Posted on 02 January 2006

 

Source: SEAISI

Needless to say, the South East Asia region has a limited capacity in steel production. Ironmaking, steelmaking, hot and cold rolling are all inadequate and in an unbalanced state.  The region has long been relying on imported steel. Scrap is scarce in the region so it must be imported.  Imports of scrap should mean that the region lacks of ironmaking capacities. Natural gas is abundant in Indonesia and Malaysia but they have only one DRI plant each. Plate mills and hot strip mills in Indonesia, Malaysia, and Thailand have been importing large volume of slab from all over the world to fulfil their needs.  Cheap imported billet has been a preferred option for many bar and rod mills in the region.  Some cold rolling mills are also sourcing the hot rolled coils from out of the region suppliers.     

The problem is not only in term of quantity, but also quality: downstream industries in the region depend on imported high quality steel.   Automotive industry (car, motorbike) has been enjoying a booming time in the region but they rely greatly on steel imports, mainly from Japan.  Only a fraction of  steel needed has been sourced domestically, mainly because of quality reasons.  The list of importing industries is quite long: electrical appliance industry (fridge, aircon, etc), home appliance (enamel coated), tinplate, bolt and nuts (cold heading wire rod),  and more.

The problem is not only in term of quantity, but also quality: downstream industries in the region depend on imported high quality steel.   Automotive industry (car, motorbike) has been enjoying a booming time in the region but they rely greatly on steel imports, mainly from Japan.  Only a fraction of  steel needed has been sourced domestically, mainly because of quality reasons.  The list of importing industries is quite long: electrical appliance industry (fridge, aircon, etc), home appliance (enamel coated), tinplate, bolt and nuts (cold heading wire rod),  and more.

Five ASEAN Nations Steel Imports 2004 ('000 tonnes)

	Indonesia	Malaysia	Philippines	Thailand	Vietnam
Slab	918	200	-	2318	-
Billet	786	168	980	2,151	2,174
HR Sheet*	862	530	463	2,234	934
CR Sheet*	490	804	394	551	720

Source: SEAISI- Statistical Report

            Note : * carbon steel

Opportunity 1: Ironmaking.  The region has been importing scrap in a large quantity to satisfy the needs of its EAF steelmaking facilities. Currently only Indonesia and Malaysia operate HyL III plants to partially feeding their steelmaking facilities.  These two countries are among the world's largest natural gas producers, therefore more gas-based ironmaking plants may be viable to operate. Other technologies available may be worth to be considered to utilising local coal and iron resources. New ironmaking facilities will provide incentives for ASEAN steelmakers by having better supply availability and price stability. 

Opportunity 2: Steelmaking.  The total ASEAN capacity for steelmaking is much lower than the hot rolling capacities.    ASEAN hot rolling mills need millions of  tonnes of steel slab and billet more to balance the capacity. 

Opportunity 3: Rolling mills.  Te region desperately needs high quality sheets.  Downstream industries would welcome new rolling mills who can supply high quality sheet they require.

Additional opportunity: ASEAN Free Trade Area. AFTA has been long planned to be applied in the region.  It is designed to effectively reduce trade barriers among ASEAN countries.  Therefore investors should see that the condition of steel products to be eligible for concession under the CEPT (40% ASEAN content) as an incentive for investing in ASEAN steel industry.  The ASEAN steelmakers (existing and new investors) will have a price advantage over imported steel, hence cheap steel (e.g from Eastern Europe) may not cheap anymore as they have to compete with tariff-free from fellow ASEAN steelmakers.

In short, there are rooms for steel investment worth to explore in South East Asia.  High economic growth in a beginning stage of industrialisation promises an accelerated growth of steel demand.

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