China's steel layout in Southeast Asia
While actively dissolving production capacity, while facing the threat of tariffs from the United States, Chinese companies have invested huge sums of money in planned steel and coal projects, and they are fighting for new markets by transferring production to Southeast Asia.
It is estimated that in the new steel projects in Indonesia and Malaysia, 32 million tons of annual production capacity is funded by Chinese steel companies, which is equivalent to more than 40% of the steel consumption of the ten ASEAN countries in 2016.
According to China Minmetals Corporation, a few days ago, the No. 2 blast furnace of Formosa Plastics Vietnam Hajing Iron and Steel Co., Ltd. built by the company was successfully ignited and put into operation, marking the successful completion of the plant's two 4,350 cubic meters blast furnace projects.
The steel plant is the largest investment project in Vietnam to date and the largest steel conglomerate in Southeast Asia, with a total investment of 23 billion U.S. dollars. The final planned production capacity is 21.85 million tons and the first-phase project capacity is 7.1 million tons.
Chinese companies have also invested in steel-related industries, such as iron ore and nickel. Nickel is a raw material needed in the production of stainless steel.
According to reports, Tsingshan Holding Group received a US$384 million loan from the China Development Bank (CDB) to fund the expansion of a low-grade nickel smelter with an annual production capacity of 1.5 million tons in Indonesia.
Hebei Xinwu'an Iron and Steel Group and China Metallurgical Overseas, a construction company under the Chinese state-owned commodity giant China Minmetals Corporation, are cooperating to build a 3 billion U.S. dollar comprehensive resource-utilizing steel company in Malaysia that includes a coking plant, a cement plant and a steel plant.
According to analysts, the biggest reason why Chinese steel producers are looking overseas is the hope that they can directly produce and sell in fast-growing markets.
Indeed, the Southeast Asian steel market has huge potential, and Southeast Asia is the main global steel import market.
According to China Steel Net, statistics from the World Steel Association show that in 2017, Thailand imported 12.6 million tons of steel, becoming the world’s second largest net importer of steel after the United States; Vietnam’s net import of 12.3 million tons of steel ranked the world’s largest. Third place; among other Southeast Asian countries, Indonesia has a net import of 8.7 million tons of steel, the Philippines has a net import of 7.3 million tons of steel, and Malaysia has a net import of 6 million tons of steel. The net steel imports of the above five Southeast Asian countries in 2017 reached 46.9 million tons, which shows the imbalance of steel supply and demand in Southeast Asia.
In terms of demand, the economies of Southeast Asian countries started relatively late and their economic foundations are generally relatively weak, especially the development of the steel industry is lagging behind.
However, in recent years, with the deepening of economic globalization and the continuous adjustment of the division of labor in the global industrial chain, cheap human resources and other factors in Southeast Asia have attracted a large amount of investment, which has accelerated the process of industrialization in the region to meet the domestic demand-based construction industry and construction industry. The rapid development of manufacturing and processing industries, which are mainly export-oriented to meet foreign demand, has driven the continuous growth of steel demand.
It is estimated that the demand for steel in the 10 ASEAN countries (Malaysia, Indonesia, Thailand, the Philippines, Singapore, Brunei, Vietnam, Laos, Myanmar and Cambodia) reached 70 million tons in 2017 and is expected to grow to 80 million tons in 2018.
In terms of supply, the structure of the iron and steel industry in Southeast Asia presents the following characteristics: ironmaking production capacity is limited; steelmaking is dominated by electric arc furnace steelmaking, with very limited production capacity; steel rolling capacity is relatively large, and continuous investment has been achieved in recent years. Production capacity is growing rapidly, but the deep processing capacity of steel to increase the added value of products is insufficient.
Therefore, for a long time, rolling mills in Southeast Asia are more willing to import low-priced billet and rolled products from abroad, which has resulted in the long-term failure to develop iron-making and steel-making capabilities in the region. According to statistics, in the past 10 years, the utilization rate of crude steel capacity in ASEAN countries has continued to decline, gradually falling from 80% to less than 50%.
Second, the pressure on China's steel exports to the Southeast Asian market has increased sharply.
