Malaysia Mining Report 2009

The Malaysian Chamber of Mines believes that the mining industry is already on the road to recovery and is urging investment in the sector. Although it is somewhat predictable that the organisation will talk up the sector, there is also some truth in their optimistic outlook. The Chinese economy is beginning to recover, aided by the impact of a huge fiscal stimulus package. This in turn will increase demand for minerals and metals. In Malaysia, investors are now beginning to buy back mining stocks, which is an encouraging sign. As most mining projects have a lead time of three to five years before returns can be expected, investors are clearly of the opinion that the market has bottomed out. Investors will be hoping to reap positive returns on investment as the global economy begins to recover, returning growth to the Malaysian mining sector.

Malaysia's key competency lies in natural gas and oil, without which the minerals industry amounts to a very small figure. Bauxite, coal, feldspar, gold, iron ore, kaolin, mica, monazite, struverite, tin and zircon are the main minerals currently produced by Malaysian mines. The nation imports most of its metallic and non-metallic mineral requirements.

Imports of tin concentrate, for example, continue to outpace local production, suggesting that there is significant room for growth in Malaysia's refining capacity. Malaysia Smelting Corp (MSC) is one of the world's largest producers of refined tin, although it imports a substantial portion of its raw material needs. Malaysia was one of the world's largest tin producers in the 1980s, but the exhaustion of reserves has resulted in plummeting production levels. In 1989 Malaysia produced 32,034 tonnes of tin, but this had fallen to 2,263 tonnes by 2007. There are currently 13 active tin mines in Malaysia, compared with thousands in the 1970s.

In May 2009, MSC announced that it had recorded a pre-tax loss of MYR9.2mn (US$2.64mn) for Q109, compared with a pre-tax profit of MYR25.6mn (US$7.35mn) in Q108. Revenues were hammered, falling to MYR351.7mn (US$100.9mn) in the quarter, compared with MYR572.6mn (US$164.3mn) in Q108.

MSC is the third-largest producer of refined tin in the world and exports around 90% of its output, with its major markets being India, China, South Korea and Japan. In 2008 the price of tin peaked at around US$25,000 per tonne, but has now fallen to around US$12,000-14,000 per tonne. Demand for tin has also crashed, as the global economy ground to a halt. In Q109, consumption of refined tin was around 1,700 tonnes, less than half the level seen in Q108.

Industry Forecast Meanwhile, the mining sector should begin to recover in 2010 after being battered by the global economic headwinds in late 2008 and early 2009. With China consuming around 20-25% of Malaysia's base metals and minerals production, the performance of the Chinese economy will be vital to the fortunes of the Malaysian miners. A huge fiscal stimulus package in China should stimulate demand in core sectors such as construction, increasing demand for mined materials. Localised stimulus packages should also boost the Malaysian construction sector, increasing demand for steel and iron ore. BMI's mining forecast suggests an industry value of MYR0.6bn (US$0.2bn) for 2013, representing a compound annual growth rate of 8% over the forecast period.