Strategic Insights XXVIII: Pacific Basin Steel--“Battle of the Mastodons”

Wednesday, 29 January 2014 00:58:38 (GMT+3)   |   San Diego
       

The Pacific Basin is populated in with too many “mega” integrated steel plants--i.e., those with coke ovens and blast furnaces--that produce steel slab, hot-rolled band and/or steel plate.  Most of these plants sit on deep water ports and are either fairly new and/or have been kept highly productive over the years.  Not a single plant, as far as we know, is lacking modern pollution control equipment and/or is faced with massive catch-up capital spending requirements.  In the Pacific Basin, the competition between the mega steel plants might be called the “Battle of the Mastodons.”      

When a new mega plant is started up, and especially if it has sizable company-owned or affiliated downstream customers, it will have a damaging impact on the existing mega plants in the region.  For example, the new Hyundai Steel plant on the West Coast of South Korea, which is not too distant from Seoul, has quickly ramped up steelmaking capacity to about 12 million metric tons.  A good portion of its deliveries are to other steel-consuming entities in the Hyundai Group--including Hyundai Motors, Kia Motors and the three largest shipbuilders in the country. 

Hyundai and Kia Motors account for about 70 percent of the autos produced in the country.  Hyundai Steel, as a result, has had the opportunity to produce about 5 million metric tons of automotive sheet for the Hyundai automotive companies – including perhaps one million metric tons exported to other Hyundai automotive plants in other countries. 

Three Hyundai Group shipbuilding companies account for about 50 percent of the tonnage of steel ships that are being built in South Korea. About a year ago, Hyundai Steel completed its second steel plate mill.  Hence, the Hyundai shipbuilding companies are now purchasing much less plate from POSCO and Dongkuk Steel.

By our reckoning, there are more than 40 plants operating in the Pacific Basin, with a steelmaking capacity of at least 3.0 million metric tons per year (mmtpy), that are positioned to serve the export market.  And, four new ones are under construction.  Specifically, there are:

• Twelve plants in Japan with a capacity of at least three million metric tons.  These plants are owned by Nippon Steel Sumitomo Metal, JFE, Kobe Steel and Nisshin Steel.  The plants are Muroran, Kimitsu, Nagoya, Hirohata, Yawata, Oita owned by Nippon Steel; Kashima and Wakayama by Sumitomo Metal that’s now merged with Nippon Steel; Chiba, Keihin, Kurashita and Fukuyama for JFE (which is the merger of Kawasaki Steel and NKK); Kakogawa for Kobe Steel, and Kura for Nisshin Steel.  The combined steelmaking capacity of about 109 mmtpy.  Also, Tokyo Steel’s first plant to produce hot-rolled band is based on EAF-produced steel and a conventional slab caster.

• Three in South Korea – including POSCO’s plants at Pohang and Gwangyang, and the new Hyundai Steel plant at Dangjin.  The combined capacity of these plants is about 50 mmtpy.

• Two in Taiwan, which are the China Steel units at Kaoshung and Taichung (Dragon Steel/CSC Group) that have a capacity of 16 mmtpy.

• In China:

 Sixteen plants at, or close to, “beach areas” including Ansteel’s new plant in Bayuquan, Shougang’s new plant at Caofeidian, Baosteel new plant at Ningbo (acquired a few years ago), Shandong Steel’s new plant at Rizhao, Baosteel’s original plant near Shanghai, Shagang’s ever-expanding plant at Zhangjiagang, Qingdao Steel and Qingdao and others with a total capacity at 128 mmtpy.

 Two new units under construction on the coast in the south by central-government-owned Baosteel and Wuhan Steel with a planned eventual combined capacity of 20 mmtpy.

• One in Vietnam, under construction, that’s owned by Formosa Plastics (one of the largest companies in Taiwan).  Its capacity will be 15 mmtpy.  It must be export oriented since the steel market in Vietnam is small and unsophisticated.  Question:  Will Formosa Plastics be able to set up a strong research and customer support effort in Vietnam to serve its offshore customers?
 
• In India, there are at least seven plants, including the large Essar Steel plant on the coast in the northwest, JSW plant at Dolvi near Mumbai, Vizag on the southeast coast and planned new units not far from ports by Tata Steel, SAIL, JSPL and JSW.  The combined capacity of these units is more than 20 mmtpy. 

• In Indonesia, one new $2.7 billion unit that’s owned by POSCO and Krakatau Steel will start production in early 2014 with 3.0 mmtpy of capacity including slab and plate.

In addition, there are at least eight steel plants in China and three in India located inland, but capable of shipping to the port of export at a reasonable cost.   

There are also three independent hot strip mills in the Pacific Basin, including two in Taiwan and one in Thailand.  These plants are quite competitive when slab is relatively cheap.

EAF-based thin-slab/hot-rolled band plants that depend on purchased scrap, pig iron and DRI are operated in Japan (Tokyo Steel), South Korea (Dongbu), Malaysia (Megasteel) and Turkey (MMK).  These plants tend to be poor financial performers in the current environment because of the high cost of purchased steel scrap and the inability to use purchased steel slab when it’s cheap (because the equipment includes only the finishing “train” of the hot strip mill that rolls a slab typically no more than 65mm in thickness).   

 

 

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