Reading Between the Lines- Challenges to the Steel Industry in South East Asia

Posted on 28 May 2008

Source: SEAISI
In the recently concluded SEAISI conference in Bangkok, Thailand, Mr. Tan Ah Yong, SEAISI’s Secretary General presented a clear picture of growing steel consumption in South East Asia in 2007 and projected a satisfactory growth rate going forward in 2008. There would be no more steep decline of steel consumption of the magnitude experienced during the economic crisis years. With a 7 percent growth rate year on year, it is expected that apparent steel consumption in South East Asian region would reach the 47 million tonne level in 2008.

The satisfactory growth is not only apparent from the demand side, there are also a lot more expansion projects for increasing in-house steel capacity, especially in Vietnam as well as several major steel mills in Malaysia, Indonesia and Thailand. It is estimated that under the current plans, there will be an increase of up to 20 million tonnes of iron-making capacity and 10 million tonnes of steel-making capacity in the region in the coming years.

However, in comparison with world giant steel companies, major steel mills in South East Asia are relatively small. Mr. Frank Mizuno, one of the keynote speakers in the conference and President of Proudfoot Consulting, gave an interesting point of view on the current trend of consolidation in steel industry worldwide. As a result of the consolidation, there is now a higher number  of bigger steel companies than there were 10 years ago. A comparison between the top 10 biggest steel companies in 1998 and 2007 was given. The largest steel mill in 1998 was POSCO with total capacity of 26 million tonnes per year, while in 2007 POSCO dropped to number four in ranking with total capacity of 33 million tonnnes a year. Arcelor Mittal has emerged as the largest steel mill with total capacity of 116 million tonnes per year, followed by Nippon Steel with 36 million tpy capacity. It would appear that in the current era, one would need to have at least 10 million tonnes of annual capacity to be considered a major steel producer. Interestingly, China currently has more than 20 steel companies each with over 10 million tonnes of annual crude steel production capacity.

In comparison, major steel mills in the South East Asian region at most have only 2-4 million tonnes of annual production capacity. Moreover, the region is very much dependent on outside suppliers for key products, including materials and quality steel to fulfill the needs of strategic industries such as the automotive and electrical appliances industries. Many steel mills in the region encountered material shortage when the Chinese government started to control the export of semi-finished steel products. Fortunately, global steel demand has been growing consistently in the last few years, especially steel import requirements from USA. This has stirred up capacity utilization of many steel mills in the region to serve the export market in USA. However, with the current talk of the American financial crisis and its effect on global economic development, what would be the impact on steel industry in the South East Asian region should there be a global economic slowdown?

Several suggested key points were mentioned. Mr. Mizuno talked about improving production costs, efficiency and productivity. In addition, ‘finding friends’ was also listed as a strategic option to help local steel mills to improve their operations, quality and product offerings as well as to increase scale in global markets and to gain funding and support.

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