Although levels of fiscal stimulus are higher in major steel-producing economies such as China and the EU, a number of new initiatives have been recently implemented or announced in Southeast Asia, which continues to see ambitious expansions in steel capacity. Hence, metallurgical coal demand is projected to proportionally increase in the region. 

Steel demand in the southeast Asian region is expected to increase by about 6% in 2021, compared to 2020. The strongest demand comes from Vietnam and Indonesia, where consumption is anticipated to exceed pre-pandemic levels. The Association of Southeast Asian Nations (Asean-6) – consisting of countries including Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam – is estimated to reach a volume of 54.1Mt of crude steel supply in 2021 and continue significantly increasing its output to 2040.

What’s Behind the Steel Rise?

Even with ongoing outbreaks of the Covid-19 pandemic, steel capacity additions in Southeast Asia have continued to rise. Approximately 5Mt of crude steel production was added in 2020, and more than 150Mt is expected to be added by 2040.

As the steel market adapts to the pandemic, Asean-6 becomes one of the fastest growing regions for steelmaking capacity. Government policies enabling domestic steelmakers to reduce their reliance on steel imports and the growing middle class pushing more urbanisation support exponential growth in the steel industry.   

Additionally, significant Chinese investment in the region, largely through the blast furnace route, is adding to this extra capacity. Even with Chinese investors delaying their projects amid the effects of the Delta variant, significant new capacity will be put into operation by 2025. The highest integrated steel capacity among Asean-6 that has been postponed is in the Philippines, where around 20Mt is expected to become available.

Where Is the New Steel Capacity?

Indonesia is taking over, with POSCO and PT Krakatau Steel JV expecting to double their crude steel capacity to 6Mt from the current capacity of 3Mt. The facility commenced operations in 2013, and further expansion plans have been known to the market for some time and are expected to commence in 2025. The plans include a blast furnace, sintering plant, coke oven, and plate mill. Although POSCO’s latest quarter investor presentation acknowledged the plant as a key growth asset, the company will continue focusing on improving profits and review expansion plans of up/down process.

PT Dexin Steel Indonesia ignited its second blast furnace earlier this year to enable a total crude steel capacity of 3.5Mt as part of its Phase 1. Phase 2 expansion is due to be completed by December 2022, bringing DSI’s crude steel capacity to 6Mt. Phase 3 will have an additional 14Mt of crude steel capacity. However, the timeframe has not been specified at this stage. The company initially invested US$950m during Phase 1. The plant is a venture between Delong Steel Group, Tsingshan Holding Group, IMIP, and Hanwa. The company commenced steel slab in June 2021, which now includes billet, wire rod and rebar.

Philippines: from Zero to Hero?

The Filipino steel industry is a critical component in achieving economic growth and sustainable development in the country. The Philippines is expected to display an increment of 15.3% in its crude steel supply, rising to 2.19Mt in 2021 from the actual production in 2020.

SteelAsia Manufacturing have three other projects in the Philippines, which will have a total crude steel capacity of 2.5Mt. SteelAsia Concepcion, located in Tarlac province, will be an EAF steelmaking facility with crude steel capacity of 1.2Mt for rebar and wire rod products. Commissioning is expected by the end of 2021. SteelAsia Compostela, located in Cebu province, will be an EAF with crude steel capacity of 0.8Mt, producing rebar and wire rod. Lastly, SteelAsia Lemery, located in Batangas province, will be an EAF integrated steel mill with crude steel capacity of 0.5Mt producing steel sections. The project is expected to commence operations by 2023 and will generate 1500 new direct jobs, aiming to reduce the reliance on imports.

Chinese Panhua Group has new a greenfield project located in Misamis Oriental. The development will take place at Phividec Industrial Estate and commission in three phases. The facility is designed to have a crude steel capacity of 10Mt, with an approximate investment of US$3.5b. Work commenced in the facility in 2019 and was temporarily suspended in 2020 due to the Covid-19 pandemic. The previous stated commissioning date was 2022. However, this timeframe is very likely to be pushed towards 2023. The facility will produce steel slabs, and galvanised steel, including pre-painted coils, for the domestic market and export markets of Europe, the US and Russia. In late 2020, equipment supplier Shaangu Group signed a supply contract agreement with Panhua Group to supply the full set of equipment for the initial phase of the project.

The Threat of Overcapacity

With Southeast Asia’s steel capacity surplus on the rise, the region faces the threat of overcapacity. Local steel manufacturers are urging governments to curb imports as utilisation levels do not seem to be increasing enough to meet the capacity growth.

Companies in the region are pushing back on deficient technology as regulatory authorities have raised quality and environmental concerns over Chinese participants providing obsolete induction furnaces in the Philippines, Indonesia and Thailand. Key markets have introduced duties on steel products from their export partners, including Vietnam, Malaysia, Thailand and Indonesia. For instance, Vietnam placed duties of up to 25% on cold-rolled sheets and coil from China, while Indonesia imposed duties on several flat product imports from China, Russia and India. These measures are expected to further restrict finished steel imports.