AEC and Thai Steel Industry
19 November 2011
0
Contents
• Current Steel Industry Situation
• Consequences from the ASEAN Economic
Community
• Implications on Thailand and recommendation
• Implications to the ASEAN Steel Industry
1
The apparent steel use has increased on average 7.6 percent per year.
It has a strong positive correlation with the economic growth
Thailand apparent steel use (‘000 Tonnes)
CAGR 10/00 (%)
16,000
13,876
12,661
12,000
14,012
13,581
14,000
7.6 %
12,716
12,154
10,967
10,758
10,049
10,000
8,031
7.6 %
7,607
8,000
6,762
5.3 %
5,960
6,000
3,837
4,000
2,000
-0.1 %
0
Production
Import
 Economic recovery &
growth
 Construction boom
Source: Iron and Steel Institute of Thailand
Export
Apparent Use
 Economic
slowdown
 Construction
contracted
 Manufacturing
growth
 Economic  Economic growth
contracted  Construction recovery
 Manufacturing boom
2
Shortage of the supply. The local production is only
30 percent of the demand. Relying on import
Thailand crude steel production and steel demand (‘
16,000
Tonnes)
14,012
13,877
14,000
10,758
12,000
10,000
8,000
6,000
3,837
4,000
5,161
5,565
2,000
0
4,145
1,814
2010E
Steel Demand
Crude Steel Production
3
Source: Iron and Steel Institute of Thailand
Thailand Steel Industry Structure
Ironmaking
Finishing & Coating
Steelmaking
Forming
End Users
Long Product
1 Mill
• TATA
(MiniBlast
Furnace)
Scrap
recycle
16 Mills
• TATA
• G Steel
• GJS
• SYS
• TRIUMP
• Etc.
Production:4.2 m T
Import:3.7 m T
Export:0.2 mT
Demand:7.7 m T
Import
Russia, Ukraine,
Turkey, Brazil
Export
Vietnam,
Philippines,
India, Taiwan
Hot-Rolling
~ 50 Mills
• TATA
• Sahaviriya
• Tycoon
• Etc.
~ 100 Mills
 Machining
Construction
54%
 Bending
 Cutting
 Welding
Production: 3.7 m T
Import: 1.7 m T
Export: 0.8 m T
Demand: 4.7 m T
 Forging
 Heat
Automobiles
and parts
16%
Treatment
 Etc.
Flat Products
Hot-Rolling
5 Mills
• G Steel
• GJ Steel
• Sahaviriya
• LPN
Production: 3.9 m T
Import: 3 m T
Export :0.3m T
Demand : 4.2 m T
Import
Japan, S. Korea,
Australia, China
Export
Vietnam,
Malaysia, Laos
Source: Iron and Steel Institute of Thailand
1,000 Mills
Cold-Drawing
Cold-Rolling
3 Mills
• SUS
• TCRSS
• Bluescope
Production: 1.7 m T
Import:0.7 m T
Export: 0.1 m T
Demand: 1.6 m T
Import
Japan, S. Korea,
Taiwan, China
Export
China, India, Italy,
Indonesia
Coating
~ 15 Mills
• Bluescope
• Thai Tin Plate
Production: 0.8 m T
Import: 2.2 m T
Export: 0.1m T
Demand: 2.9 m T
Import
Japan, S. Korea,
Taiwan, China
Export
Vietnam, Laos,
Myanmar, Hong
Kong
Machinery and
Industrial
Products
13%