According to statistics from the China Iron and Steel Association, in 2017, China exported about 75.41 million tons of steel, a year-on-year decrease of 33.08 million tons, a decrease of 30.5%; exports of steel to ASEAN were 23.25 million tons, a year-on-year decrease of 15.69 million tons, a decrease of 40%. However, even if the export volume drops sharply, ASEAN is still China's largest steel export destination market. In 2017, China's steel exports to ASEAN accounted for 30.8% of total exports.
There are three reasons for the sharp decline in the volume of steel exports to ASEAN:
First, China has achieved remarkable results in reducing steel production capacity;
Second, China's domestic steel market rebounded sharply in 2017, with prices rising steadily, and steel companies' export pressure and willingness have declined to a certain extent;
The third is the growth of domestic steel production in ASEAN. Take Vietnam, the largest steel producer in ASEAN, as an example. In 2017, Vietnam's crude steel output reached 11.5 million tons, an increase of 3.8 million tons from 2016, ranking 18th in the world.
Not only have to face competition from local steel companies, Chinese steel products are also squeezed by other competitors in the Southeast Asian market. In the field of high-end products, Japanese and Korean products have obvious advantages, and these two countries value the development potential of the Southeast Asian market. It is difficult for Chinese steel products to shake the position of Japanese and Korean products in the Southeast Asian market in a short period of time.
High quality and low price are one of the major advantages of Chinese steel products galloping into the Southeast Asian steel market. However, in recent years, the CIS countries have highlighted their cost advantages due to low raw material costs, vertical integration of steel enterprises, and currency depreciation. The freight is higher, and its price still has greater appeal to the Southeast Asian steel market.
In 2017, the CIS countries exported about 5 million tons of steel to ASEAN, only about 200,000 tons lower than in 2016. The decline is much lower than that of China, which shows that it has formed a competitive advantage in the Southeast Asian market and occupied a stable market. .
Achieve win-win cooperation on the "Belt and Road"
In fact, Southeast Asian countries can be said to "love and hate both" in their attitudes towards China's imports of steel products. On the one hand, the country’s economic development requires support from China’s high-quality and low-cost steel products; on the other hand, it is feared that the large-scale import of Chinese steel products will affect the development of the country’s steel industry.
Paul Bartholomew, Senior Editor-in-Chief of S&P Global Platts, an energy and commodity information group, pointed out that “As many countries develop, they want to be self-sufficient and have their own "Steel industry", despite the overcapacity of steel worldwide, this pursuit of self-manufacturing continues.
Therefore, the steel industries of China and Southeast Asian countries can achieve "vertical complementarity".
At present, China’s steel industry has accumulated a lot of experience in technology, production, planning, construction, etc. However, the Southeast Asian steel market is booming and needs "Chinese experience" to help, coupled with the huge potential market demand. Can achieve complementary and mutually beneficial win-win development.
At the same time, Chinese steel companies and downstream steel companies can use their own capital and technological advantages, use effective financial means to avoid potential risks, and directly invest in Southeast Asia or build joint ventures with local companies.
At present, the development of construction industry and infrastructure construction in Southeast Asian countries is in urgent need of steel. In addition, the iron and steelmaking capacity in the steel industry chain is still obviously insufficient. These are the areas where Chinese steel companies’ products and technologies are relatively mature. Giving full play to their own advantages and achieving win-win cooperation on the “Belt and Road” provides a broad space.
Southeast Asia secretly reduces imports of Chinese steel
China is the world's largest steel producer, consumer and exporter, but this year it has frequently encountered obstacles in exports, and recently even faced a reshuffle of the export market. Southeast Asia has always been an important steel export market for China. Data tracked by MEPS, a British steel consultancy, shows that a quarter of China’s steel exports were exported to Southeast Asia last year. This scale has dropped by 45% compared with the previous year. In the first quarter of 2018, it dropped by three. One part. At the same time, there is a set of data that catches the eye: 90% of the Vietnamese steel exported to the United States is actually produced in China. The relationship between these two sets of data reveals the real reason for the sharp drop in China's exports to Southeast Asia.
