ASEAN steel demand may take 20 years to match new capacity despite construction boom

Steel consumption in Southeast Asia could take as long as 20 years to catch up with projected capacity hikes in the region, the South East Asia Iron & Steel Institute, or SEAISI, said during its 2019 ASEAN Iron and Steel Sustainability Forum held in Jakarta early this week, despite a growing construction sector.

Yeoh Wee Jin, SEAISI’s secretary general was concerned over the continuously rising capacity addition in ASEAN without a commensurate uptick in demand.

Apparent steel consumption rose 5.9% year on year during January-June 2019 “touching 39 million mt,” Yeoh said as consumption in flat steel increased 8.7%, while long steel consumption lagged behind with a 3% growth. However, for the year as a whole, consumption is expected to grow at 4% in 2019 to about 80 million mt against 5% growth in 2018.

SEAISI forecasts that ASEAN’s current steel production capacity of 83.7 million mt/year will increase to 144.2 million mt/year by 2026, assuming “all integrated mill capacities come on stream.”

Assuming a 4 million mt annual increase in steel consumption, it would take about 18.6-20.1 years to absorb the overcapacity, SEAISI said.


“Many huge integrated mills are starting up in Malaysia, Indonesia, Philippines and Vietnam, with most of the investors being Chinese steel mills,” SEAISI said, noting Chinese steel investments in ASEAN started from 2017 onwards.

Chinese steelmakers have sped up their plans for overseas capacity expansion since 2017 in tandem with largely improved steel profit margins as a result of overcapacity elimination in China, S&P Global Platts analysis had showed.

Also, Platts estimates show that about 42.7 million mt/year of new overseas crude steel capacity, involving nine projects that are fully or partly-owned by Chinese companies, are in the pipeline. Five of the nine projects, comprising about 35.5 million mt/year of capacity, will be built in Southeast Asia.

Among the anticipated new projects are mega-mills with production capacities of up to 10 million mt/year.

In the Philippines, China’s HBIS Group plans to build a $4.4 billion integrated steel plant at Misamis Oriental in northern Mindanao with a total production capacity of 8 million mt/year. Philippine steelmaker SteelAsia will partner HBIS for the project. SEAISI data showed the joint-venture plant could see 4.5 million mt/year of capacity coming online as early as 2023.

Another Chinese steelmaker, the Panhua Group, plans to set up a 10 million mt/year integrated steel manufacturing plant in the Phividec Industrial Estate of the Misamis Oriental-Special Economic Zone. The Panhua mill could be operational in 2022.

Elsewhere, in Malaysia, Hebei-based Wen’an Iron & Steel has plans for a 10 million mt/year integrated steel mill in Sarawak, which could be ready over 2021-22.


SEAISI said the production capacity for long steel products in ASEAN is “way above consumption” while “the flat products market is mostly served by imports, hence there appears to be room for new capacities.”

The construction sectors in Indonesia, Philippines, Thailand and Vietnam are expected to support most of the demand for both flat and long steel products in 2019 and beyond.

SEAISI expects Vietnam’s construction sector to grow by 8%-9% annually over 2019 to 2023 while it foresees Thailand expanding over 3.5%-5% in 2019 to about 5.7% in 2020.

Although Indonesia’s construction sector is expected to slow to 5.72% in 2020 from an anticipated 6.82% in 2019, SEAISI said, “2020 is continuation of infrastructure development that has been carried out to support economic expansion and inclusive growth in Indonesia.”

The Philippines’ construction sector is expected to grow 10.9% in 2019 and the Philippine Iron and Steel Institute reiterated its forecast for steel demand in 2019 and 2020 to grow at 6% for each of those years, SEAISI said.

Apart from supporting ASEAN’s demand for steel, the new Chinese mills will increase demand for raw materials as the mills will be blast/basic oxygen furnaces. Also, the fresh production capacities could create potential for steel exports.