ACCOUNT PROFILE

Special Feature

Posted on 06 January 2021

Today’s world scenario is undermined by global uncertainties risk, from the unprecedented COVID pandemic, geopolitical tension to impending issues of over-investment particularly in developing economies. Major concerns in the steel industry are also coming from pressing issues such as growing protectionism and escalating tension over trade war as well as the effects of the China global supply reform. Such a scenario is going through a period of heighten uncertainty alongside with mounting concerns on issues moving into unchartered territory, that laying ahead of it, lies significant risks, but also opens to some new opportunities. 

The challenges and opportunities from the global uncertainty posed to the ASEAN steel industry has been addressed in the recent SEAISI e-Forum held virtually on 24 – 27 Nov 2020 by the Secretary General, Mr. Yeoh Wee Jin. Traditionally, steel demand in the ASEAN region has been in the construction sectors followed by automotive and shipbuilding sector. 

In 2019 ASEAN steel demand was about 80 million MT, with Vietnam, Thailand and Indonesia standing at the top 3 steel consuming country. However due to the COVID pandemic, the ASEAN total consumption of steel, long and flat products, in the 1st half 2020 declined by 12.3% compared to the same period a year ago. ASEAN countries import has also declined in 1st half 2020, except for Singapore, sustaining imports as a trading hub for the region. But not all are bad during this difficult time as most ASEAN steel producers have taken steps to re-strategize their businesses by seeking new trade opportunities, exporting steel products notably to countries which had controlled the pandemic and restarted their economy much earlier like China. Total steel export from ASEAN registered a significant increase of 27%  y-o-y in 1st half of 2020.  

Demand
The region’s economies took a severe hit in Q2 2020 as the COVID pandemic started to impact the economies in Indonesia, Malaysia, Philippines, Singapore and Thailand. The disruption to the economy continued to be felt in Q3 and it was reported that the GDP growth of these countries remain negative, with the exception of Vietnam being the only country which has managed to escape a negative GDP growth in 2020, by a small margin, due to their fast action in controlling the pandemic.

The construction industry is always seen as a driver for providing the essential support for developing the region economy. However, it is also the one of most vulnerable sectors in any economic downturn. Construction activities in Indonesia, Malaysia and Philippines were disrupted as the consequences of the outbreak of COVID-19 and the containment measures deployed by governments. On the other hand, Vietnam has been very effective in its response to the pandemic. Its fast action and early easing of restrictions have allowed its construction sector to continue expanding in Q2 and Q3 2020. Thailand too has taken immediate action by boldly  driving the demand for construction in Q2 and Q3 of 2020 while the country was still in the mist of the outbreak, when the MOT Thailand readjusted infrastructure budget to prioritise projects to boost the economic recovery. Yet at the same time during the recovery, the construction sector in ASEAN is still facing several issues caused by the outbreak that are limiting the construction activities and infrastructure expansion.

The major victim of the pandemic is the automotive industry in ASEAN. Its 3 largest automotive producing countries Thailand, Indonesia and Malaysia were severely hit, largely due to COVID and the resulting low domestic demand. The total automotive production for ASEAN in April 2020 dropped by 84.6%, from 330,000 to 51,000 vehicles in April 2020. Vehicle production has since picked up by September but the volume remained 20.8% lower compared to a year ago.

As for the manufacturing sectors, most of the ASEAN countries have been affected by the COVID outbreak except Vietnam and Singapore to a lesser extent. Vietnam’s manufacturing sector continued to expand throughout the pandemic due to its fast action in controlling the virus spread. Singapore manufacturing registered a positive growth in Q3 2020 due to high demand for electronics, precision engineering and pharmaceutical goods, for export. Manufacturing output across ASEAN-6 countries has been on the rise after Q2 2020.

All in all, the rate of economic recovery in ASEAN very much depends on the successful containment of COVID19, which is still a challenge globally.

Supply
With collapsing domestic demand for steel, the ASEAN steel industries are facing the urgent need for new market opportunities outside the region to withstand the economic downturn. The domestic steel producers have been going back to basics in their new business strategies and have been seeking new export markets, while adhering to the outbreak restrictions by its government. Beside this, ASEAN producers that already have strong external trading links especially with China, are fully leveraging their trade connection to salvage their business by exporting their products.

However, ASEAN market is open to imports from foreign steel players and investment from potential foreign investors, and is deemed to be exposed to several threats coming from outside of the region. These new challenges have raised the call for the region to urgently highlight this serious issue and for a review of regional investment strategies amid global overcapacity. 

ASEAN at the moment has a total capacity of 89.5 million MT of steel along with 67.7 million MT capacities of new proposed integrated steel projects. This will bring the region to a capacity of 157.2 million MT in the future. In such a situation, based on the current demand growth, it is foreseen that the region will face overcapacity of the steel industry if all investments were to come out as planned. More seriously, the overcapacity issue will become worse due to the COVID pandemic.

Government actions
The economic downturn caused by the COVID pandemic is comparable with the 1997/98 Asian Financial Crisis when the region was hit by the collapse of local currency exchange rates against the USD. Ensuing capital flight affected many ASEAN countries as well as Hong Kong and South Korea. With huge debt burden and sizeable non performing loans, it took many years before the ASEAN economies were able to recover. Since then, the ASEAN economies have shored up their banking system and have built reserves for future crisis.

The COVID pandemic, has caused a similar negative impact to the economy; contraction of GDP growth of around 7% is expected. As in the past, ASEAN governments have chosen to continue the same approach it had taken in the Asian Financial Crisis, introducing stimulus packages to drive construction activities and infrastructure projects to help in economy recovery. A total of USD363 billion economic stimulus packages were announced by the 6 largest ASEAN countries to support their economies, and investments in public construction works will continue to be the tool to kickstart the economies

Forecast
In the face of uncertainties, the ASEAN region economic growth may take longer time and the progress will be uneven across the region.  Recovery would also vary from one economies to another, depending how successful is each country’s containment of the outbreak, its financial position and its government initiatives. Most ASEAN countries are expecting a contraction of 4.5% - 7% in economy in 2020, except for Vietnam, which is expected to expand at an average growth rate of 2.5%. The  Indonesian economy expecting slight contraction compared to the steady expansion over the last few years. 

ASEAN governments have forecasted that in 2021, ASEAN economies will return to positive growth. As for the construction sector, only Vietnam is seen to grow in 2020, where else other countries will be still in negative growth because its construction sector has not really been anticipated to restart until 2021. The automotive industry remains deeply affected, with negative growth in 2020 throughout the region as the direct impact from the pandemic is still being felt.

Many attempts have been made to estimate and forecast the steel consumption in ASEAN and most of it has resulted a downward revision. SEAISI has estimated the 2020 ASEAN steel consumption to be 73.3 – 75.3 million MT, a decline of 6.2% – 8.7% from the previous year. The accuracy of estimates and forecasts of steel consumption depends very much on how well and effective each country controls the pandemic.

Source : SEAISI