The U.S. tariff policy has caused difficulties for important steel exporters. China, as the largest steel exporter, only exports 1% of steel to the United States. A large amount of steel is actually exported to Southeast Asia. The key point is that Southeast Asia transfers steel purchased from China to the United States. So when the tariffs came, Southeast Asia, especially Vietnam, was afraid of pressure from the United States, saying that it was likely to stop importing steel from China to avoid affecting Vietnam’s exports to the United States.
Although I don’t know how much benefit Vietnam’s decision can bring for it, for China, this seemingly compelling turn may be an opportunity for transformation: shifting the market from Southeast Asia to South America and Africa with greater consumption potential.
The most intuitive phenomenon is that Southeast Asian countries, including Vietnam, Indonesia, and Malaysia, are increasingly expanding their steel production capacity, which will eventually reduce import demand. At the same time, the continuous influx of "big sellers" such as Russia and India has made the entire Southeast Asian steel market saturated and crowded. At this time, China took the lead in changing targets, developing emerging markets, South America and Africa, and prioritizing market share.
Last year, South America and Africa together accounted for 8% of China's steel exports. This year, the volume of Chinese steel sent to some of these countries has increased significantly. China's steel exports to Nigeria, its largest African buyer, increased by 15% in the first quarter, and its exports to Algeria nearly tripled. In South America, China’s exports to Brazil jumped by 40%, and its exports to Bolivia increased almost nine times.
Compared with the saturation of the Southeast Asian market and the many restrictions on the US market, the African and South American markets are much more tolerant of Chinese steel products, and there are few anti-dumping measures. However, where there is a market, there is competition. As Chinese exporters further penetrate into the African and South American markets, they may have conflicts of interest with local suppliers and Russian and European sellers. But don't forget that in Africa, China has a very high popularity, and the additional effects brought by infrastructure have made China Steel enjoy a high degree of recognition.
Vietnam: the rising new heights of global steel development
In recent years, Vietnam has vigorously introduced external investment on the one hand and strengthened domestic infrastructure construction on the other, which has greatly promoted the development of the local economy. At the same time, Vietnam's domestic steel demand has also increased significantly. As Vietnam's largest investment project so far, the Formosa Plastics Ha Tinh Steel Plant is put into operation this year, the global steel industry has once again focused on Vietnam. So, how about the development of Vietnam's steel industry? This issue of "Domain Appearance Tide" introduces the developing Vietnam steel industry.
In 2016, Vietnam's total domestic steel demand was 22 million tons, ranking 11th in the world. The average annual growth rate of steel demand is about 10%. It is expected to reach 30 million tons by 2020, ranking 8th to 9th in the world. Statistics from the Vietnam Iron and Steel Association show that in 2016, the size of the construction and construction market in Vietnam increased by about 10% year-on-year. The total steel consumption in Vietnam in 2016 was about 20 million tons, an increase of about 8% year-on-year. Among them, long products accounted for about 60%, and plates and steel pipes accounted for 30% and 10%, respectively. Vietnam's steel imports rank first in Southeast Asia, with an average annual import value of 8 billion U.S. dollars. Benefiting from the construction industry, Vietnam's steel demand is expected to further increase.
At present, Vietnam is vigorously implementing infrastructure construction, which has attracted the attention of the global steel industry. Many internationally renowned steel companies are seeking to invest in the construction of steel production enterprises or steel deep processing enterprises in Vietnam. With the smooth commissioning of the Ha Tinh Steel Plant, Vietnam’s largest steel project this year, and the deepening of the “Belt and Road” construction, Vietnam has become a new highland for global steel development.
Huge demand for construction steel
According to data from the Asian Development Bank, in recent years, Vietnam’s public and private infrastructure investment has accounted for an average of 5.7% of its GDP (gross domestic product), which is the highest among Southeast Asian countries. In fact, in recent years, Vietnam has continued to attract foreign investment. In 2016, Vietnam’s total foreign direct investment has surged to US$15.8 billion. According to the World Bank’s forecast, before 2018, Vietnam’s economic growth rate will exceed 6%.
