Message from Secretary General_July 2021

Posted on 05 August 2021

The SEAISI 50th Anniversary e-Conference & Exhibition is a resounding success with more than 40 speakers and about 400 delegates attending the event. One of highlights of the event is the CEO Panel Discussion which has the theme: Thriving in the Post COVID Norm.

The panel comprises: 

  • Dr Edwin Basson, Director General of World Steel Association, 
  • Mr Kazuo “Mike” Fujisawa, 
  • Principal, International Business Development from JFE Steel Corporation, 
  • Mr Nghiem Xuan Da, Chairman of the Board of Management of the Vietnam Steel Corporation and Chairman of SEAISI
  • Mr Purwono Widodo, Director of Business Development of PT Krakatau Steel Indonesia.

Steel Industry Post COVID Norm

Dr Basson’s view is that COVID doesn’t really change anything much for the steel industry but it accelerates a number of changes that were already ongoing. He highlighted 4 key points:

  • The shift away from globalisation to some form of regionalisation, 
  • Acceleration in changes to supply chains that are becoming shorter and regional and focused on sustainability, 
  • Smart manufacturing
  • New or replacement infrastructure as economies are kickstarted towards recovery post COVID.

Mr Fujisawa concurs with Dr Basson’s views and added additional points: 

  • 2020 marks the turning point for the decarbonisation effort in Japan, with deadlines set for carbon neutrality by 2050
  • The industry has to think differently about how to make the “right” and “green” steel in a viable and cost-effective manner, which is a big challenge,
  • Supply chain decoupling and realignments are happening but no drastic changes are expected

While Japan is viewed as an advance economy, other countries are catching up. Japan should speed up in terms of technology and product development.

Mr Purwono pointed out that the pandemic’s impact will continue to be the norm for the next 2-3 years:

  • Disruption of supply chain has resulted in a huge drop in imports (including semi-finished products), affecting supply into the market
  • Global supply chains are evolving into regional supply chains to cover local supply demand gaps 
  • The steel industry is gearing up for a new norm of operating under strict health protocols with work flexibility (from home)
  • The industry is also stepping up to serve local customers better to make up for the fall in imports

Mr Da shared that Vietnam’s economy registered positive growth in 2020 and both steel production and grew significantly. He foresees that:

  • Rise in raw materials and finished goods prices will still affect many steel consuming sectors
  • Capacity utilisation for steel industry continues to be low (e.g., less than 60% for flat products and downstream products)
  • Overcapacity will force the steel industry towards a shakeout
  • Policy changes in the regional and global markets will continue to impact Vietnam

Global Supply Chain Shift into Vietnam 

Will this shift benefit the steel industry? Mr Da highlighted that recent investments are for higher value sectors such as tele-communications, while the steel industry is still focused in low-end products for the construction industry.

He expects the industry to continue to adapt to market needs by evolving into production of higher end steel products. Hoa Phat, for example, has changed its business model to capture the entire steel value chain. They purchased an iron ore mine in Australia, expanded steel production with a 6 million tonne Dung Quat project and have forward integrated into the automotive, electric appliance and shipping sectors. 

Another area of focus in the Vietnam steel industry is digitalisation and automation, in line with global trends. 

Decarbonisation Efforts in ASEAN

Dr Basson pointed out that the Europe, Japan and other countries are already preparing for decarbonisation. The catalyst hastening the shift towards decarbonisation is China, with plans to achieve carbon neutrality by 2060. ASEAN countries will not have luxury to escape this trend, and there is a need to work on decarbonisation.

Issues that need tackling are the upcoming new capacities and the lack of scrap, which are likely to encourage investments in blast furnace capacities in ASEAN. As such, he advised the following:

  • New investment projects should consider the best-in-class technologies that also reduce carbon emissions.
  • The plant has to be cost competitive and efficiency competitive
  • Start looking at scrap as a scarce commodity and think about how to manage future scrap supplies
  • There are practical things to consider even if there are no guidelines yet about decarbonisation in ASEAN

In Mr Fujisawa’s view, ASEAN countries have its own uniqueness and differences and issues to cover, but steel producers have to consider decarbonisation. However, it is not something that steel producers can do on their own. It is necessary to work with the government on this.

In the meantime, the steel industry is a regional industry which have been impacted by the pandemic, affecting service to markets with logistics and border restrictions.

Massive Steel Sector Investment Interests in ASEAN

Mr Purwono highlighted that steel consumption per capita in Indonesia is still low and there is room for additional supply. Also, many investors are interested in Indonesia because of its population size and its good macroeconomics performance.

The key point is how does the government help protect current investors, especially during the pandemic. Steel consuming sectors e.g., the automotive sector, have seen a collapse in demand and incentives were needed to boost spending. It  is  critical  that  the  government  look  after 

existing investors, to encourage more investments.

Mr Purwono highlighted that the government should consider steel investments that manufacture products that are either insufficient or are not produced locally. Investments in steel sectors that are in a low-capacity utilisation situation should be discouraged, so that the steel industry will continue to be sustainable.

Dr Basson feels that the massive investments coming into ASEAN could end up destabilising the global markets. Many have blamed China for past overcapacity issues and he hopes ASEAN does not get into the same position. 

ASEAN has been importing sizeable quantities of steel for many years, to strong demand in the region. He pointed out that the steel industry tends to overinvest in good times and underinvest in bad times and go through a typical up-and-down cycle in the industry. 

Investors should do their calculations correctly to make sure new capacities will be competitive against existing ones. There is also the need to evaluate these capacities carefully from the perspective of the environment, future prospects and long-term market situation.

He concurs with Mr Fujisawa’s point that steel as an industry is in essence a regional industry. Of the 1.7 billion tonnes of steel produced and used on a global basis, 25% are crossing global borders. The other 75% are usually located within 500 km from where the plant is, where it would be eventually consumed.

The steel industry is moving towards regionalisation and we expect to see more and more trade protection activities globally. This needs to be managed accordingly.

Mr Da of Vietnam shares the view that Vietnam is also facing over-investments and overcapacity issues, especially in the long and colour coated products sectors. 

While he expects steel production and consumption to continue to rise as the construction industry grows in ASEAN, he cautions that the steel industry is heading towards a structural change. Climate change and overcapacity issues are expected to see the phasing out of outdated capacity as well as the promotion of consolidation in the domestic and regional markets.

It was a great CEO Panel Discussion, with many insights from our panelists.  SEAISI would like to thank Dr Edwin Basson, Mr Kazuo Fujisawa, Mr Nghiem Xuan Da and Mr Purwono Widodo for their contributions.

As the pandemic rages on, everyone needs to be careful. Keep Your Distance, Wear Your Masks, Stay Safe Always!

Yeoh Wee Jin

Source : SEAISI