signed an agreement with its Malaysian counterpart for JFE Steel to supply Mycron with high quality hot rolled coil and provide technical assistance for the production of high quality cold rolled sheet for markets such as automobiles and electric appliances.

In a news report, JFE Steel points out that Malaysia is one of its important markets.

Nippon Steel Corporation is increasing its stake in Nippon EGalv Steel Sdn Bhd, a JV entity with Tatt Giap Bhd. Nippon Steel plans to increase its stake in Nippon EGalv to 50.1% from 10% for USD 6.5 million. Pending finalization of the ongoing negotiations, the proposed disposal is supposed to be completed by June 30th 2011.

AmResearch in a report said that the deal would help Tatt Giap realize a net gain of MYR 3 million.

Tatt Giap is involved in the processing of stainless steel and other ferrous and non ferrous metal products as well as manufactures Superinox brand of stainless steel tubes and pipes. The Lion group of companies confirms that it is in preliminary talks with various parties regarding a potential collaboration.

According to news reports, the group has started meeting with steel players from various countries including Baosteel Group, China's second largest steel-maker, to buy a stake in Lion's wholly owned unit Amsteel Mills Bhd for up to MYR 3 billion.

Amsteel Mills owns two of Lion Industries' three electric arc furnace plants. Located in Klang and Banting, both Amsteel plants have a combined steel making capacity of 2.15 million tonnes annually.

KAF Seagroatt & Campbell in a recent report said that "Although it is implied that a stake in Amsteel could cost USD 1 billion, we think such a valuation is too high as it involves only part of the long steel product segment. However, we think such a valuation is possible if it involved a stake in all of the group steel assets or the full 99% interest in Amsteel. That said, we do not think the group will sell the whole of Amsteel Mills."

Investment trend by steel giants in ASEAN is expected to linger on for quite a while.

Mr Azlan Abdullah director & CEO of Mycron said that steel companies worldwide are always on the lookout for new markets that offer lower operating costs, raw materials, good location, tax incentives and cheap labor.

He added that "The ASEAN region has a population of 600 million and is an attractive regional bloc and location to operate from. A producer with 40% local content can export to any country within ASEAN at zero duty, under AFTA."

Echoing similar views, Eversendai Corp Bhd group managing director Mr AK Nathan agrees that Malaysia is an attractive market in a strategic location. He said that "Merger and acquisition are part of business expansion and acquiring steel producing companies is a trend due to the profitable business prospects and demand. Steel will be in high demand and will always command high value due to the economic growth of Malaysia and all the development projects in the pipeline."

Mr Azlan adds that although JFE Steel stake is small at only 3%, it nevertheless reflects JFE’s confidence in Mycron. He said that "This will enhance Mycron's image and reputation locally and also regionally."

On his 70% stake in Eversendai and the possible entry of strategic investors, Mr Nathan says he wants to maintain his stake as he foresees future organic growth. He added that "We have the technical capability, financial resources with good fundamentals and management. There is no need for strategic foreign investors for Eversendai unless we are moving up the value chain to expand beyond our business scope which I do not foresee as of now."

Integrated steel contractor Eversendai Corp Bhd made its debut on the Main Market of Bursa Malaysia on July 1st 2011. Another catalyst for the local steel industry is that there are iron ore mines up for grabs.

OSK Research believes that Perwaja Holdings Bhd may get the lion’s share of any new iron ore concessions as its major shareholders enjoy strong political backing. It has the advantage of being a local mill and its new concentration and pelletisation plant will add value to the iron ore, the processed iron ore will be used as feedstock for its direct reduction plant.