Overcapacity concerns persist for SE Asian steel sector

The southeast Asian steel industry will be governed by the opposing drivers of overcapacity concerns and demand growth in the coming decade.

Demand in southeast Asia is under pressure from macroeconomic headwinds such as rising inflation and interest rates and poor Chinese steel demand, participants at the recently concluded Southeast Asia Steel Institute (Seasi) conference in Malaysia said.

Over 46mn t of announced steel capacity investments are planned for the southeast Asian region in the next decade, with around 41mn t through investments from Chinese companies, Karel Eloot from McKinsey & Company said. Malaysia, Indonesia, Vietnam and the Philippines will account for most of the new capacity by 2030.

The domestic capacity expansion is expected to gradually reduce the region's supply-demand gap and reduce import reliance, Eloot said. The region's import reliance is expected to fall to 25pc of total supply available, from 44pc in 2020, he added.

Seasi expects to see around 90.8mn t of steel capacity in the region in the coming years, though it did not provide an estimate of when this capacity will become operational. Vietnam will account for 42.8mn t of the new capacity while 46.4mn t of capacity had been approved in Malaysia, Wee-Jin Yeoh, general secretary of Seasi, said. The organisation said that huge Chinese steel plants were being set up in the region to sell back steel to China.

Southeast Asia's finished steel imports fell by 4.3pc on the year to 21.9mn t during January-June, Seasi said. Exports rose by 7.2pc on the year during the same period to 11.1mn t. This compared with exports at 23.7mn t in 2021, up 41pc on the year. Imports were at 45.4mn t last year, up by 7.3pc on the year.

Asean-6 steel demand is projected at 77.9mn t this year, up by 3.6pc on year, Seasi said, with Vietnam expected to account for 29pc of the demand. Blast furnace-based steel production is likely to comprise 57pc of the region's steel production by 2026, compared with a share of 30pc in 2020.

The Argus cfr Asean HRC index was at $538/t on 22 November, down 35pc from a year earlier and by 4.7pc on the month.

By Deepali Sharma