According to the South East Asia Iron and Steel Institute (SEAISI), ASEAN countries’ steel industries are facing new production capacities which may worsen the current overcapacity problem in the region. The proposed investment from China in up to 50 million mt of new production capacity in several ASEAN countries as well as investment from other countries in the form of joint ventures will add up a total of 151 million mt of production capacity. The total overcapacity overhang will be more than 60 million mt, which only comes from integrated mill projects.
It will take more than 20 years for demand to catch up with this capacity level due to the slowdown in steel demand caused by the coronavirus, as SteelOrbis understands.
When the market is under capacity, foreign direct investments (FDIs) add value to the industry in many ways such as providing employment. However, in an overcapacity situation as in ASEAN countries, the new investments will lead local steel producers to face severe financial losses within domestic markets through severe regional competition and this will threaten the sustainability of the steel industry in the countries. It will also threaten the regional steel industry as the new investments will start to export to the ASEAN region. Authorities should examine the long-term impact of regional investments, before making the decision to accept new FDIs when the local and regional markets are in an overcapacity situation, SEASI stated.