Performance of the ASEAN Iron and Steel Industry in 2019 and the Impact from COVID-19

Posted on 04 August 2020

ASEAN steel consumption continued to increase significantly and reached 80 million tonnes in 2018. Steel consumption increased 1.2% to 81 million tonnes in 2019, as the construction sector slowed down in many of the ASEAN-6 countries. 

Flat steel demand continued to expand more significantly, at the average rate of 8.1% from 1998 to 2019, while long steel demand has increased consistently, at an average growth rate of 5.7% during the same period. The continued increase in long steel demand was mainly due to the expansion of construction sectors in the six countries in ASEAN. However, share of long steel usage in the region still remained as significant as 71% compared to demand for flat steel, at 29% in 2019. 

In 2019, steel production still increased significantly, by 5.7% y-o-y to 45.3 million tonnes. Import continued to rise, but at a lower rate of 1.3% y-o-y to 51.2 million tonnes in 2019. Steel export in ASEAN-6 countries recently has expanded significantly, at 16% y-o-y to 15.5 million tonnes in 2019. This was mainly due to the huge increase of 1.5 million tonnes of long steel export in 2019, especially export from Malaysia and the significant rising level of flat steel export from Indonesia. 

Vietnam continued to be the largest steel producer in the region, with 15.4 million tonnes production, an increase of 6% y-o-y in 2019, followed by Indonesia, at 10.9 million tonnes or an increase of 8.8% y-o-y in the same year. Malaysia’s steel production jumped from 3.8 million tonnes in 2018 to 5.6 million tonnes in 2019. This was mainly the robust increase of wire rod production which also resulted in a sharp rise in wire rod export in 2019. Thailand’s steel production declined 14.1% y-o-y to 7.8 million tonnes due to a slowdown in steel demand. 

Steel import in the region rose only 1.3% y-o-y to 51.2 million tonnes in 2019. Long product import dipped 5.4% y-o-y to 12.5 million tonnes while flat steel import continued to increase 3.7% y-o-y to 38.7 million tonnes in the same period. Major sources of long steel import were China (nearly half of total import), Japan, Korea and import among ASEAN countries. Almost of half of the flat steel import was hot rolled coil, followed by coated sheet and cold rolled coil. Japan and south Korea remained the major sources of import for flat steel. However, China has taken over to become the largest source of flat steel import and the share of the import from China registered 33%, followed by 24% from Japan and 14% from south Korea. 

As for export, Vietnam’s steel export continued to rise rapidly to reach 1.2 million tonnes in 2010 and 6.59 million tonnes in 2018. However, the export volume increased slightly to 6.63 million tonnes in 2019. Steel export from other ASEAN-6 countries remained below a million tonnes in 2019. Steel export from Indonesia and Malaysia, on the other hand, increased significantly. Indonesia’s export of hot rolled plate increased 30.3% y-o-y to 778,198 tonnes and export of hot rolled coil surged by half a million tonnes to 1.8 million tonnes in 2019. Malaysia’s export of wire rod jumped from 100,997 tonnes in 2018 to 1.3 million tonnes in 2019. Bar export from Malaysia rose from below 100,000 tonnes in 2018 to 324,197 tonnes in 2019. Export of section increased from around 60,000 tonnes in 2018 to 194,018 tonnes in 2019. 

The COVID-19 has hit every country very hard, including ASEAN countries. Many steel consuming sectors have been affected due to the lockdown and cease or slowdown in business activities. Indonesia, Malaysia and Vietnam still maintained its positive GDP growth in the first quarter of 2020 in spite of lockdowns and restrictions. Philippines, Singapore and Thailand experienced a decline in GDP growth rate to as low as -2.2% in the case for Singapore. 

Construction is the key industry that drives steel demand in ASEAN-6 countries, with a share of as high as 73% of total steel demand in the region. Construction activities are moving forward with mega projects from government and a continued expansion of projects in private sector. 