Electrical
Appliances
12%
Packaging
5%
4
Thailand relies on the Non-ASEAN countries on its import
(2009)
Thailand steel trade in 2009 (Million USD)
Thailand Export
HS 72 (iron and steel)
Value
Brunei
%
Thailand Import
HS 73 (articles of I and S)
Value
%
HS 72
Value
HS 73
%
Value
%
6.38
0.00
793.48
0.02
2,714.25
0.04
14.21
0.00
Cambodia
40,399.62
3.85
30,512.50
0.76
6,616.79
0.10
184.91
0.00
Indonesia
73,718.75
7.02
129,143.29
3.22
11,496.90
0.17
53,212.92
1.37
Lao PDR
68,424.95
6.51
47,662.68
1.19
318.27
0.00
214.28
0.01
Malaysia
87,708.63
8.35
125,268.99
3.12
109,273.05
1.59
255,214.58
6.58
Myanmar
53,406.88
5.08
24,843.72
0.62
78.29
0.00
466.12
0.01
Philippines
26,680.29
2.54
58,046.00
1.45
18,101.81
0.26
29,539.82
0.76
Singapore
55,928.44
5.32
160,714.90
4.00
71,967.47
1.05
254,174.64
6.56
Vietnam
180,535.93
17.19
109,145.29
2.72
19,962.32
0.29
17,486.65
0.45
ASEAN
586,809.85
55.86
686,130.85
17.09
240,529.14
3.50
610,508.12
15.75
Non ASEAN
463,637.42
44.14
3,329,296.37
82.91
6,638,215.77
96.50
3,265,939.81
84.25
1,050,447.28
100.00
4,015,427.21
100.00
6,878,744.91
100.00
3,876,447.93
100.00
World
5
Source: WITS
Thailand is capable of producing commercial grade,
but needs to import quality grade!
Thailand steel import in 2010 (Tonnes)
Products
Rebar
Bar
Cold Drawn Bar
Long
products Wire Rod & Wire
Hot-Rolled Section
Capability
to produce
Volume in 2010 (Tonnes)
Main countries
x
Very low
-
Few amount
523,128
Japan, China, S. Korea, Taiwan
x
69,272
Japan, S Korea, India, Italy
x
916,232
China, Japan, Taiwan, S. Korea, Brazil
x
12,607
Japan, China, UK, S. Korea
196,623
China, Japan, Italy
Seamless Pipe
HRC & HRP
Import
x
1,923,815
Japan, S. Korea, China, Austraila, Taiwan
Few amount
1,056,009
Japan, S. Korea
CR Carbon Steel
x
684,055
Japan, S. Korea, China, Taiwan
CR Stainless Steel
Flat
products Galvanized & Pre-Painted
x
327,916
Japan, S. Korea, China, Taiwan
x
1,515,500
Japan, China, S. Korea, Taiwan
Zn-Al & Pre-Painted
x
123,948
China, Taiwan, S. Korea, Japan
TP & TF
x
253,177
China, S. Korea, Taiwan, Belgium, Netherlands
Cold-Formed Steel Section & Pipe
x
147,552
Italy, Japan, China, Taiwan, S. Korea
HRC P&O
6
Some Evidences
• The demand for steel is positively related to the
economic performance. Obvious! Construction shares
more than half of total demand while automobiles,
machineries, and electrical appliances share over ten
percent
• Due to the shortage of supply, imports are mostly from
non-ASEAN countries; China, Japan, Korea, Australia,
Taiwan, Russia, and eastern European countries.