In addition, BMI Research, a market research agency under the international credit rating company Fitch International Group, predicts that the construction and construction market in Vietnam will reach 13 billion U.S. dollars in 2017, an increase of 9.7% year-on-year, and the average annual growth rate in the next 10 years is expected to reach 7.5%.
With the successive commencement of residential and commercial projects in metropolitan areas such as Hanoi and Ho Chi Minh City, Vietnam’s demand for steel for construction continues to grow. A new urban redevelopment project covering an area of 15,000 hectares in Cu Chi District in the northern part of Ho Chi Minh City is underway. The People’s Committee of Ho Chi Minh City also plans to adopt a public-private partnership (PPP) by 2020 to devote itself to the development of transportation infrastructure. Expansion. The number of upgrading projects for roads, railways, and airports led by the Vietnamese government is increasing. In the 10 years before 2026, the average annual growth rate may reach 6%. According to BMI statistics, as of the end of October this year, the total number of projects approved and carried out in Vietnam amounted to US$14.49 billion.
Expansion of steel capacity and demand for scrap steel surge
In 2016, Vietnam's total crude steel output was 7.811 million tons, an increase of 38% year-on-year; the output of finished products was 17.66 million tons, an increase of 17.8% year-on-year. Among them, long products were 8.65 million tons, a year-on-year increase of 20%; cold-rolled coils were 3.67 million tons, a year-on-year increase of 25%; welded steel pipes were 2.061 million tons, a year-on-year increase of 33%; coated steel plates were 3.438 million tons, a year-on-year increase of 3%. In 2016, the apparent consumption of steel in Vietnam reached 22.66 million tons, an increase of 23% year-on-year.
In the first half of 2016, the main reason for the significant increase in steel consumption in Vietnam was: speculative demand growth was greater than actual demand. At the same time, on March 22, 2016, the Vietnamese government imposed import restrictions on semi-finished steel products such as billet, resulting in a decrease in supply and sales of construction steel. Soaring. With the increase in infrastructure investment, Vietnam's domestic steel companies have also increased their equipment investment and continued to expand their production capacity.
The Formosa Group's Vietnam Ha Tinh Steel Plant is Taiwan’s first overseas steel plant investment project with a total investment of US$10 billion. Among them, the subsidiaries of the Formosa Plastics Group accounted for 70% of the shares, and the largest steel mills in Taiwan-"Chin Steel" and Japan's JFE accounted for 20% and 5%, respectively. The project has a 4,350 cubic meter blast furnace and plans to produce billets and hot rolled coils. This project will help Vietnamese domestic companies that need billet to reduce production costs and improve their competitiveness. In May 2016, the Tai Shuo Ha Ting Iron and Steel Plant was approved by the Vietnamese functional department due to the fish deaths caused by the sewage discharge from the Vietnamese government.
The blast furnace was forced to postpone its operation until May 2017 due to the demand for the payment of US$70 million in taxes.
Hoa Phat Group has a market share of approximately 20% in the Vietnamese construction steel market. It mainly produces long products and steel pipe products. Recently, it has begun to set up a coated steel plate factory. In 2016, the group's total sales amounted to approximately US$1.5 billion, of which the steel business accounted for 85%; the output of steel products (except steel pipes) during the same period was 1.8 million tons, an increase of about 30% year-on-year; exports were 52,000 tons, an increase of about 50% year-on-year. In the second quarter of 2016, its new plant in Hai Duong province started production. In order to produce steel bars and hot-rolled coils, in 2017, it invested in the construction of factories in Quang Ngai Province. In 2018, its new plant in Xing'an Province will start production, with an annual production capacity of 400,000 tons, mainly producing cold-rolled sheets, galvanized sheets and color-coated sheets.
Hoa Sen Group mainly produces cold-rolled sheets, galvanized sheets, aluminum-zinc coated steel sheets, galvanized steel pipes and other products. It has the largest market share in the flat steel market in Vietnam and the second in the steel pipe market. From 2015 to 2016, the total sales volume was 1.32 million tons and the net export value was approximately US$790 million. As one of the largest flat steel export companies in Southeast Asia, Watson Group exported a total of approximately 478,000 tons between 2015 and 2016. In order to expand the domestic market share in Vietnam, the group plans to add sales agents in 2017, and intends to invest and build factories in Henan Province and Binh Dinh Province, Vietnam.
