SEAISI: ASEAN overcapacity dangerous for all markets, some projects cannot survive

The overcapacity problem is among the biggest in the ASEAN region and has been discussed since 2019, but this year it is becoming even serious as demand in the region has slowed down and most of the announced expansion projects may be postponed or cancelled in this situation as possibilities in the export market are also limited, SteelOrbis has learned during the 2022 SEAISI Steel Mega Event & Expo being held in Malaysia on November 14-18.

According to Yeoh Wee Jin, secretary general of SEAISI, new capacity expansion projects announced in the ASEAN region may bring 93 million mt of crude steel capacities, out of which 90.8 million mt will be accounted for by integrated mills via the BF route, while 2.2 million mt are new EAF capacities. These figures are very worrying, given that the current capacity in the ASEAN region is almost 72 million mt per year in total. “Huge Chinese steel plants are set up to sell back to China. With weak demand and overcapacity, where will all the steel go to?” Yeoh Wee Jin said in his presentation. “I don’t think that we will see most of these capacities coming on stream. Some of the investors have already withdrawn,” a market source said SteelOrbis backstage at the event.

Depending on the situation with steel demand and existing capacity increase projects, market sources assess the probability of new plants finally being set up. In Malaysia, the largest producer in the country Alliance Steel, the BF-based mill built with Chinese investments and which started operation in May 2018, has a plan to increase capacity from 4 million mt per year to 10 million mt. But “the expansion plans may slow down,” a company representative said during the plant tour at the mill. At the moment, the company is in the very early stage, trying to finalize land procurement, and so no final timeline for the project has been settled. This year, Alliance Steel has been focusing on optimisation of production and sales, being able to produce 4 million mt per year, even above the designed capacity of 3.5 million mt. The producer has managed to keep the plant busy, sending 70 percent of the products (wire rod, rebar, billet and H-beam) for export, while the share of the local market was at 30 percent. For the expansion project, the company has been considering the same sales ratio and has been going to widen the product range, adding production of plate, of which the share in the new mill could be up to 50 percent. However, “the flat steel market is not doing so good. It is hard to imagine where such large volumes may go,” a market sources from Indonesia said.

Among the projects in Malaysia, that have a higher probability of coming on stream in the short term is Eastern Steel’s re-rolling mill with a capacity of 1.2 million mt, on which construction is continuing, according to local sources.

In Indonesia, where the situation regarding demand is better, new capacity projects have slightly greater chances of success. Thus, Dexin Steel, also build by Chinese investors, has already managed to raise crude steel capacity by 1 million mt to 4 million mt per year “entering the second phase,” a local source said. Under the first phase, the capacity of Dexin Steel was 3 million mt, which may reach 6 million mt after the three phases are completed. Also, local producers PT Krakatau Steel, PT Krakatau POSCO and Gunung Group are all continuing their expansion projects, which are underway.

In the Philippines, the 10 million mt project by China’s HBIS and local producer SteelAsia Manufacturing is not indicating any movement, according to local sources, and it could be officially cancelled in the future. However, smaller expansions in the Philippines are still expected, but “probably when the depression in demand is over,” a source said. In some future time, Chinese investors may return to the Philippines, if the situation with demand is better, as consumption in China has already come to a plateau.

The first signs of the slowing down of capacity expansion in the ASEAN region has already been seen. There has been no talk about the ongoing project of Vietnamese steel plants as the major focus is now on saving profitability, managing export sales, cutting losses by reduction of production or all together. In the fourth quarter, at least six BFs in Vietnam will stop operation until the improvement of demand.

Crude steel capacity expansion in ASEAN