• Local production for commercial grade, not quality
grade
• Exporting some HS 72 (iron and steel) to ASEAN members
• Exports to non-ASEAN countries with different
destinations from one year to another
7
Contents
• Current Steel Industry Situation
• Consequences from the ASEAN Economic
Community
• Implications on Thailand and recommendation
• Implications to the ASEAN Steel Industry
8
Milestones of ASEAN
Bangkok
Declaration
40th Anniversary of ASEAN
Cebu The Philippines
INDONESIA
AFTA
PHILIPPINES
Declaration of ASEAN
Concord II
Bali Indonesia
SINGAPORE
MALAYSIA
ASEAN Community
VIETNAM
CAMBODIA
THAILAND
1967
1984 1992
BRUNEI DARUSSALAM
1995
1997
1999
2003
2007
2015
MYANMAR
LAOS
9
AEC
• Single market and production base (goods,
services, capital, skilled workers, and investment)
• Competitive economic region (Competition policy,
IPRs, tax harmonization, e-commerce, and basic
infrastructure)
• Equitable economic development (CLMV)
• Integration with the global economy (ASEAN plus
and plus plus and global production networking)
10
Overview of the ASEAN Economic Community
characteristic
AEC
Single Market and
Production base
objective
Free flow of goods
services, investment,
and skilled labor
To create a stable, prosperous
and highly competitive ASEAN
economic region
Freer flow of capital
11
Single market and production base
12
ATIGA (ASEAN Trade in Goods Agreement)
Tariff Measures
ASEAN 6
2003
zero tariff for 60% of IL
2007
zero tariff for 80% of IL
2010
zero tariff for 100% of IL
CLMV
2003
VN with 0-5% for substantial items
2007 LS and MYR with 0-5% for substantial items
2010
CAM with 0-5% for substantial items
2015
zero tariff for 100% of IL
IL = Inclusion list
13
ATIGA (ASEAN Trade in Goods Agreement)
Non-Tariff Issues
o Elimination of non tariff barriers
• Technical Barriers to Trade (Standard,
testing procedure, … )
• Custom valuation
• ….
o Rule of Origin
o Trade Facilitation
14
AEC and Potential sectors for Thailand
Automotive
& Parts*
Tourism Hub
Electrical &
Electronics*
Food Production
Hub (packing*)
Manufacturing &
Assembly Hub*
Machinery and
Metalworking
Production Base*
Source: Thai Federation Industry
5/6 potential sectors involve steel industry
15
Comparison Thailand and its ASEAN Partners in steel industry
• Thailand
o the largest steel market in region
o capable of producing various steel products as compared to ASEAN partners due
to the FDI and joint venture steel mills (Korea/Japan/india)
• Malaysia
o strong in rebar, wire rod, wire, galvanized steel and steel pipe market
• Indonesia
o strong in rebar, wire rod, hot-rolled coil and hot-rolled plate market
o attract new investment from global steel players as huge market potential and its
prosperous economy
• Singapore
o strong in rebar and wire rod and strong steel trader in heavy section, seamless pipe
and galvanized steel
• Vietnam
o strong in rebar, cold-rolled coil and zincalume market
o Booming steel market in Vietnam is expected after it survives the volatile
economic period
• Philippines steel production serves local market, no role in export
16
Recalling the AEC: growth driven within
ASEAN and attracted Non-ASEAN
• Single market and production base (goods,
services, capital, skilled workers, and investment)
• Competitive economic region (Competition policy,
IPRs, tax harmonization, e-commerce, and basic
infrastructure)
• Equitable economic development (CLMV)
• Integration with the global economy (ASEAN plus
and plus plus and global production networking)
17
Methodology
• Constructing the value chain from upstream to
downstream of Thai Steel Industry base on HS 72 and 73
at 4-6 digits
• Scope of study on the Five Selected industries
• Policy gap analysis
o AEC factors affecting the supply and demand conditions
o Non-AEC factors (other than ASEAN) affecting demand and supply conditions
• Integrated five selected industries to evaluate the
opportunity and threat of the Thai steel industry for each
product item
• Grouping the iron and steel products and indicate the
National strategies towards the AEC
