New Investments in ASEAN

Posted on 08 July 2021

Despite the COVID-19 pandemic turmoil, ASEAN region is expected to remain  the focal point for  steel project investments.  The region is one of the fastest growing regions in the world with more emerging markets coming up. Economic developments in the region is expected to drive demand and there are still opportunities to cover demand and supply gaps for steel products. Government policies and incentives will continue to attract potential investment into the steel sector. Furthermore, the region’s less strict environment policy has somehow allowed flow of steel projects from China and from the rest of the world. 

The culmination of ongoing and new efforts by the Asian countries to pursue economic integration and partnership (AFTA, ACFTA, RCEP) is also one of the pull factors for steel investments into ASEAN. A free trade area has made it easier for investors like China to export steel produced here back to their home market.

The decarbonisation efforts and supply reforms that are taking place in China is expected to gradually see a shift in more Chinese investment into ASEAN while reducing its domestic capacities. Generally, global decarbonisation strategies have created much attention for shifting steel investment into ASEAN.

Steelmaking capacities development

SEAISI has been tracking upcoming new integrated capacities and the latest updates from our previous capacity map are as follows:

  • Construction for Hoa Phat Dung Quat 2 is expected to start in early 2022. The project is an integrated mill project with a capacity of 5.6 million tonnes of Hot Rolled Coils. The plant is located in the province of Quang Ngai, south of Da Nang city, Vietnam.
  • Substantial interest in expanding capacity is ongoing in Malaysia:
    • Eastern Steel has plans to expand to 5 million tonnes in the future, from the current 0.7 million tonnes 
    • Alliance Steel is exploring the possibility of expanding to 10 million tonnes from the existing 3.5 million tonnes today
    • WenAn Steel’s 10 million tonne steel mill project in Bintulu, East Malaysia is undergoing site preparation. The project is expected to be ready by 2024.
    • Oriental  Shield  previously known as Megasteel is expected to start up in Q3 2021 and they are exploring the possibility of backward integrating into blast furnace operations in the future.
  • Dexin Steel, located in the Morowali Industrial Park, Indonesia, has set sights on reaching 20 million tonnes steel capacity in the future. The current capacity is 3.5 million tonnes, with an ongoing expansion to reach 6 million tonnes in 2022.

Key consideration on investment

While investment interests in the steel sector have been high, there are key considerations to take into account:

  • ASEAN is not one single market as the individual countries have maintain its own identity in terms of politics, economics, laws and culture. 
  • The demand for steel in ASEAN has been flat for 4 years before COVID-19, 
  • All past large integrated steel mill investment projects have needed to export their products, indicating that penetrating the domestic market takes time and it could be very competitive expecially in markets that are in overcapacity.
  • Trade actions between ASEAN countries have also been active, with implications on investments hoping to sell across borders in the ASEAN region
  • There are other issues that may affect investments such as profitability of new investments, implications of decarbonisation and geo-political tensions 

As such, there is a need for comprehensive feasibility studies to address the above implications and risks when investing in the region. Investors need to take into account that the demand supply gap of steel in the region is actually getting smaller and opportunities for a profitable venture is getting fewer. It is essential to keep track on the development of the region as a whole, not just on a country’s development. For large investments, capitalising on export market for any excess production might not be sustainable in a long run. At the end of the day, investment needs to weight underlying risk when securing a finance amid potential loses and overcapacities. 

Source : SEAISI