SEAISI webinar: Malaysia and Indonesia to drive capacity expansion in ASEAN region

The South East Asia Iron and Steel Institute (SEAISI) provided updates during its “ASEAN Steel Demand Forecast” webinar held on June 24 regarding capacity expansion projects in the ASEAN region. Although the Covid-19 pandemic caused many companies to postpone their projects over the past two years, many of them are still in place and are planned to be put into operation in the coming few years. In particular, Malaysia and Indonesia will be the main drivers of the capacity expansion in the region, with the focus on exports in terms of new semis and longs facilities, while the expansion in HRC output is aimed to cover domestic needs.

According to SEAISI’s data, substantial interest in expanding capacity is ongoing in Malaysia and the country plans to add around 18.5 million mt of steel in the coming years, including mega mill projects such as Eastern Steel, which plans to expand its production of semis (slabs, billets and HRC) to 2.7 million mt by 2023, from the current 700,000 mt. Initially, the company planned to expand its output to 5 million mt, though it has revised its plans this year due to the numerous challenges the industry has faced. Another Malaysian producer, Alliance Steel, is exploring the possibility of expanding to 10 million mt from the existing 3.5 million mt today, but without mentioning the timeline of its project. Besides, WenAn Steel’s 10 million mt steel mill project with Chinese investment is expected to be ready by 2024.

Meanwhile, considering that most previous capacity expansion projects were focused on longs, and Malaysia’s long products sector is characterized by overcapacity, most local mills export their materials. In particular, according to the Malaysian Iron and Steel Industry Federation, last year steel exports from Malaysia increased by 25 percent to 9.38 million mt, from 7.49 million mt in 2020. This growth was mainly driven by China, which constituted 55 percent of Malaysia's total iron and steel exports in 2021, up by 47.1 percent year on year.

Furthermore, numerous projects have also been announced in Indonesia, with some of them to be finally completed this year and next year. For instance, PT Krakatau Steel, which last year commissioned its 1.5 million mt new hot strip mill to expand its domestic share and reduce the country’s dependence on HRC imports, plans to commission its new slab and billet capacity of 1.2 million mt and 200,000 mt respectively by 2024. Dexin Steel with a capacity of 3.5 million mt of steel plans to add 2.5 million mt more this year. Besides, next year, two more producers Gunung Steel and Hebei Bishi Steel expect to expand their crude steel capacities by 1 million mt and 3 million mt respectively. “All flat steel expansion projects in Indonesia are directed to import phaseout, while billet and longs producers are actually focused on exports,” an Indonesia-based trader said. Besides, apart from crude steel expansion projects, the country’s producers plan also to expand re-rolling line investments.

Meanwhile, Vietnam gave place to Indonesia and Malaysia after the launch of the first integrated steel mill in the country Formosa Ha Tinh Steel. For now, among large expansion projects, only Hoa Phat Group plans to expand its crude steel capacity at Hoa Phat Dung Quat 2 steel complex by 5.6 million mt (including 4.6 million mt of HRC and 1 million mt of longs) by 2025, which means Hoa Phat Group’s capacity will reach 14 million mt per year from 2025. The producer planned to start production at the new complex in early 2022 but has revised its plans considering the current market conditions.

Although investment interest in the ASEAN steel sector has been high, there are key considerations to take into account. In particular, according to market insiders, the demand-supply gap of steel in the region is actually getting smaller and opportunities for a profitable venture is getting fewer. “Investors need to evaluate underlying risks when securing finance amid potential losses and overcapacities. There are other issues that may affect investments such as the profitability of new investments, implications of decarbonization and geo-political tensions,” a market source stated.