ASEAN steel industry structure comprises mostly processing and recycling of steel producers. Only a few steel companies in Indonesia, Malaysia and Vietnam have iron-making facilities. The production capacity for iron making is not large and the majority of steelmaking in the region is via the EAF route. Additionally, ASEAN is a net importer for semi-finished steel with a volume of more than 10 million tonnes a year.
There is adequate production capacity for long steel in the six ASEAN member countries of SEAISI while the production capacity for flat steel is lower. However, capacity utilization for both long and flat steel is only around 50%. Most of the domestic supply chain in the region is controlled by non-ASEAN steel mills and there is a large volume of finished steel import into the region, with a total net import of around 40 million tonnes a year.
There is a need for the region to import quality steel to serve middle and high end steel consuming sectors, such as automotive, electrical appliances, machinery & industry, shipbuilding and oil & gas. Major sources of imports are Japan, Korea and Taiwan. China has become the largest source of steel import recently, overtaking Japan with its share increasing from 26% in 2012to 52% in 2015.
The need for semi-finished steel import is mainly because steel-making production capacity in ASEAN is not competitive and also lack of quality control. EAF facilities are constrained by shortage of domestic scrap and lack of economically viable scrap supply. As for the import of finished steel, major concerns are the structural overcapacity of long steel and the structural import of flat steel. Domestic producers lack facilities to supply steel to some key steel consuming sectors, such as automotive, appliances, machinery and packaging sector.
Can regional steel production be more competitive?
According to Mr. Wikrom Vajragupta, Chairman of Thai Iron and Steel Club, Federation of Thai Industries, in his presentation at the 2016 SEAISI Conference & Exhibition, the bulk of the production cost for finished steel products falls on semi-finished steel. For example, around 75% of total production cost for hot dipped galvanized sheet is the cost of slab. Therefore, in order to be more cost competitive, ASEAN steel players would need to look for the access to quality and cheaper sources of semi-finished steel.
Mr. Wikrom suggested some alternative solutions for the steel players in the region. They are 1) to have partnership with global network players such as Japan, Korea or Europe in order to have access to quality semi-finished steel, 2) to partner with standalone players such as China, South America, Middle East and CIS, 3) to co-invest within ASEAN and/or with foreign partners and 4) to put more investment by individual company. He remarked that from these solutions, steel industry in the region would benefit from the access to quality market with higher margin, benefit from skill and technology transfer and increase bargaining power with current Japanese suppliers. In the meantime, these partners would also obtain benefit from the access to the growing steel market in ASEAN and establish future production base in a low cost country in ASEAN.
Not only to be cost competitive, Mr. Wikrom also suggested that ASEAN steel industry needs to understand how to add value in steel through its performance and applications in steel consuming sectors.
Construction industry, for example, in order to add value to steel materials, requires the steel producers to understand construction processes and the supply chain in this sector.
In general, steel applications in construction sector has become well developed in order to reduce cost, time and materials. The development moved from a normal concrete bar structure to different processes such as in situ casting, PEB, precast structure, post tensioned structure etc.
However, in order to further develop the construction industry, there is a need to improve in many areas such as the problem of lack of unified standards and codes of practice, lack of innovation and efficient manufacturing facilities, productivity, management, and the need to have more education and training. In addition, the industry is facing fragmented supply chain and for that it faces high cost and waste of labour and materials.
As such, there is still room for further development in the sector. Building Information Modeling (BIM) is one of the solutions that can shorten the time for construction as well as shorten the distance between related bodies such as erection scheduling, fabrication integration, materials procurement, detailing, erection drawings, conceptual design for buildings and cost estimation for the whole building and also enable the developer to give alternative solutions for the construction.
In order to create long term value for the construction industry, there is a need to improve the whole supply chain from materials suppliers to processing and to buyers. This would require the involvement of many parties, such as those involved in standardization of steel designs and code of practices, construction market and consumer insight, steel construction fabricators, R&D for steel applications through universities, training and examination bodies etc.