New Steel Production Capacity in ASEAN and What Will Happen?

Posted on 04 September 2020

There are many new investments moving out of China. One major reason is the Chinese Government Supply Reform. One of the thrusts of the Supply Reform initiative was to optimize the capacities of the Steel Industry, forcing the closure of inefficient capacities and consolidating the State Owned Enterprises, which will improve industry profitability amidst slowing economy in China. As a result, China’s steel mills will have to look for another place in order to continue its production and continue to expand and export to other countries and even send the products back to China.

ASEAN, where the steel market is fast growing, is becoming a major destination for steel investments. Over the past years, many investments in steel projects in ASEAN have come from many countries such as Japan, South Korea, Taiwan and of late, China. To many, ASEAN is an attractive growth market, often viewed as a large economic bloc with a population of about 650 million inhabitants. There are opportunities to supply products in ASEAN and to participate in the region’s development, and sometimes, the best way to do so is to invest in the region.

Right now, there are many Chinese steel investments in ASEAN. And there are many more being proposed in the region. More than just after an attractive market, many Chinese steel companies are not able to grow further in China due to the Supply Reform, hence have decided to pursue opportunities in ASEAN. This region’s proximity to China as well as the investors’ familiarity with the Chinese market, also makes this region an attractive investment destination.

 

Who are they and where are their destinations?

Indonesia, Malaysia and Philippines seem to be the main destinations for those steel industry Foreign Direct Investments (FDI).

In Indonesia, there is a large steel producing cluster located in Cilegon, West Java. Krakatau and Krakatau POSCO, both having a capacity of about 4.8 million tonnes of steel are set up there. Over the next few years, there are plans to increase the total capacity to 10 million tonnes. On the way from Cilegon to Jakarta, lies the new Gunung Blast Furnace 1.5 million tonne steel plant, which will be up and running in 2020.

All over Indonesia, there are other large integrated steel projects being proposed, namely, Hebei Bishi Group (6 million tonnes) project in Semarang, middle of Java island, Dexin Steel 3.5 million tonne long products steel plant in Sulawesi and another proposed USD 2.7 billion Sinosteel project in Kalimantan. These projects are apparently for the production carbon steel products, mainly used in the construction sector.

Over the last 4-5 years, Tsingshan and Jiangsu Delong have invested in nickel and nickel iron production facilities in Indonesia, which provided the lowest costs of production. Total production capacity was 2.8 million tonnes of nickel production, more than 3 million tonnes of stainless slab and more than 6 million tonnes of stainless sheet (HRC and CRC).

In Malaysia, Eastern Steel and Alliance Steel have been operating for some years, with Alliance Steel being the new entrant that started in October 2018. Another huge 10 million tonne steel project is being considered in East Malaysia, by WenAn steel.

Philippines has long been low in production capacity, compared to other countries, and all of current production is long product rolling mills. Other new investment plans from China in Philippines include Panhua Group (10 million tonnes of flat steel) and HBIS SteelAsia JV (plan of 8 million tonnes of long steel in 2023 and 2026).

China’s investment in Indonesia includes Kunming Iron and Steel (4 million tonnes of flat steel), Eastern Steel (2 million tonnes of flat steel-start first phase in 2018), WenAn Steel (plan to build 10 million tonnes of flat steel in 2021/22) and Alliance Steel (3.5 million tonnes of long steel – already started operation), Hebei Bishi Group (3+3 million tonnes) and Desin Steel (3.5 million tonnes of long steel).

There are many other proposals, to build integrated steel mills in Myanmar and Cambodia as well.

If all the above investment of integrated mill capacity on stream together with investment from other countries such as Korea, Taiwan, Japan and the investment from local mills within ASEAN itself, there will be an additional 50 million tonnes of steel coming from China and all together 61.5 million tonnes of steel production capacity from all countries in ASEAN. Approximately, by 2026 there will be up to 151 million tonnes of steel production capacity within ASEAN region. 

Will new production capacity be sufficient or overwhelming to serve domestic steel demand?

ASEAN’s steel demand was about 81 million tonnes in 2019. At that time, the ASEAN steel demand forecast was an average rate of between 4% and 5% each year. 

Comparing with 151 million tonnes of capacity estimated earlier, it will take about 20 years for demand to catch up with this capacity level.

Source : SEAISI