In Vietnam, most of them are electric furnace steel enterprises, and electric furnace production accounts for about 80% of the total output. Scrap raw materials are mainly imported from the United States, China, South Korea, Japan and Taiwan. According to the analysis of the Southeast Asian Iron and Steel Research Institute, Vietnam imported about 2.5 million tons of scrap in 2015, which increased to 3.6 million tons in 2016 and is expected to increase to 4.5 million tons in 2017. It is estimated that by 2020, Vietnam will become Asia's largest scrap importer.
The state of dependence on imports will continue
Vietnam's steel market maintains a trade deficit of US$5 billion to US$6 billion each year. The deficit in 2015 was approximately US$5.8 billion, which increased to US$6 billion in 2016. The main reasons for the large scale of the steel trade deficit are: the unbalanced production of local steel products in Vietnam, in order to fully meet domestic demand, there is an oversupply of long products; the self-sufficiency rate of plate products is low, and high value-added steel products are heavily dependent on imports. Flat products account for 60% to 65% of total imports. Domestic steel companies are not yet able to produce hot-rolled coils on their own, and 50% to 60% are imported from mainland China. Up to now, imported steel can meet 60% of market demand. Statistics from the General Administration of Customs of Vietnam show that in 2016, Vietnam’s steel exports totaled US$2.029 billion, a year-on-year increase of about 20%; total imports were US$8.05178 billion, a year-on-year increase of 7.2%. The increase in steel imports is mainly attributable to the rise in the price of imported steel and the increase in import volume, especially hot-rolled coils and some alloy steels cannot be purchased locally and can only be imported. In addition, billet, coated sheet and color coated sheet are also the main imported varieties.
In the past three years, Vietnam's annual average steel imports were about US$8 billion to US$9 billion, of which hot-rolled coils accounted for about 70% of the total imports. From the perspective of the import source countries (regions), they are: 51.8% in Mainland China, 19.2% in Japan, 12.2% in South Korea, and 7.1% in Taiwan. In 2016, Vietnam imported 18.4 million tons of steel, valued at more than 8 billion U.S. dollars, and the volume and value increased by 18.4% and 7.2% respectively compared with 2015.
At present, Vietnam’s annual steel production capacity is about 30 million tons, which is at the forefront of the ASEAN region. The annual production capacity of billet, construction steel and cold rolled coils is 7 million to 8 million tons, which can fully meet domestic demand. Products such as coils and stainless steel still rely on imports. According to the calculations of the Ministry of Industry and Trade of Vietnam, even if Vietnam's domestic enterprises continue to expand their production capacity, the annual steel trade deficit will still remain at US$5 billion to US$6 billion, and the domestic steel self-sufficiency rate in Vietnam is only 40%. In order to fundamentally solve the problems of the domestic iron and steel industry, the Ministry of Industry and Trade of Vietnam planned a plan for the development of the iron and steel industry. The draft was completed in the second quarter of 2017 and formally proposed in the fourth quarter after being approved by the Prime Minister.
Vietnam's domestic steel demand will continue to grow steadily. With the rapid development of Vietnam's domestic economy, the Vietnamese government will continue to expand investment in infrastructure facilities. In 2016, Vietnam's urbanization rate was 34.6%, and there is much room for improvement. The increase in the number of urban residents will also drive the demand for urban housing. According to the Vietnam Ministry of Industry and Trade, the demand for construction steel in Vietnam will increase by 15% to 20% annually, reaching 15 million tons by 2020 and 20 million tons by 2025. Due to the lack of relevant domestic policy support, some steel products still cannot be produced on-site, and the status quo of dependence on imports will continue to be maintained.
At the same time, the Vietnamese government's restrictions on imported steel will be further strengthened. Due to the influx of imported steel, the Vietnamese government has imposed import restrictions and investigations on five types of steel products. The Vietnam Iron and Steel Association is cooperating with relevant agencies to propose to the Vietnamese government for stricter sanctions.