Southeast Asia steel mills add capacity as demand rises

Southeast Asian steel producers are rapidly adding primary and secondary capacity amid fast growth in domestic demand, especially for construction steel.

Countries such as Indonesia, the Philippines, Malaysia and Vietnam are building additional capacity for rebar and wire rod to supply growing demand from the infrastructure sector. This has led to increased import demand for semi-finished products such as billet and slab, not only from traditional supplier China but also suppliers such as Russia and countries in west Asia and south America over the past year.

Growth in infrastructure demand for construction steel is likely to rise most sharply in Indonesia, the Philippines and Vietnam this year thanks to state-funded infrastructure projects.

The region is also building up its primary capacity, which so far has mostly comprised scrap-fed electric arc furnaces (EAFs). But countries such as Vietnam, Indonesia and Malaysia are rapidly adding blast furnace-based capacity.

Chinese companies are investing in primary steelmaking capacity in the region, as China looks to shift steel capacity overseas to reduce domestic pollution.

Chinese-invested projects include Alliance Steel and a proposed steel plant in Sarawak, both in Malaysia, and Tsingshan Steel and Dexin Steel in Indonesia. The partially-completed Alliance Steel has proposed capacity of 3.5mn t/yr while the Sarawak plant, which is still in the early stages of development, is expected to have 5mn t/yr of capacity.

Construction started earlier this year at Tsingshan Steel, which will have 3.5mn t/yr of nickel pig iron and 1.5mn t/yr of stainless steel capacity. Nickel pig iron is a substitute for pure nickel used in stainless steel production. The 3.5mn t/yr Dexin Steel plant also started construction this year.

The largest operational steel project in southeast Asia is Vietnam's Formosa Ha Tinh plant, which now has 7mn t/yr of crude steel capacity after its second blast furnace was lit in May.

But the rush to build both blast furnace-based and EAF-based plants in southeast Asia has raised concerns that the new capacity could far exceed demand growth and may lead to a supply glut in the medium term.