2022 has been challenging for the ASEAN steel industry as the region has been impacted by the global economic recession, increased inflation and the unexpected slowdown of steel demand. Next year is also expected to be not so easy but an improvement is expected starting from the second half of the year.
In the first half of 2022, steel consumption in the ASEAN region (based on demand from the six main countries) fell by two percent to 34.9 million mt, with some slight increase seen only in Malaysia, Indonesia and Vietnam, according to the SEAISI. The strongest support came from Malaysia, whose consumption registered 30.4 percent growth to 3 million mt, given the increase in its steel exports (15 percent year on year). Following Malaysia, Indonesia registered a 1.5 percent increase to 6.6 million mt. Steel consumption in Vietnam increased by around 1.8 percent to 10.9 million mt, and Singapore showed the same result as last year at 1.3 million mt, while demand in the Philippines and Thailand dropped by four percent and 14 percent to 4.6 million mt and 8.6 million mt, respectively.
For the whole year, the SEAISI expects demand in the ASEAN region to increase by 3.6 percent to 77.9 million mt, though the projected increase is still subject to significant global risks from high inflation and volatile prices amid slowing demand in China and the region. A number of market sources from Southeast Asian mills said that, even if stable consumption figures for 2022 would be a good result if looking at things from September.” “2022 appears to be yet another challenging year with high commodity prices, the continuing war in Ukraine impacting the supply chain for food and energy leading to high inflation, and the worsening China economy,” Yeoh Wee Jin, general secretary of the SEAISI, said.
Uneven production cuts in ASEAN region
The situation in the Vietnam was the worst among all the countries in the ASEAN region, given the strong production cuts announced since November in the country. In particular, Vietnam-based steel producer Hoa Phat Group decided to shut down its two blast furnaces at Hoa Phat Dung Quat and two more furnaces at Hoa Phat Hai Duong from November on, and another BF is expected to shut down at the Dung Quat complex in December, leaving the mill with only one working BF. Furthermore, another Vietnamese manufacturer Pomina Steel shut down its BF with a total designed capacity of 1 million mt back in October. At the same time, the biggest HRC manufacturer in Vietnam, Formosa Ha Tinh Steel, which operates two blast furnaces at the plant having a total production capacity of 7.5 million mt per year, with 6 million mt of HRC and 1.5 million mt of long steel, has not announced any official shutdowns. However, according to market participants, the company will likely reduce its production by “a minimum of 50 percent”. Flat steel consumption in Vietnam has fallen more than longs consumption in the second half and mills like Formosa have sharply increased its export allocation of HRC for December-February shipment.
Some declines in steel production have also been seen in Malaysia, but most plants have managed to avoid halting operations, increasing export allocation in the second half to offset demand losses. Depending on the production route, Malaysian mills are working at 30-60 percent. Alliance Steel, a BOF-based mill, has remained among the most active in the export market, selling wire rod and billet and it has been able to remain working at full capacity. Eastern Steel has also continued to sell slabs and billets, with its utilization rate at around 50 percent, according to some sources (its capacity is 700,000 mt per year). Malaysian producer Ann Joo is working at reduced re-rolling capacity utilization rates, but its steelmaking is at 100 percent still, SteelOrbis has learned, and so the company manages to export billets and so balance its earnings.
In Thailand, the declines in steel production have been not big, which is partly since the utilization of mills was already at relatively low levels. For instance, this year the capacity utilization rate of Sahaviriya Steel Industries (SSI) has been at around 30 percent, versus around 35-40 percent last year.
In the Philippines, demand for steel products increased in the first half this year, but starting from August the situation has worsened dramatically and overall consumption has dropped by around 40 percent or so from the previous levels. “2021 was good, as we recovered from the weak 2020 Covid year. But in 2022 the market is down [in terms of sales] by 10 percent in total, and I don’t think we will see any good performance in 2023,” a source told SteelOrbis. The main producer in the Philippines, SteelAsia Manufacturing, has lowered production by 10 percent this year as the rises earlier in the year have disappeared in the second half.
The situation in the Indonesian steel market in terms of production has been among the best. According to Bimakarsa Wijaya, director of the Indonesian Iron and Steel Industry Association, consumption in Indonesia may see an increase of over 20 percent in 2022, reaching 19.3 million mt. Moreover, next year some increases of up to five percent are also expected. As a result, there have been no confirmed steel production cuts in the country. Production rates at some mills have increased to 60 percent this year, having fluctuated at or below 50 percent in previous years.
China’s impact and the forecast for 2023
The situation in the Chinese steel industry and China’s Covid policy are expected to remain the major factors which will impact the situation in the whole Asian region. “The key point is the Covid-19 policy in China, which has led to the property crisis and as a result has affected the ASEAN steel industry,” Yeoh Wee Jin added.
In December, the Chinese government has lifted restrictions and its zero-Covid policy, which first resulted in an improvement in sentiments, rises in steel prices, and somewhat better realizations. But by the end of the month, the number of Covid cases has sharply increased, which again caused big problems in the Chinese steel market. “The market in Asia will depend on how China is able to control their Covid situation. Now, even other steel consuming industries [than construction] are affected,” a market source said. The labor shortage has impacted machinery, automotive and other sectors.
“The first half will be still tough. Costs are high and demand is just minimal. Yes, there is some improvement [in buying] in Vietnam, but I don’t see any major positive changes soon,” a source from an international trading company commented.
“We see massive production cuts in the ASEAN region, with the worst situation in Vietnam. Those mills who have not shut production so far are actually working at around a 30 percent capacity utilization rate,” a Vietnamese mill’s representative told SteelOrbis. Furthermore, a representative of the Vietnam Steel Association also mentioned that consumption is likely to drop this year and could be even worse in 2023. “We have some hopes for a recovery in the second half of 2023, but again the market is too uncertain” he added.