• Identifying policy implications or what to be done at the
ASEAN level
18
Figure 1: Supply chain of steel and automotive industry
Ironmaking
Mini-Blast
Furnace
Steelmaking
Billet
production
by EAF
process
Bar – Carbon, Alloy
Wire Rod –
Carbon, Alloy
Scrap
Downstream Industry
Finishing
Cold Drawn Bar – Carbon,
Alloy
Steel Wire Carbon, Alloy
Wire Products Carbon, Alloy
Crank shaft
Fastener, Tire Cord
Slab production
by EAF process
HRC for Direct Use –
Carbon, Alloy
HRC P&O)– Carbon,
Alloy
Welded Pipe – Carbon,
Alloy
HRC for Cold Rolling
Layer 1: Supply
Chain
CRC
Galvanneal
Hot-Rolled Stainless Steel
Sheet
Cold-Rolled Stainless
Steel Sheet
Chassis, Wheel rim,
Wheel rib
Shock absorber
Bumper, Seat
Outer Body
Exhaust Pipe, Decorative
Item
19
Figure 2: Factors from AEC to auto-related steel industry
Supply Factors
Ironmaking
Steelmaking
Mini-Blast
Furnace
Scrap
Demand Factor
Billet
production
by EAF
process
Slab
production by
EAF process
Wire Rod –
Carbon, Alloy
ASEAN producers
can’t do this
product, need to
import from outside
ASEAN
Steel Wire
- Carbon,
Alloy
HRC for Cold Rolling
ASEAN producers can’t do this
product, need to import from
outside ASEAN
Process which Thai
producer can not
produce or capable
with limited grade
and very small
amount
Process which Thai
producer capable to
do
Cold Drawn Bar –
Carbon, Alloy
Local producer capable
to produce this product
(most are Japan JV
company)
Bar – Carbon, Alloy
ASEAN producers can’t do
this product, need to import
from outside ASEAN
HRC for Direct Use –
Carbon, Alloy
ASEAN producers can’t
do this product, need to
import from outside
ASEAN
Layer 2: AEC
Factors
Downstream Industry
Finishing
Wire Products Carbon, Alloy
+ Trade Facilitation for
import and export
automobile and parts
will cut more costs
HRC P&O - Carbon
ASEAN producers can’t do
this product, need to import
from outside ASEAN
Welded Pipe - Carbon
CRC
Thai producers are so strong,
but more treats from Vietnam in
the near future
Galvannised Steel Sheet
ASEAN producers can’t do this
product, need to import from
outside ASEAN
Hot-Rolled Stainless Steel
Sheet
ASEAN producers can’t do this
product, need to import from
outside ASEAN
- Tax level in each
country is the main
non-tariff measures
Cold-Rolled Stainless Steel
Sheet
Thai producers capable in
popular grades. Vietnam and
Malaysia will come out in the
near future
+ Each country in
ASEAN will buy more
automobile after AEC
that induce more
production and trade
level
Impact for each
company depends
heavily on policy from
headquarter (outside
ASEAN)
20
Figure 3: Factors from AEC Plus to auto-related steel industry
Supply Factor
Ironmaking
Demand Factor
Steelmaking
Mini-Blast
Furnace
Billet
production by
EAF process
Finishing
Slab
production by
EAF process
Steel Wire - Carbon,
Alloy
Local producer
capable to produce
this product (most
are Japan JV
company)
HRC for Direct Use –
Carbon, Alloy
Import from Japan,
Korea, Taiw an
HRC for Cold Rolling
Import from Japan, Korea, Taiwan
Process which Thai
producer capable to
do
Wire Products Carbon, Alloy
Local producer
capable to produce
this product (most are
Japan JV company)
Hot-Rolled Stainless Steel Sheet
Import from Korea, Japan, S. Africa
and Europe
Impact from AJCEP
Japan is still major
investor in this region
by focusing on Thai,
Indonesia and
Philippines and will
expand more in the
future, especially after
Tsunami.
HRC P&O – Carbon, Alloy
Import from Japan, Korea,
Taiw an
Welded Pipe - Carbon
Local producer capable to
produce this product (most
are Japan JV company)
CRC
Korean and Taiw anese steel
company invests in Vietnam
Galv annised Steel Sheet
Import from Japan and Korea.
More investment project will ask for
approve. Now there are new
investment from Japan to Thai
Layer 3: External
Factors
Process which Thai
producer can not
produce or capable
with limited grade
and very small
amount
Cold Draw n Bar – Carbon,
Alloy
Local producer capable to
produce this product (most
are Japan JV company)
Bar – Carbon, Alloy
Import from Japan, Korea, Taiwan.
