South East Asian Steel Market: A summary from the 2009 SEAISI Conference and Exhibition

Posted on 01 June 2009
 

Source: SEAISI
Economic Situation
Overall economic situation in the ASEAN countries remained steady in 2008 with most countries registering an average GDP growth rate ranging between 4% and 6%. However, the global economic meltdown has affected ASEAN countries badly in 2009. Singapore was hit hardest with a projected negative GDP growth rate of 5% in 2009, a sharp decline from 1.1% growth in 2008. Thailand's GDP growth in 2009 is also expected to be negative, at -2%, down from the growth rate of 2.6% in 2008. Malaysia's GDP growth rate is expected to contract substantially from 4.6% in 2008 to -0.2% in 2009. On the other hand, Vietnam and Indonesia seem to be the only two countries that would still enjoy respectable growth rates of 4.5% and 3.6%, respectively in 2009, while Philippines' GDP growth is expected to increase by 2.5% in the same year. Nevertheless, Asian Development Bank foresees a recovery in economic growth rates for all ASEAN countries in 2010.

Steel Demand and Supply
Preliminary estimates indicate that apparent steel consumption in the ASEAN-6 countries registered 42.5 million tonnes in 2008, a slight drop of 1.8% y-o-y. Thailand and Singapore were the only two countries that still enjoyed a significant growth rate in steel consumption, by 7.5% and 8.1% respectively. Vietnam's steel industry was hit hard by the economic crisis, resulting in a negative growth rate in steel consumption of 11.4% to 8.26 million tonnes. Flat product consumption in the ASEAN countries registered a decline of 4.7% to 22.3 million tonnes. There was a sharp drop in domestic production of around 17.5%, while import still remained high at 22.2 million tonnes. Export decreased by 4.8% to 7.4 million tonnes. Meanwhile, long product consumption was somewhat steady with marginal decline in growth rate of 0.6% to 20.2 million tonnes. Domestic production declined slightly by 1.6% to 16.17 million tonnes, while there was little change in the volume of import and export.

It is expected that the situation in the first half of 2009 is likely to be worse than the second half of 2008. Therefore, capacity utilization in 2009 is projected to be significantly lower when compared to 2008. It is expected that capacity utilization rate for semi-finished steel manufactures will decline from 71% in 2008 to below 60% in 2009. Regional capacity utilization rate for flat products is estimated to contract from 62% in 2008 to 57% in 2009. In the meantime, it is projected that regional capacity utilization rate of long products will reduce to 28% in 2009, from 34% in 2008.

Stimulus Packages
Hopefully, stimulus packages introduced by the governments of the countries in the region will effectively boost steel demand in the second half of 2009. Total value of stimulus packages in the region was 102.1 billion USD. Thailand's government has announced two phases of the package which will total 50.4 billion USD in value, equivalent to 19% of GDP. Malaysia's stimulus packages totaled 18.3 billion USD which is about 9% of its GDP, followed by Singapore with 14 billion USD worth of package or 8% of its GDP. Vietnam's stimulus package totaled 6 billion USD in value, which is about 6.5% of its GDP. Philippines' government has also introduced its own economic stimulus plan worth 6.9 billion USD which accounts for as much as 4.4% of its GDP. Meanwhile, Indonesia' s stimulus plan of  6.5 billion USD is equivalent to only 1.4% of its GDP.

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A significant portion of the spendings from the stimulus packages announced by the governments in the region will be made on infrastructure development. Nevertheless, the improvement in residential and commercial construction activities will depend largely on the return of credit and confidence in the region. The construction sector is a significant contributor to steel demand in the region, averaging more than 60% of total steel consumption. During the Asian financial crisis in the late 1990s, apparent steel consumption and investment collapsed sharply. Apparent steel consumption fell from a peak of 33 million tonnes in 1996 by nearly half to 19 million tonnes in 1998. The economic upturn from 1999 onwards was largely led by a recovery in private consumption which was less steel intensive. However, the recovery from the current crisis, expected to kick in by 2010, will be led by investment, driven by the governments' stimulus packages. The pick up in steel demand is, therefore, expected to be more rapid than the last crisis. 

China's Steel Industry and Its Impact on SEA
Touching on China's steel industry development and its impact on the steel industry in SEA, CRU has predicted that Chinese apparent steel consumption will pick up year-on-year in the second half of 2009, and will reach the peak in the second quarter of 2008 only after 2010.

On the supply side, new capacity will be strictly controlled, and steel plants will be allowed to be built only on the precondition of elimination of obsolete capacity. Under new guidelines, China's obsolete steelmaking capacity of around 28 million tonnes will be removed by 2011. It is predicted that a large amount of the currently under-utilized capacity will be brought back on stream. Together with the new implementation of large projects, China would have added at least 70 million tonnes of steel capacity by 2013. Capacity utilization is estimated to register between 85% and 90% by 2013.

However, CRU forecasted that China's crude steel production annual compound growth rate will be around 4% between 2008 and 2013, much lower when compared to the peak rate of 26% in 2004.

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Source: CRU

As a result, it is predicted that China will be exporting less, approximately 20 million tonnes in 2009. If steel demand picks up rapidly, China might become a net importer by 2013. ASEAN countries could take this opportunity to invest in new projects, especially to enhance competitiveness. Nevertheless, CRU also provided an alternative scenario where China could remain a net exporter, of up to 40 million tonnes in volume. This is dependent mostly on the price effect in the market.

In the long term, China's steel industry will undergo structural changes to enlarge market share and improve cost competitiveness. It will move forward to supply high-to-middle quality steel products while still maintaining the supply of middle-low quality products with competitive prices.


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