Iron and Steel Industry in ASEAN: Characteristics and Supply Capability

Posted on 14 June 2016

Source: SEAISI

ASEAN steel consumption continued to grow healthily. Average growth rate of steel demand from 1998 to 2015 was 8-9% per annum. While the global financial crisis led to a dip in steel demand in ASEAN in 1999, steel consumption in the region recovered speedily after that. 

The major steel consuming sector in ASEAN is construction, which accounted for around 73.5% of total steel usage, followed by automotive sector, at around 11%. 
Steel demand in the construction sector in the Philippines, Singapore and Vietnam registered a significant share of above 80% while in Indonesia, Malaysia and Thailand, the share was lower, at around 60%. This is because the latter three countries have strong manufacturing sectors, such as automotive, electrical appliances, machinery and equipment etc. 
In the case of Philippines and Singapore, where the share of steel usage in construction sector is above 80%, use of long steel dominates, accounting for 70% or more of total steel used. In Philippines, where its construction sector accounted for about 85% of total steel usage in 2014, the share of long steel was 72% while demand for flat steel was only 28%. Similarly, in the case of Singapore, around 80% of steel demand in the country was used in construction in 2014. Share of long steel demand was 73% of total steel used in 2014 while flat steel usage was only 27%. 
As for Indonesia, Malaysia and Thailand, where there are other significant steel consuming manufacturing sectors such as automotive, electrical appliances, machinery etc., the share of flat steel usage is higher, accounting for around 40-50% of total steel demand in the countries mentioned. 
Vietnam has the highest share of steel usage in the construction sector, at around 90%. Although the country does not have significant steel consuming manufacturing industries, the share of long steel was only 51% while that for flat steel was 49%. This is because many new factories and warehouses are being constructed in Vietnam, which use mainly flat steel. Additionally, exports of pre-engineering steel structure are becoming more prominent.  
Looking at the steel supply for the second largest steel consuming sector in the region, that is the automotive sector, it is observed that regional steel producers have difficulties in breaking into the supply chain set tightly by the foreign owned automotive companies, especially from Japan. Car makers have strong influence on selecting steel materials, where part makers have to purchase steel from qualified sources. Although trial for new sources from local steel producers are possible, it takes time and the process is very long and complicated. The new sources have to compete in quality and price with the established steel suppliers. 
As for home and electrical appliances sector, decision making for steel materials supply is similar to the automotive sector. Decision making for selecting steel materials is made by end users. Two major concerns are material quality and price.
For machinery and equipment, Thailand has the potential to grow its steel production capacity to serve part making in this sector by using its existing production facility for auto parts. However, the local producers can only produce certain parts while the more sophisticated parts such as engine, cylinder and track rollers etc. have to be imported. 
As for ship building, 80% of steel materials is steel plate and regional steel producers are capable of supplying but not in adequate quantity. Moreover, some shipyards are owned by Japanese and Korean companies and they prefer to source the materials from their home suppliers. In addition, the volume of some of the steel materials used to produce specific parts such as angles might not be economical for regional steel producers to supply. 
Steel supply structure in the ASEAN countries is fragmented. There are not many integrated steel mills in the region and these mills normally end their product lines with hot rolling facilities or cold rolling facilities.
In general, overall supply chain in ASEAN steel industry basically starts from processing steel. Therefore, there is a need to import upstream materials from other countries, such as Japan and Korea and lately from China, to serve the high end and middle end steel products.

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