Gradually increase of import from
China and India
Wire Rod –
Carbon, Alloy
Import from
Japan and
Korea
Scrap
Downstream Industry
Cold-Rolled Stainless Steel
Sheet
Korean steel company has
invested in Vietnam and JV
between Japan and EU
companies will go to Malaysia
Car and truck import
will expand continually
from ASEAN Plus
FTAs
Japan set Thai for
their be production
base in automotive
sector for ex port,
especially under FTAs
e.g. Thai and ASEAN,
and with India,
Australia
21
Contents
• Current Steel Industry Situation
• Consequences from the ASEAN Economic
Community
• Implications on Thailand and recommendation
• Implications to the ASEAN Steel Industry
22
Implications on the selected downstream industries: Thailand
Automobiles
 ASEAN countries demand more automobiles as the AEC that induces more
production and trade level
 Thailand is center of ASEAN production hub for automobiles
 New investment from big auto assembly companies also eye on Thailand
and Indonesia (even with the flooded situation)
 Most of steel products are imported mainly from Japan and South Korea
(quality and security of supply chain)
Electrical Appliances
 Thailand is center of ASEAN production hub in Air-conditioner, Refrigerator,
Washing machine and HHD (60% of global production, but gone with the
flood for the time-being)
 Malaysia is center of ASEAN production hub in LCD, and LED
 South Korea has invested significantly in ASEAN in the past few years while
Japan has been investing since 1980s
 ASEAN steel producers can serve in some products, while imported quality
steel products mainly come from Japan and South Korea
23
Implications on the selected downstream industries: Thailand
Machinery
 Fossil and renewable energy boom have driven new investment in oil & gas
and petrochemical plants
 New regulation for double hull ship will drive steel plate demand
 A lot of new investments from global construction and agricultural
machinery assembly companies will allow Thailand to be the hub
 Most of steel quality grades are imported
Canned food
 Thailand is center of world food factory
 Canned food output has been grown up slightly but limited by seasonal
factor of materials such as fruits and seafoods
 Mechanization of agricultural process will increase more output in canned
food
 All ASEAN tin-plate and tin-free steel producers are Japan-joint venture
firms
24
Implications on the selected downstream industries Thailand
Construction
 Largest steel consuming sector in every ASEAN country
 Great opportunity from the ASEAN connectivity project
 Still to be liberalize to foreign investment except Singapore
 Most of steel usage can supply by local producers
 Every country set its own mandatory standard in steel for construction
25
Opportunity
 Potential of steel demand growth from new investment in
construction and manufacturing sectors
 Rising steel demand in Cambodia, Laos and Myanmar which
nearby Thailand
 Relocation of Japan automotive to Thailand
 Potential to produce higher value steel to replace imports with JV
of non-ASEAN countries
Threat
 Non-Tariff measures among ASEAN members (standard)
 Higher cost from new regulations in environment and energy usage
 Rising of steel and steel products import from China (commercial
grades)
26
Strategy 1: Improve the Potential of High-Grade Production that are
currently imported (import substitution)
Strategy 2: Strengthen Potential Producers
Strategy 3: Fulfill the Missing Gap in the Supply Chain
Strategy 4: Establish “an immunity” for Domestic Producers
27
Strategy 1: Improve the Potential of High-Grade Production
that are currently imported (import substitution)
Product group
 All downstream steel products which have not yet produced in Thailand as a
result of an inadequate technology
Product type
 Long product: Seamless Pipe
 Flat product: Electrical Steel Sheet, Hot-Dip Galvanized Steel Sheet – Zero
Spangle, Hot-Dip Galvanized Steel Sheet – Galvanneal, Hot-Dip Galvanized
Steel Sheet – Galfan, and Hot-Dip Galvanized Steel Sheet – HRC Based and
Color & Plastic Coated Steel Sheet
Strategy
 Government should not only allow an import but also lower barriers as well
as facilitate the import from ASEAN members.