Construction growth rate in Vietnam, for example, expanded 9.1% in 2019. The construction sector remained positive at 5.2% in the first quarter of 2020. This could be because Vietnam government took action to lock down the country fast and this resulted in short period of lockdown, which has less impact to business activities when compared to other countries. 

Philippines, with its Build Build Build projects from the government, enjoyed a positive growth rate of 9.4% in construction sector in 2019. However, due to lockdown and the impact from COVID-19, construction growth declined at 1.8% in the first quarter of 2020.

Thailand’s some construction activities were still allowed to proceed with certain restrictions. However, the growth rate in the sector dropped significantly from +2.2% in 2019 to -9.9% in the first quarter of 2020. 

Construction in Indonesia slowed down significantly in the first quarter of 2020, at -6.9%, from a positive 5.8% in 2019. 

Malaysia’s construction sector has been quiet and experienced a slowdown since 2019 and the situation got worse during the COVID-19 with a negative growth rate of 6.3% in the first quarter of 2020. 

As for other sectors, including automotive sectors and manufacturing sectors, there were negative signs in the first quarter of 2020. Vehicles sales in ASEAN-6 dropped 19% in the first quarter of 2020. ASEAN manufacturing sector declined 3 months in a row (from March to May 2020). April figures showed the largest contractions with all the lockdowns and restrictions. Most hardly hit countries were Singapore and Indonesia. However, declines were less severe in May as countries relaxed the restrictions. 

How fast will recovery take?

Since COVID-19 is still going on in many countries, it is hard to predict when it will be over. Although some countries, such as Vietnam and Thailand have handled the situation efficiently in terms of the control over infected cases within the country, these countries’s economies and steel consumption still linked to the global economy. 

Having looked at the historical crises and how well (fast) ASEAN government actions were, ASEAN government took six years to recover from the Asian Financial Crisis in 1998. However, subsequent crises from SARS in 2003 and Global Financial Crisis in 2009, ASEAN government took less than a year to recover the economy.  

One of the core reasons for such quick recovery could be a big room for the government to pump prime the construction sector to boost economy. In 2009, during the Global Financial Crisis, the impact hit ASEAN badly. 

Export market dried up in 2009 but recovered in one year in 2010. Similarly, construction activities slowed down significantly in 2009, especially in Malaysia, Philippines and Thailand. However, by 2010, government managed to boost back the construction activities. 

There are many factors that could hold back construction activities in many countries in ASEAN-6 in the upcoming period. They are lack of demand, financial constraints, material shortage, intensified competition, labour shortage, material cost etc. 

Nevertheless, there is a positive expectation that the government will boost up the infrastructure activities within 12 months time, especially for Philippines where the government has implemented some of Build Build build projects and Indonesia’s mega projects to develop infrastructure in Jakarta region, and to expand cities and bridging Java island and other inhabited islands. 

 

Another reason could be the structure of economic contribution within the country in the region. Indonesia and Philippines, in particular, do not rely their economy a lot on export. The countries are higher dependent on domestic market and for this it is expected that there should be faster recovery from global economic problem as well as the impact of COVID-19, provided if the government continues to manage to control the infection well within the country. 

However, many countries in the region also partly are dependent on external markets such as tourism, in particular in Philippines and Thailand, would be strongly affected from the COVID-19 from the sharp drop in foreign tourists. 

All in all, SEAISI forecast for the 2020 steel demand in the ASEAN-6 countries is -2.1%. The negative growth rate is mainly the result of the impact of COVID-19 on many sectors that are main drivers for the economy. However, the Institute predicted that there should be a fast kick off from the government to boost up economy by 2021 and for that steel demand would return to be positive of 5.1%. Nevertheless, the speed of recovery very much depends on the containment of COVID19 in the region, and the current resurgence of the virus around the world is a clear sign of the uncertainties affecting economic recovery in ASEAN and around the world.

Remark: the analysis is extracted from SEAISI Secretary General’s presentation at 2020 SEAISI e-Conference Part I (Market and Economics), which was held during 30 June – 2 July 2020

Source : SEAISI