Market talks at SEAISI: Demand slump in H2 leads to output cuts in ASEAN, gloomy outlook for 2023

Thursday, 17 November 2022 16:06:10 (GMT+3)   |   Istanbul
       

The second half of 2022 has brought a lot of challenges for producers in the ASEAN region as the usually developing and growing Southeast Asian market has faced a sharp decline in consumption - this issue has been among the major topics in backstage discussions between market participants during the 2022 SEAISI Steel Mega Event & Expo held in Malaysia on November 14-18. Though these declines have been uneven in the different countries of the region, a lot of the region's steel mills have been forced to cut production or even stop capacities for a couple of months. The outlook for the next year is not promising either as the weak demand conditions are likely to continue and China will not provide much support. In addition, the problem of overcapacity is a big one and is unlikely to be resolved soon.

The situation in the Vietnam is the worst among all the countries in the ASEAN region, given the serious production cuts announced this month in the country. In particular, as SteelOrbis reported earlier, Vietnam-based steel producer Hoa Phat Group has 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. “We have heard that one more furnace will be shut down as well at the Dung Quat complex in December, leaving the mill with only one working BF,” a representative of Vietnamese mills told SteelOrbis during the 2022 SEAISI Steel Mega Event & Expo. Hoa Phat Dung Quat has a total capacity of 5.6 million mt, including 3 million mt of HRC and around 2.6 million mt of long steel. Furthermore, another Vietnamese manufacturer Pomina Steel shut down its BF with a total designed capacity of 1 million mt back in October, according to sources. 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”. “The whole market is seeing a drop. Flat steel demand is down, longs as well, but flats I would say is worse,” a market source from Vietnam said, adding that the possibilities for exports in the flat steel market are better in Vietnam than for longs products such as wire rods.

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. Eastern Steel has also continued to sell slabs and billets, with its utilization rate is 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, 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. Thailand’s construction sector is expected to grow by four percent in 2022 as SteelOrbis reported earlier this week, as some increases in the first half of the year will offset declines later.

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.