 To encourage domestic investment in the Iron and Steel Industry and
establish a production network among ASEAN members
28
Strategy 2: Strengthen Potential Producers
Product group
 Potential products which are currently exporting to ASEAN market.
Product type
 Long product: include Rebar, Hot-Rolled Small Steel Section, Hot-Rolled
Heavy Steel Section, Cold Drawn Bar, Steel Wire
 Flat product: Hot-Rolled Steel Sheet for Direct Use, Cold-Rolled Steel Sheet –
GIS, Hot-Dip Galvanized – Normal Spangle & Pre - Painted, Galvalume Steel
Sheet & Pre – Painted and Welded Carbon Steel Pipe
Strategy
 Facilitating aforementioned products to export and fully utilize benefit from
the ASEAN Economic Community.
 Encouraging a creation of trade and distribution network and supporting
joint venture. As a result, we could better expand and access the ASEAN
market.
29
Strategy 3: Fulfill the Missing Gap in the Supply Chain
Product group
 Steel products at the upstream of the long supply chain; these products
could not produce domestically or we could produce only a limit amount of
commercial-grade products as we could not secure enough supply of high
quality raw materials
Product type
 Long product: Bar, Wire Rod
 Flat product: Hot-Rolled Steel Sheet – P&O, Hot-Rolled Steel Sheet for
Subseqence Cold Rolling, Hot-Rolled Steel Plate and Hot-Rolled Stainless
Steel Sheet & Plate
Strategy
 The government should promote an investment in the upstream industry
(Ironmaking) in Thailand.
 Establishment of raw material network, trade and distribution network, and
cooperation mechanism among steel producers and related industries
30
Strategy 4: Establish “an immunity” for Domestic Producers
Product group
 Products which suffered from the loss of competitiveness due to high costs or
import competing products
 Most of these products have been imported from ASEAN major dialogue partners
especially the People’s Republic of China which is the major producer who is
suffering from overcapacity problem.
 ASEAN members are currently involving in new investment projects; consequently,
these countries are likely to be our competitors in the year to come especially when
we will be fully integrated in 2015.
Product type
 Long product: Rebar, Steel Wire, Wire Product
 Flat product: Hot-Rolled Steel Sheet for Direct Use, Hot-Dip Galvanized – Normal
Spangle & Pre - Painted, Galvalume Steel Sheet & Pre – Painted, Electro-Galvanized
Steel Sheet, Tin – Plated Steel Sheet, Tin-Free Steel Sheet, Cold – Rolled Stainless
Steel Sheet and Welded Stainless Steel Pipe
Strategy
 Strengthening producers in this group of products so that they could lower their
costs and improve their production processes which would eventually help them
compete and export to the ASEAN market.
31
Contents
• Current Steel Industry Situation
• Consequences from the ASEAN Economic
Community
• Implications on Thailand and recommendation
• Implications to the ASEAN Steel Industry
32
ASEAN external economics relations
ASEAN-EU
ASEAN-China FTA
ASEAN-Korea FTA
ASEAN-Japan CEP
AEC
ASEAN-India FTA
ASEAN-AustraliaNew Zealand FTA
33
Implications to the ASEAN Steel Industry
Private sector roles
 Steel trade center/network
 ASEAN Joint Venture Firm
 ASEAN Holding Firm
Government roles
 Rule of Origin (ROO)
 Mutual Recognition Agreement
 Trade Facilitation
 New investment in high grade steel product
 Preparation for new trade regulations
Steel association/institute can play roles in
 Cooperation with private sector and government to create solid and fast action
 Data center in trade statistics, trade regulations, and insightful market
information
34
Implications to the ASEAN Steel Industry
 ASEAN plus three and ASEAN plus six
 ASEAN is a channel to access to high potential markets like
China and India
 ASEAN centrality for the East Asia
 Enhancement cooperation of ASEAN members is the key to sustain
the ASEAN steel industry under competition from global steel
companies
35