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CONF: ASEAN steel industry coping with COVID-19

The COVID-19 pandemic has imposed a devastating impact worldwide including the ASEAN region, but with the prompt and effective coping measures, the prognosis for the steel industry in the region in the post-pandemic era might not be as bleak as expected, Yeoh Wee Jin, secretary general of the South East Asia Iron & Steel Institute (SEAISI), shared when presenting at the 2020 SEAISI e-Conference on June 30.

With the ASEAN countries’ efforts to rescue their economies from COVID-19, “I am sure there will be more positive results,” Yeoh maintained.

Having coped with several crises over the past two decades including the Asian financial crisis in 1998, the severe acute respiratory syndrome (SARS) epidemic in 2003 and the global financial crisis in 2008, ASEAN governments can now “better manage” their economies, he pointed out. Steel consumption will likely take a “shorter time” to recover from the coronavirus crisis, he predicted confidently.

ASEAN economies, steel-consuming sectors hit hard by COVID-19

The economies and steel consuming sectors of the ASEAN-6 countries – comprising Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam – have been seriously affected by the pandemic this year, according to Yeoh, particularly the construction sector which accounts for 73% of steel use among the ASEAN-6. Building projects have stalled throughout the region due to various lockdowns and restrictions, he noted.

The six ASEAN countries saw their GDP growths slow significantly in the first quarter of 2020 against strong growths last year, with Singapore, Thailand and Philippines even seeing negative growths.

This is also the case with the construction sector where only Vietnam among the six countries that recorded growth in construction activity during January-March – rising 5.2% on year – while the building industries in the others declined by varying degrees, according to the data Yeoh presented.

GDP growth 2019 (%)

GDP growth Q1 2020 (%)

Construction Growth 2019 (%)

Construction Growth Q1 2020 (%)

Indonesia

5

3

5.8

-6.9

Malaysia

4.3

0.7

-1

-6.3

Philippines

5.9

-0.2

9.4

-1.8

Singapore

0.7

-2.2

2.1

-4

Thailand

2.4

-1.8

2

-9.9

Vietnam

7

3.8

9.1

5.2

Source: Various ASEAN countries’ statistics

Automobile production and sales, another key consumption sector for steel across the region, are also decidedly in the slow lane for now, he indicated to delegates. Motor vehicle sales throughout ASEAN began weakening during H2 2019, and during Q1 this year fell 19% on year to 701,000 units, Yeoh noted, warning that the remainder of 2020 will be challenging for this industry. The automotive sector accounts for 11% of ASEAN steel demand.

Not just autos, manufacturing generally throughout the ASEAN-6 also experienced a third straight month of decline in May, even though the falloff was less severe than in April because several governments had relaxed some of the strict lockdowns and other measures imposed earlier on their citizens to curb the spread of the contagion, according to Yeoh.

A V-shape recovery?

Although COVID-19 and efforts to contain it have severely disrupted regional commerce and industry, the countries of ASEAN are expected to see V-shape recoveries in the economic growth – as well as steel consumption – after the peak of the virus passes, Yeoh maintained.

“The ASEAN-6 economies have been resilient since the Asian financial crisis,” he told delegates, reminding them that it did not take long for the countries to bounce back to vibrancy from the economic challenges that followed including SARS and the global financial crisis.

During the 1997-1998 Asian financial crisis, countries in the ASEAN region took an average of six years – some longer, some shorter – for their steel consumption to return to the levels prior to the crisis. However, after the SARS outbreak in 2003, most only required one year for their steel sectors to regain their health, and a year to recover from the global financial crisis later, according to him. Now amid the coronavirus crisis, with better management by their governments, the time needed for recovery may be even shorter, he argued.

Yeoh noted that as of June 16, the ASEAN-6 countries had announced the introduction of economic stimulus packages equivalent to $332 billion.

Apparent steel consumption among the ASEAN-6 is expected to dip to 79.3 million tonnes in 2020, down 2.1% from the 81 million tonnes in 2019, according to SEAISI estimation. However, in 2021 consumption is forecast to rebound strongly to 83.2 million tonnes.

Opportunities, threats to ASEAN steel trade remain

The pummelling their economies have received from COVID-19 has forced most policy planners throughout the region to return to basics and seek out export markets in order to counter the declines in domestic demand. This strategy presents both opportunities and threats to ASEAN, especially in terms of steel trade with China, Yeoh pointed out.

Over January-April, ASEAN exported a total of 4.8 million tonnes of steel products. Among the major items, long steel products (especially wire rod) accounted for 31%, flat products including hot-rolled coil and plate occupied 29%, semis took 24% and steel scrap 7%, Yeoh shared.

China was the largest receiver of ASEAN steel exports except for countries within the ASEAN-6 grouping itself. Within the total, 24% of the 4.8 million travelled to China as the country was among the first of the major economies to emerge from the COVID-19 crisis. In the China-bound exports, 14% were semis, followed by wire rod (5%), according to him.

Malaysia, Vietnam and Indonesia were major exporters to China during the lockdown periods, with Malaysia mainly exporting bars and wire rods, according to Yeoh. Vietnam supplied large quantities of billets and slabs, whereas Indonesia exported mainly stainless steel and cold-rolled coils.

ASEAN steel exports to China

Products

Jan-Apr 2019          ('000 t)

Jan-Apr 2020         ('000 t)

Change

Semis

179

824

360%

Billets

4

447

Slabs

5

314

Blooms, beams

100

0

Others

70

64

Finished steel

204

326

59.8%

Bars

1

134

Wire rods

0

63

Cold-rolled coils

29

85

Others

174

45

Total

382

1,150

201%

 Source: SEAISI

At the same time, ASEAN fears a repeat of the ‘Export Tsunami’ from China that the countries’ steel sectors witnessed over 2014-2017. However, though the region’s steelmakers cite the high steel inventories China is carrying currently and Beijing’s rises in tax rebates since March 20 to highlight their concerns, over January-April China’s exports to ASEAN decreased 12.1% on year to 5.9 million tonnes.

China's steel exports to ASEAN

Product

Jan-Apr 2019          ('000 t)

Jan-Apr 2020         ('000 t)

Change (%)

Sections

365.4

343.2

-6.1

Bars

429.2

340.3

-20.7

Wire rods

941.7

600.6

-36.2

Plates

783.3

537.4

-31.4

Hot-rolled coil/sheets

1,196.7

946.2

-20.9

CR products

452.1

344

-23.9

Coated sheets

1,841.9

1,997.9

8.5

Pipe & Tubes

444.8

451.6

1.5

Others

309.2

383.5

24

Total

6,765

5,945

-12.1

Source: SEAISI

As of June 24, China’s steel stocks totalled 20.5 million tonnes, according to Mysteel’s databank. Though this represented a huge fall of 47.3% from the historical high recorded in mid-March, the stocks nonetheless were still 27.1% higher on year.

Meanwhile, the possibility of foreign investment in ASEAN causing a surge in upstream and downstream steel facilities remains a crucial threat to the region’s steel industry, Yeoh pointed out. If all the integrated steel mill projects planned for the region take shape, ASEAN will face risks of overcapacity with more than 61.5 million tonnes/year capacities coming on stream in the next few years, requiring around 18.9-20.4 years for consumption to catch up, he noted, adding that the COVID-19 situation had worsened the scenario substantially. ASEAN now hosts 89.4 million t/y of crude steel capacity.

Written by Olivia Zhang, zhangwd@mysteel.com

Edited by Russ McCulloch, russ.mcculloch@mysteel.com



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